Bitcoin Market Weakening After Macro-Based Sell-Off, On-Chain Data Suggests

Bitcoin inventory is building on exchanges but there's a lack of buyers, according to a Chainalysis economist.

Sep 23, 2020 at 11:00 a.m. UTC
Updated Sep 14, 2021 at 9:59 a.m. UTC

Key bitcoin (BTC) on-chain metrics have flipped bearish this week, suggesting the top cryptocurrency by market cap may extend its recent price losses in the short term.

  • On Tuesday, the net inflow of bitcoin to exchanges (measured by the total change in exchange balances) was 36,800 BTC, according to data source Chainalysis.
  • That's the biggest single-day rise since the markets crash on March 12 sent prices to a 2020 low.
  • "Since Sept. 20, the net daily inflow of bitcoins to exchanges have been increasing and trade intensity has been declining," Philip Gradwell, an economist at Chainalysis, told CoinDesk.
  • This, he said, "indicates a weakening market."

Change in BTC held on exchanges

  • The uptick in net inflows represents an increase in selling pressure, since investors typically move coins from their wallets to exchanges when they see a possible need to liquidate their holdings.
  • Further, bitcoin's trade intensity, which measures the number of times an inflowing coin is traded, fell to a one-year low of 1.75 on Tuesday.
  • That's a sign there were not enough buyers to absorb the spiking inflow of coins.

BTC trade intensity

  • Trade intensity has declined from 4.93 to 1.75 in the last three days.
  • "There is a lot of inventory building on exchanges and fewer buyers willing to trade. These conditions tend to lead to price declines," Gradwell said.

Long-term bull bias intact

  • Bitcoin fell by over 4.5% on Monday as investors bought the safe-haven U.S. dollar, but sold equities, gold and other fiat currencies on renewed coronavirus concerns.
  • The drop set the stage for a continuation of the pullback from August highs above $12,400, according to the technical charts.
  • Immediate supports are seen at $10,000 and $9,868 (Sept. 8 low).
  • However, while bitcoin may suffer deeper declines in the short-term, the overall bias remains bullish.
  • "We are still above $10,000, only the third time bitcoin has maintained this price level for multiple weeks, and long-term investors are buying bitcoin in increasing amounts," Gradwell noted.
  • The options market is also showing bullish bias on the longer time frames.
  • The three- and six-month put-call skews remain below zero, a sign that bullish call options are drawing higher demand or prices compared to bearish put options.
  • At press time, bitcoin is trading near $10,477, up slightly on the day, according to CoinDesk's Bitcoin Price Index.


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