After encountering significant resistance around the $94,000 local high, Bitcoin has retraced to a psychological and technical key support at $90,000. Interestingly, this price correction coincides with a significant change in on-chain dynamics. Here are the details.
In a QuickTake post on CryptoQuant, pseudonymous market analyst The Enigma Trader explains that the Bitcoin market has seen an apparent temporary shift from its accumulation phase in December last year. The relevant indicator here is the Bitcoin: Exchange Netflow (Total) – All Exchanges metric, which tracks the net amount of BTC entering or leaving all centralized exchanges.
Typically, a negative reading from the metric reflects reduced inflows of BTC into exchanges, indicating that less BTC is being transferred to exchanges to be sold or “exchanged,” and that more is being withdrawn. On the other hand, a positive reading indicates that more Bitcoin is being sent out to be sold, or to be converted into other tokens, than are being withdrawn.
The Enigma Trader points out that from December last year, the netflows metric has seen a swift shift from deep negative values of –11,500 BTC to +1,100 BTC. In essence, about 1,100 BTC are sitting in exchanges, awaiting their fate. Usually, positive inflows across exchanges serve as a classic sign of imminent bearish pressure. However, the present scenario may not be so ominous.
The Enigma Trader highlights that, compared to December Outflows, the inflow volume actually reads low. Instead of outright panic selling, it is more plausible that the retracement from $94,000 is only due to mild risk reduction near a key psychological level among Bitcoin’s market participants. Basically, traders who must have accumulated BTC during its dip in December are likely taking partials, or actively repositioning as the price nears $94,000.
Considering that the BTC price fell around the same time when the netflows flipped positive, there still is a psychological battle to be won among investors. In the scenario where netflows gain towards the positive side, there could be a significant injection of bearish pressure into the market, which would in turn push prices further south.
If this happens, the $90,000 support serves as a telltale sign as to whether the short-term bias has shifted to favour the downside, or if it still continues to the bullish side of the market. If price breaks beneath $90,000, alongside growing exchange inflows, it would immediately become apparent that the predominant sentiment is bearish. On the other hand, if the price prevails above $90,000, with exchange inflows unchanging, it would suggest that the broader bullish structure is still on.
As of this writing, Bitcoin is worth approximately $90,463, with CoinMarketCap data reflecting no significant movement in the past 24 hours.
Featured image from Shutterstock, chart from Tradingview
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