Bitcoin has been swinging wildly over recent months, seeing even higher volatility than usual.
The bitcoin price, which has had all of its 2020 gains wiped out by panic sparked by the spreading coronavirus, fell to 10-month lows earlier this month only to rebound sharply—and is now trading at around $6,000 per bitcoin.
Bitcoin and cryptocurrency investors are keenly watching for any signs of further volatility with one analyst pointing to “large increases in exchange inflows” as heralding extreme bitcoin price moves.
“Large increases in exchange inflows have proven to be a good indicator of increased volatility, so we recommend keeping an eye on the amount being transferred to exchanges,” Philip Gradwell, the chief economist at New York-based bitcoin, crypto, and blockchain research company Chainalysis, wrote in a blog post this week.
Bitcoin and crypto exchanges saw their daily inflows increase by 250% during the second week of March compared to their 2020 average, according to Chainalysis research.
From March 9 to March 16, exchanges around the world received 1.1 million bitcoin per day, 712,000 bitcoin more than average with trading activity increasing as bitcoin flowing into exchanges was sold.
Chainalysis found that bitcoin trading was driven primarily by new bitcoin entering exchanges, rather than bitcoin already held on exchanges.
“The majority of excess bitcoin arriving at exchanges has been sold, and the worst of the oversupply appears to be finished for now,” Gradwell wrote, adding that due to the “uncertainty around the COVID-19 pandemic, it’s hard to predict where the bitcoin market will go next.”
“We also expect that professional traders will continue to drive events, as opposed to retail exchange users, simply because they are responsible for much larger volumes,” Gradwell wrote.
Last month, ahead of bitcoin’s coronavirus-related plunge, research found bitcoin’s early 2020 rally was being driven by long-awaited institutional investors buying up bitcoin.
At the peak of 2017’s epic rally, bitcoin exchange deposits outpaced the bitcoin price, with bitcoin and crypto analytics firm Glassnode recording around 200,000 daily exchange deposits.
Bitcoin exchange deposits have previously increased along with the bitcoin price, with deposits falling back during bear markets, however, average bitcoin exchange deposits dropped sharply over the last six months even as the bitcoin price rose—suggesting the last bitcoin rally wasn’t driven by retail investors.