Predicting Bitcoin Price Movements

Intro

Regular metrics such as RSIs, moving day averages etc. are actually highly inaccurate in predicting bitcoin movements.  This post highlights two metrics that are somewhat better. While there are several other metrics to consider, these two are probably the most reliable, as can be seen by examining historical bitcoin bullish (and bearish) moves.

Okay – what are the two metrics?

There’s TWO metrics to pay close attention to (and they are not any of the usual metrics that are used for other asset classes).  In reality, there’s more than 2. And in reality, even with these (top) TWO metrics, you are still  doing some guesswork.

BUT – having made that disclaimer, it is worthwhile looking at these TWO metrics.

The two metrics are – Exchange Flows and Miner Flows.

Exchange Flows vs. Miner Flows

Exchange Flows refers to money (FIAT) going INTO exchanges. NOT crypto going into exchanges, but Fiat (like USD, Euros etc.)

Miner Flows refers to Bitcoin going FROM miner addresses INTO exchanges. This is a CRYPTO transfer (not a FIAT transfer).

With those out of the way, let us look at how these might point  to a BULLISH bitcoin sentiment or a BEARISH sentiment.

High Exchange Flows = BULLISH  Bitcoin Sentiment

This means that lots of users are moving their FIAT to exchanges – presumably to BUY crypto. That’s a BULLISH signal. This happened, for example, right after the March 2020 (Covid) crash in bitcoin prices. Buyers moved in in hordes.

What is a good number for exchange flows?

For exchange flows, you could use a moving average and see if the current value is relatively high or low compared to the average over the past 7 days, 30 days and so on. A great tool to check exchange inflows and compare it to the mean over a certain time period is the Chainalysis Market Intel dashboard: https://markets.chainalysis.com/#trading-inflows.

High Miner Flows into Exchanges = BEARISH Bitcoin Sentiment

This means that miners are dumping their mined coins on exchanges. In itself, this isn’t  bearish (as miners need to sell frequently to support their operational costs). However, whenever large quantities of BTC are sold, there is a downward price pressure.

In march 2020, there were 1,200 BTC moved to exchanges. This is a high value for miner flows, since they collectively only produce around 900 coins in total per day.

Whale Alerts

Another related point is that the Whale Alert Twitter account (https://twitter.com/whale_alert/) provides real-time information on a transaction-level and they use $20 million transfers for BTC as their threshold for reporting these transfers. Often a single deposit to an exchange may spook the markets, depending on the amount and when the coins were last moved, and Whale Alert gives traders a heads up as soon as such transactions are brodcast. Other times it may have little to no effect on the price action.

Whale Alerts

Another related point is that the Whale Alert Twitter account (https://twitter.com/whale_alert/) provides real-time information on a transaction-level and they use $20 million transfers for BTC as their threshold for reporting these transfers. Often a single deposit to an exchange may spook the markets, depending on the amount and when the coins were last moved, and Whale Alert gives traders a heads up as soon as such transactions are brodcast. Other times it may have little to no effect on the price action.

Metrics that are frustratingly inaccurate

RSI (Relative Strength Index) – Not Quite that accurate

This indicator can be applied to Bitcoin or any other asset. However, the more volatile the asset, the less accurate this indicator is (hence, it is considerably less accurate for bitcoin price). The typical range of values lies between 30 and 70. Anything below 30 indicates the asset is oversold or undervalued, above 70 indicates it’s overbought or overvalued.

Death Cross, Moving Day Averages 

Read this article to understand how bitcoin did the exact opposite every time it formed a death cross.

Summary

Regular metrics such as RSIs, moving day averages etc. are actually highly inaccurate in predicting bitcoin movements.  This post highlights two metrics that are somewhat better. While there are several other metrics to consider, these two are probably the most reliable, as can be seen by examining historical bitcoin bullish (and bearish) moves.