New Metric Suggests Imminent Volatility for Bitcoin
A new metric for on-chain activity makes this prediction by measuring exchange volumes and on-chain transaction volume together to derive a signal for inflection points in bitcoin volatility. Published to popular charting interface TradingView on Tuesday, the indicator calculates a ratio of relative dominance between bitcoin trading volume on exchanges to transaction volume happening directly on the Bitcoin blockchain.
When overlaid with price data, high on-chain transaction volume dominance over exchange volume frequently corresponds with imminent, significant price movements, or volatility. The size of these transactions can often move the market, however, and when a new trend emerges retail investors “often tend to push and extend the move by buying on exchange directly,” said Pavageau, which is reflected in increasing exchange volume that reduces on-chain volume dominance.