Bitcoin’s trading intensity is not dead yet

Bitcoin has not looked back since rising over $ 10,000 almost a week ago. At almost $ 11,500 per pop, the highest cryptocurrency price since September 2019, the market is full of immense trading activity. So the question arises: Will it probably last?

While some would say that this surge from $ 9,500 to $ 11,500 in less than a week is too quick and fast to sustain, others claim it has been on the agenda for the past two months. Since May 2020, Bitcoin has been anchored in a narrow trading channel despite the gloomy macroeconomic situation, the halving of the block and the downward trend in the stock markets.

Aside from a brief move above $ 10,000 in early June, the cryptocurrency was trading flat, and the July 26th move not only allowed it to break out of its low dynamic channel but also trigger a wave of intense trading.

According to Chainalysis Market Insights, the move of July 26 peaked in trade intensity metrics to a massive high of 6.351. The trade intensity measures the order book trades to swap the inflow, and an increase in the metric indicates that either the order book trades are increasing, the exchange inflows are falling, or both at the same time.

On the contrary, a decline in the metric would mean that order book transactions decrease, exchange rate inflows increase, or both at the same time. As trading intensity rises during price hikes, this suggests that cryptocurrency exchanges are seeing an increase in order book business, even though traders are investing money in exchanges. An increase in trading intensity therefore indicates that "more market participants want to buy than sell", which is an overall positive sign for the Bitcoin market.

Bitcoin trading intensity | Source: Market insights into chain analysis

With a trading intensity of 6.35 Bitcoin, this meant that for every 1 Bitcoin received from the exchanges, 6.35 Bitcoin was traded. Here "traded" can either be bought or sold and does not directly refer to the cryptocurrency that is being liquidated for the fiat currency. The opposite is the likely scenario during a price drop, a time when traders want to sell their Bitcoin for cash. The average trade intensity value of 6.5 was above the 180-day average of 5.3, another positive sign.

However, the intensity soon decreased. As expected, trading intensity declined rapidly after consolidation as the original trading targets were met and the metric fell to a low of 3.87 on July 31. It should be noted that while the 3.87 value was below the 180-day average, it was still higher than in early and mid-July. As the price rose above $ 11,500 on the eve of August, the trade intensity metric rose to 4.02.

Why did the trading intensity drop so quickly despite the five-digit price? Well, given the derivation of the metric, it is likely that order book trades declined as traders pocketed their profits or exchange rate inflows increased as more traders deposited money into their respective trading accounts to benefit from the Bitcoin trend. Since BTC's exchange rate inflows on exchanges have increased, the latter is true, while the former cannot be completely ruled out.

Exchange rate inflows decreased between July 27 (change of BTC 45,800) and July 31 (change of BTC 32,600) as shown in the graph below, but increased as of August 1.

Inflow of bitcoin exchange | Source: Market insights into chain analysis

Who is responsible for increasing the trading intensity? Well, given the surge in trading intensity and the immediate decline after profits have slumped, fingers can be aimed at institutional investors. A recent Chainalysis report released on July 31 read:

"This week's activities follow a time when the markets looked like they were operating in isolation from external influences. They were largely based on the internal dynamics of professionals who trade with each other, rather than the mood of retailers or longer-term measures To be influenced by investors. "

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