Main navigation

Extremely Rare Bitcoin Reversal Signal Appears On-Chain

Wed, 01/12/2022 - 11:24
article image
Arman Shirinyan
The Entity-Adjusted Dormancy Flow is showing its sixth reversal signal in the history of Bitcoin's existence
Extremely Rare Bitcoin Reversal Signal Appears On-Chain
Cover image via

Disclaimer: The opinion expressed here is not investment advice – it is provided for informational purposes only. It does not necessarily reflect the opinion of U.Today. Every investment and all trading involves risk, so you should always perform your own research prior to making decisions. We do not recommend investing money you cannot afford to lose.

Read U.TODAY on
Google News

Bitcoin's swift correction down has led to a volatility spike, which is a good sign for investors who rely on technical analysis as their main trading methodology. With increased volatility, numerous technical and on-chain indicators gave out potential reversal signals. The Dormancy Flow metric was also one of the tools that is hinting at a potential reversal on Bitcoin.

The Dormancy Flow metric in a nutshell

Dormancy Flow is the ratio of the cryptocurrency market's capitalization and the annualized dormancy value. The dormancy value is Bitcoin Destruction divided by its volume. Bitcoin Destruction reflects the volume of transacted coins by multiplying the amount of each transaction by the number of days since those coins were last spent.

Stocks Might Be Reason Behind Crypto and Bitcoin Drop, Here's Why

The metric itself can be used to determine when Bitcoin is in a bullish or bearish state. Whenever the metric reaches values close to 200,000, traders expect a reversal on the market.

Metric's performance

According to the last five signals provided by the metric, the Bitcoin shift took place after a very strong drop in the Dormancy Flow. Such a tendency could be tied to a drop in true network activity that reflects the spending behavior of Bitcoin investors.

As the true spending on the network drops significantly, the selling pressure is being considered less intensive and the asset has more opportunities to start growing again. According to the indicator, the highest spending rate in the last two years was present in the summer, when Bitcoin's price dropped from $64,000 to $29,000 in two months.

At press time, Bitcoin is trading at $42,000 after showing a 2% price increase since yesterday.

article image
About the author

Arman Shirinyan is a trader, crypto enthusiast and SMM expert with more than four years of experience.

Arman strongly believes that cryptocurrencies and the blockchain will be of constant use in the future. Currently, he focuses on news, articles with deep analysis of crypto projects and technical analysis of cryptocurrency trading pairs.