On-chain data shows derivatives exchanges have recently received large Ethereum deposits, something that could lead to ETH price volatility.
Ethereum Exchange Netflow Has Seen a Sharp Spike Recently
As explained by an analyst in a CryptoQuant Quicktake post, Exchange Netflow for ETH registered a huge spike recently. “Exchange Netflow” here refers to an on-chain index that keeps track of the total amount of ETH flowing into or out of wallets associated with a centralized exchange.
If the value of this metric is positive, it means that investors are investing the full number of tokens in these platforms. How these transactions affect ETH depends on the exchange where the owners move the coins.
In the case of spot exchanges, investors tend to make deposits whenever they want to sell, so positive exchange netflows on platforms of this type can lead to a bearish effect.
With derivatives trading, which are the relevant platforms for the current discussion, the relationship with value is not usually so simple. Owners transfer their coins to these exchanges to open new positions in the derivatives market.
Since new positions are usually tied to a certain ratio, the overall risk in the sector can be assumed to increase when investors invest in derivatives. This can lead to more volatility in the price of ETH.
A negative Exchange Netflow is usually bullish regardless of the platforms involved, as it means that investors are moving their coins to self-holding wallets, possibly because they plan to hold for a long time.
Now, here is a chart showing the trend in Ethereum Exchange Netflow for derivatives platforms over the past few weeks:
As shown in the graph above, Ethereum Exchange Netflow has seen a large spike in the positive direction recently, indicating that investors have recently made large deposits on derivatives platforms.
Owners have transferred around 82,000 ETH to this exchange through this net entry spree. As mentioned before, this trend can lead to high volatility of ETH.
It’s hard to say what direction any emerging volatility might take cryptocurrency, as some positive posts over the past few months have shown it to be a mixed bag.
Given that the recent spike coincided with a drop in the price of Ethereum, however, many of these may be short positions that predict further declines. If so, the upside could lead to liquidation of these positions, which would add fuel to the rally.
Trading currency of ETH
At the time of writing, Ethereum is trading around $2,400, down about 7% from last week.
