It’s quite a worrying fact that many traders blindly follow self-proclaimed trading experts, without making any due diligence. Most of the prognoses of these “experts” are based on some simple chart analysis, which is in most cases based solely on previous prices of the underlying asset. Very few involve additional non-price-based metrics like trading volumes. Of course, many traders claim to be performing an in-depth fundamental analysis which is essentially an attempt to forecast a trend based on current or latest news narratives. Not to mention a plain scam by numerous Pump-n-Dump groups. 

Here at CoinPanel, we don’t make any prognoses for future prices – it’s not our business! At the same time, we can’t simply watch how traders are losing their money in attempts to find another “Leader”, who will provide them with profitable signals. Surprisingly often we hear questions like “Could you suggest to me some paid group/chat with good (profitable) signals/prognoses?” Such a user seems to be willing to pay just to not have to think for himself but rather simply receive directions. If only things were that simple, we would all be billionaires. 

We can only recommend our community to try looking outside the box and don’t blindly follow anyone. Try to open your horizons and find some additional useful metrics that should be considered while trading apart from past prices. If the majority don’t know about these, that will provide a comparative advantage!

To give you an idea – blockchain analysis may tell you a lot! Just as an example, when blockchain is slow and overloaded with a number of transactions, it means that many people want to transfer money for some reason. If commissions (transaction fees) are high, it means that many users are ready to pay more to guarantee their transactions will be processed quicker. But, why? Could there be anything behind the scene that may affect the price? That is a good moment to start thinking!

It could be that there are some rumours about the financial insolvency of some exchange or service and clients are trying to quickly transfer their money out from it to a safer location. Or it could be that there are expectations regarding the price of some asset about to change and the key owners of it are transferring their holdings to exchanges. When rumours are spreading, more and more transactions are going to be requested. So, only looking at blockchain activity may help you to spot those anomalies, even before the actual rumour make it to you or the news media.

If someone is transferring a lot, it should be someone more experienced than an average trader and most likely knows something!

One of our consultants – Dr. Kretov Kirill, who is helping CoinPanel with creating a revolution in trading robotics and providing exclusive blockchain analytics to Institutional clients, has recently published an article on LinkedIn with a brief report on Bitcoin blockchain activity for the year 2022. And today, since we started to talk about the importance of considering the blockchain activity, we would like to disclose to you something small from our findings.

Think of an OTC deal, where some whale is buying a large amount of bitcoins from another whale.

Over-the-counter (OTC) is the process of trading securities via a broker-dealer network as opposed to on a centralized exchange like the New York Stock Exchange (Investopedia).

Normally the process is settled in the following way (simplified for illustration purposes). Assets (Bitcoins in our example) are sent to some escrow account. Once the seller receives payment, bitcoins are released and transferred to the corresponding buyer’s account. Otherwise, bitcoins will be returned to the seller. 

So, how this process looks like from the perspective of the blockchain? There is some bitcoin address that sends money to some fresh new address. Normally escrow accounts are multi-signature addresses (starting with “3” or lengthy addresses starting with “bc1q”). And after some time, all funds are getting transferred to another address, leaving 0 balance on the source. We call them “Transit” addresses – they receive funds and after they send out all funds they previously received. Of course, it’s not always an OTC deal behind those addresses, but there is definitely some interesting reason for this kind of behavior. 

And now, a little illustration to our post – Dr. Kretov made a deep analysis of Bitcoin Blockchain and identified all “Transit” transfers that took place in every 100 blocks during 2022. Later he calculated their total volumes and plotted them on the Price chart, which you can find below.

Can you spot any correlation? 

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Here is what we see

In our opinion, there is a good correlation between the increased activity of transit transfers and price changes. We also may notice spikes in “Transit” activity and price drops. 

How can we apply this kind of information when taking trading decisions? The latest found block at the time of writing this article is 777700. Let’s update the chart, to the most recent date.

We can see that year 2023 begins rather flat in terms of the activity of “Transit” transfers. Around 11th February there was a little spike that happened at the same time with a little price correction. Now, if we notice the increase in the activity of transits, we may expect a price change, more than that we may expect a price correction. With our risk management, we definitely not going all-in shorting bitcoin. The least we can do is not open new bullish positions, especially with a large margin. And for the potential drop in price, we may think of buying a few options.

This is not investment/trading advice. This is a demonstration of information that we have, which is not available to the public. And an example of the thought process that happens when processing this information.