On-chain data shows that derivatives exchanges just received large deposits of Ethereum, which could lead to volatility in the price of ETH.
Ethereum Exchange Netflow recently saw a strong positive rise
As an analyst explains in a CryptoQuant Quicktake article, Exchange Netflow for ETH recently saw a significant spike. “Exchange Netflow” here refers to an on-chain indicator that tracks the net amount of ETH flowing into or out of wallets associated with centralized exchanges.
When the value of this metric is positive, it means that investors are depositing a net number of tokens on these platforms. How these transactions affect ETH depends on the exchange the holders are transferring the coins to.
In the case of spot exchanges, investors typically make deposits each time they wish to sell, so positive net foreign exchange flows to platforms of this type can lead to a bearish outcome.
For derivatives exchanges, which are relevant platforms in the current debate, the relationship with price does not tend to be so simple. Holders transfer their coins to these exchanges to open new positions in the derivatives market.
Since new positions usually come with some leverage, it can be assumed that overall risk in the sector increases when investors make deposits on derivatives exchanges. This may lead to greater volatility in the price of ETH.
A negative Exchange Netflow is generally bullish, regardless of the platforms involved, because it implies that investors are moving their coins to self-custodial wallets, potentially because they plan to hold them for the long term.
Now here is a chart that shows the Ethereum Exchange Netflow trend for derivatives platforms over the past few weeks:
As the chart above shows, Ethereum Exchange Netflow recently saw a significant spike into positive territory, suggesting that investors have just made large net deposits into derivatives platforms.
Holders moved approximately 82,000 ETH to these exchanges with this wave of net inflows. As mentioned earlier, this trend may lead to higher volatility for ETH.
It’s difficult to say which direction any emerging volatility might take the cryptocurrency, as other positive spikes over the past couple of months have proven to be mixed.
Given that the latest spike coincided with a fall in the price of Ethereum, many of these positions could be short positions predicting further decline. If so, a move higher could lead to the liquidation of these positions, which would fuel the rally.
ETH Price
At the time of writing, Ethereum is trading at around $2,400, down almost 7% from last week.
