Content
- In summary, the Dormancy Flow indicator
- Performance of Metric
Bitcoin’s rapid correction has resulted in a spike in volatility, which is a good sign for investors who rely on technical analysis as their primary trading method. With volatility increasing, many technical and on-chain indicators have issued potential reversal signals. The Dormancy Flow indicator is also one of the tools that is hinting at a potential reversal for Bitcoin.
In summary, the Dormancy Flow indicator
Dormancy Flow is the ratio between the crypto market cap and the annual idle state value. The inactive value is Bitcoin Destruction divided by its volume. Bitcoin destruction reflects the volume of coins transacted by multiplying the amount of each transaction by the number of days since those coins were last spent.
The indicator itself can be used to determine when Bitcoin is in a bullish or bearish state. Whenever the index approaches a value near 200,000, traders would expect a reversal in the market.
Performance of Metric
According to the last five signals provided by the indicator, Bitcoin’s swing has followed a very sharp drop in Marriage Flow. Such a trend could be tied to a drop in network activity that actually reflects the spending behavior of Bitcoin investors.
Bitcoin Enters a Buy Zone in the Sleepy Flow.
This bottoming signal has only flashed five times before in Bitcoin’s history. pic.twitter.com/0P36jYMzvw
– Will Clemente (@WClementeIII) January 11, 2022
As real spending on the network drops significantly, selling pressure is being seen as less intensive and the asset has more of a chance to start growing again. According to the indicator, the highest spending rate in the past two years was during the summer, when the Bitcoin price dropped from $64,000 to $29,000 in two months.
At the time of writing, Bitcoin is trading at $42,000 after a 2% price increase since yesterday.
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