Analyst: Plunge in BTC flows between exchanges is a market red flag

A sharp decline in Bitcoin transfers between exchanges is a significant warning sign for the market, according to an analysis by XWIN Research Japan, a contributor to CryptoQuant. The analyst noted that while the BTC price appears stable on the surface, on-chain data suggests otherwise. The Bitcoin Inter-Flow Pulse (IFP) indicator, which measures fund flows between exchanges, has turned red, signaling a slowdown in liquidity. The analysis explains that high IFP levels typically support price stability through smooth arbitrage and liquidity provision. However, a decline in the IFP suggests the market is becoming more sensitive to smaller trades, heightening the risk of volatility. This liquidity crunch is occurring as Bitcoin reserves on exchanges sit at historically low levels. While a smaller sellable supply can support prices in the short term, it also thins order books, which can cause slippage and volatility to spike once the price starts moving. The analyst added that with market leverage still high, leveraged positions are particularly vulnerable until liquidity recovers, noting that past instances of the IFP turning red have preceded sharp corrections or sudden price swings.