Bitcoin’s liquidity is shrinking following a sharp market correction, with the cryptocurrency struggling to regain footing after dropping 23% from its all-time high of $109,000 on January 20. According to Glassnode, market conditions have worsened as capital inflows decline and investor participation dwindles.
Exchange inflows—an essential metric reflecting trading activity—have plummeted 54% from their cycle peak, while Bitcoin futures open interest has dropped 35%, falling from $57 billion to $37 billion. This signals a reduction in leverage and speculation, compounding the market’s struggles.
As of today, Bitcoin is trading at $82,800, marking a 15% decline over the last 30 days, according to CoinGecko data.
Why Is Bitcoin Liquidity Declining?
One of the biggest reasons behind Bitcoin’s liquidity crisis is the unwinding of the cash-and-carry trade, a strategy where traders arbitrage the price premium in CME Bitcoin futures over spot prices. With this trade unwinding, market depth has significantly reduced.
Additionally, geopolitical tensions have shifted investor sentiment. QCP Capital, a Singapore-based digital asset trading firm, noted that Israel’s renewed strikes on Gaza have driven gold prices past $3,000, while Bitcoin remains negatively correlated.
With the market moving into a risk-off mode, institutional investors are scaling back positions, leading to ETF outflows and further pressure on Bitcoin’s spot price.
Bitcoin Options Market Signals Bearish Sentiment
The options market is also signaling a bearish outlook, as traders rush for downside protection. Put options—used to hedge against price declines—are now carrying higher implied volatility premiums than call options, indicating strong demand for hedging against further drops.
Moreover, Short-Term Holders (STHs) are experiencing substantial unrealized losses, leading some investors to capitulate as selling pressure mounts.
Long-Term Holders Remain Unfazed
Despite the downturn, Long-Term Holders (LTHs) remain largely inactive, showing continued confidence in Bitcoin’s long-term value. Glassnode’s data suggests that LTHs still hold a significant share of Bitcoin’s wealth, which is unusual for this stage in the cycle.
What’s Next for Bitcoin?
With declining liquidity and reduced speculative activity, Bitcoin could see elevated volatility in the coming weeks. The big question now is whether fresh capital will enter the market to support higher prices or if BTC will continue its downward trajectory.
Macroeconomic factors, institutional participation, and geopolitical developments will play a crucial role in determining Bitcoin’s next move.
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