In a market environment with shrinking liquidity, even a small amount of funds or chips is enough to change the short-term price trend of BTC. All these changes may only come from the release of a piece of data or the hype of a piece of news...
In addition to paying attention to daily trading volume, we can also judge changes in the overall market liquidity and sentiment through the trend of BTC and ETH inflows/outflows (i.e. flow potential) of exchanges.
As shown in the figure, starting from October 2023, the exchange's flow potential began to gradually increase until it peaked in March 2024. On March 13, BTC had an inflow of $5.37 billion and an outflow of $4.97 billion, while ETH had an inflow of $1.39 billion and an outflow of $1.34 billion.
This level of traffic growth even exceeds the stage at the top of the bull market in 2021, when BTC and ETH inflows/outflows averaged 3 billion and 1.1 billion.
At the same time, we noticed a detail that in the peak area of flow potential (2024.2.29-2024.3.15), the inflow of BTC was significantly greater than the outflow, which means that the potential seller pressure entering the exchange was greater than the buying power. This situation lasted for about 10 days, after which the price of BTC began to consolidate in a wide range, and the flow potential of the exchange continued to decline.
At present, the overall market sentiment and enthusiasm are not high, which greatly increases the difficulty of short-term macro trading. We cannot ensure the market's interpretation of the macro direction. Before the data comes out, everyone will have an expectation, and the rule makers will anticipate our expectations. Therefore, the most rational approach at present is to wait and see before and after the macro events, and grasp the vague correctness of the general direction and trend.
However, on the positive side, since mid-May, the BTC flow potential of exchanges has been greater than the inflow in most of the time, which means that the buying power at this position is significantly stronger than the potential selling pressure. If this situation continues, the price of BTC may not fall too far during the rest of this bull market transition period.
Let’s take a look at ETH…
The current#ETHflow on exchanges is also very low, roughly at the bottom of the bear market in June-August 2022. But we can clearly see that the average outflow of ETH from exchanges in recent times is far greater than the inflow.
In addition, after the SEC announced the approval of the Ethereum spot ETF on May 23, the proportion of ETH traffic on exchanges began to rise rapidly. Compared with the proportion on May 20 (only 23.5%), it has now risen to 31%. This means that funds have shifted their attention from BTC to ETH and started betting on ETH. During this period, the ETH/BTC exchange rate rose from a low of 0.045 to a high of 0.056.
Looking back at history, we found that a similar situation also occurred on February 6, 2021, when ETH's traffic share reached 30%, and the ETH/BTC exchange rate was between 0.04-0.045. A year later, ETH's traffic share even exceeded 50%, and the ETH/BTC exchange rate also rose to 0.079. This shows that there is a positive correlation between ETH's traffic share and the exchange rate. If this trend continues, then we have reason to expect that the ETH/BTC exchange rate will perform better.
In general, although the overall sentiment and enthusiasm of the market is not high, this does not prevent a small amount of funds from playing a role in the market. In this environment, the macro difficulty of short-term trading has greatly increased. We cannot predict the direction of the market's interpretation of macro events, so the best strategy is to wait and see at this time and grasp the general direction and trend. However, if the buying power continues to be stronger than the potential selling pressure, then we may expect the price of BTC to remain stable for the rest of the bull market transition period.
