Bitcoin Liquidity Drys Up as Market Faces Major Correction
Data from Glassnode shows that exchange inflows have dropped by 54%, with futures open interest also falling as Bitcoin liquidity becomes scarce amid a sharp market correction.
Bitcoin has fallen significantly from its peak of $97,000 in February, with the market now in a consolidation phase. On-chain data shows that market liquidity is shrinking as exchange inflows have plummeted, signaling a decline in investor activity.
Exchange Inflows Plunge
According to a report by Glassnode, exchange inflows - a key indicator of market health - have fallen by more than 54% from their cycle peak. This suggests that investor participation is clearly waning.
Meanwhile, open interest in Bitcoin futures contracts also decreased by 35%, from $57 billion to $37 billion, indicating that the market is gradually retreating from speculative activities and high leverage.
Influence from macroeconomic factors
The weakening of liquidity can be partly explained by the unwinding of carry trading strategies, which have been widely used in CME Bitcoin futures contracts.
Another factor affecting liquidity is the changing investor sentiment in response to international macroeconomic developments, especially after tariff decisions and new attacks in the Middle East, causing the market to shift to a risk-off state.
QCP Capital, a digital asset trading firm, commented that the escalation of geopolitical tensions and new attacks from Israel pushed the price of gold above the $3,000 mark while Bitcoin continued to show negative correlation.
Trading Activity Drops
Bitcoin prices continue to fall ahead of the Federal Reserve’s interest rate decision. As of press time, Bitcoin is trading around $83,000, down 23% from its all-time high in January. The drop has been accompanied by a sharp drop in trading volume, from $49 billion to $22 billion over the past 24 hours, according to data from CoinGecko.
Switching Market Sentiment
The options market has also shown an increase in hedging, with put options commanding higher premiums than call options, reflecting investors’ concerns about potential risks.
However, long-term investors continue to hold onto their assets. Glassnode notes that this group still holds a large proportion of network assets, suggesting that long-term confidence in Bitcoin remains intact despite short-term volatility.
Market Faces Challenges
With liquidity drying up and speculative activity declining, Bitcoin volatility is likely to remain high in the near term. Whether new capital flows will return to support prices remains a big question mark as traders cautiously consider macroeconomic conditions and the broader risk environment.
Bitcoin is currently in a delicate balance as the market adjusts to major shifts in the global economic and geopolitical landscape.