Bitcoin’s series of bearish swings has apparently instilled a wave of pessimism in its market participants bordering on fear. After losing nearly 28% of its value in November, the flagship cryptocurrency looks set to enter a full bearish cycle. Interestingly, recent chain data has been released, which explores some key metrics to explain the landscape of liquidity pushing Bitcoin’s price, with implicit mentions of what to realistically expect in the short term.
Available liquidity decreases as long-term demand increases
In one QuickTake posts on CryptoQuant, analytics platform Arab Chain highlights the growing divide between Bitcoin’s seasoned investors and its “smart money” market players.
The DeFi company opens its report with readings obtained from the Total Sell-side Liquidity metric, which tracks the amount of Bitcoin available for sale in the market, based on the behavior of parties that typically act as sources of liquidity. Per Arab Chain, this metric has recently dropped to around 975,000 BTC, indicating a reduction in the amount of coins available for sale by active market participants.
Meanwhile, the Accumulator Address Demand indicator has shown an increase above 355,000 Bitcoin. For context, this metric reveals how much sustained buying pressure is coming from reputable Bitcoin accumulation wallets over an extended period of time. A rise to 355,000 and levels above reflects a growing accumulation appetite among the top cryptocurrency’s strongest holders. Usually, positive accumulation behavior displayed by market participants helps predict a sustainable long-term price action.
On the other hand, Arab Chain also cites a confluence of two indicators, Liquidity Inventory Ratio and ETF Demand. The first, which is a measure of how long existing liquidity can sustain market activity, shows a reading of 2.74 months, indicating slower replenishment of active supply. The latter measure, which indicates net outflows from US spot ETFs, has fallen to -51,000 BTC, indicating continued net outflows. Overall, both measures point to weakened institutional demand, which stands in stark contrast to the increasing accumulation in the chain seen elsewhere.
Notably, Binance data reveals that there has been a visible decline in the correlation between price and net purchases. At the time of the DeFi firm’s report, when Bitcoin was around $83,000, the correlation had seen a drop to as low as 0.72. A weakened correlation typically signals falling inflows relative to price action, meaning that market movements are solely based on the increasingly fragile liquidity available. Historical data indicates that under such conditions, a slight introduction of downward pressure can trigger an excessive price crash.
Bitcoin price overview
At the time of writing, Bitcoin is worth about $85,100, with about 1.81% lost in the last day.
Featured image from iStock, chart from Tradingview
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