Recently, after a bull market boom, the crypto asset market has begun to show signs of shrinking liquidity and changing risk appetite among investors. Both on-chain data and key indicators in the derivatives market indicate that the market is transitioning from a high volatility, high speculation state to a more cautious, low liquidity phase. On-chain activity for Bitcoin and Ethereum shows a significant drop in hot supply and a significant decrease in inflows to exchanges.
Is the current market at a turning point? Is the bull market turning back or has it reached its end? How can investors seize opportunities amid shrinking liquidity and adjusting risk appetite? This article aims to analyze the current market environment based on on-chain activities of Bitcoin and Ethereum, exchange fund flows, and market dynamics data.
Overall liquidity tightening and market activity declining
According to Glassnode data, Bitcoin on-chain activity has dropped to levels not seen in months, with a significant decrease in the number of transactions, a phenomenon that often indicates a correction period after the market has experienced high volatility. Bitcoins Hot Supply is an indicator that measures and quantifies active capital in the market, that is, the capacity of Bitcoin held for less than a week. This indicator has fallen from 5.9% to 2.8% in the past three months, showing a drop of more than 50%. This further confirms the phenomenon of liquidity contraction.
Judging from the number of on-chain transactions alone, Bitcoin on-chain activity has also fallen to levels not seen in months, indicating a cooling-off period or a decline in short-term interest. The reduction in the number of transactions also seems to mean a decline in speculative activity. If long-term holders are not selling and new capital inflows are limited, the market may be entering an accumulation phase.
At the same time, Bitcoin miners share of total on-chain transaction volume fell to 4.23%, the lowest level since November 2022. This data reflects a significant decline in miners participation in on-chain transaction activities. The lower transaction share may indicate that miners are reducing their selling behavior and choosing to hold coins to cope with market fluctuations, thereby reducing the selling pressure in the market caused by miners selling.
The relative decline in miners’ transaction volume may also mean that other market participants (such as long-term holders or institutional investors) are more active and the overall on-chain transaction structure has changed. Against the backdrop of changing market conditions and declining mining revenue, miners may be adjusting their strategies, reducing frequent on-chain transactions, and concentrating resources to optimize the revenue structure.
In the futures market, the total open interest fell from $57 B at ATH to $37 B, a drop of about 35%, indicating a significant reduction in hedging and speculative activities in the market.
At the same time, after the launch of the US spot ETF in 2024, institutions have obtained arbitrage profits in the upward market through cash arbitrage (long ETF + short futures). However, as market confidence weakened and long-side arbitrage was unwound, arbitrage transactions gradually withdrew, causing ETF funds to outflow, further exerting downward pressure on the spot market.
Ethereum exchange supply drops to lowest level in nearly 10 years
According to data from crypto market analysis agency Santiment, due to the attraction of DeFi protocols and staking products, the supply of ETH available on exchanges has dropped to 8.97 million (equivalent to $17.8 billion at current prices, accounting for less than 7.5% of Ethereums current market value), the lowest level in nearly 10 years (the previous low was in November 2015). Compared with just 7 weeks ago, the ETH on the trading platform has decreased by 16.4%.
Ethereum exchange supply has dropped to the lowest level in nearly 10 years, indicating that market liquidity has tightened significantly. Lower exchange supply means less ETH is available for selling in the market, reducing potential selling pressure, but it also makes prices more susceptible to large transactions and increases volatility.
However, from the current situation, although the decline in exchange supply shows that the asset lock-in effect is increasing, the overall market environment and multiple factors still put downward pressure on prices. The uncertainty of the current macroeconomic environment, the change in market risk preferences, and the withdrawal of some institutional funds have further tightened market liquidity.
At the same time, volatility in the DeFi space and the development of competing public chains also have a negative impact on Ethereum’s market expectations. In this context, although lower exchange supply reduces potential selling pressure, the overall market sentiment and unfavorable external environment still push prices down.
If we use indicators to detect its current status, according to IntoTheBlock data, ETHs MVRV (market value to realized value ratio) has now dropped to around 0.8. This level is not common in Ethereums history and usually occurs during bear markets.
MVRV is usually used to compare the relationship between the market value and realized value of a token, reflecting the supply and demand relationship of a token in the market, and monitoring the degree to which the current market price of the token is undervalued or overvalued. It is also used to find the top or bottom of the token in the current market.
summary
Looking back at history, Bitcoin experienced a phased correction before a wave of increases in October 2023. Whether the market will repeat a similar pattern remains to be seen. Some analysts, such as Ki Young Ju, founder and CEO of CryptoQuant, have analyzed that the bull market cycle may be coming to an end in the short term, and prices are more likely to show a bearish or sideways trend in the next 6 to 12 months.
However, the Federal Reserve has recently released signals of loose monetary policy, and the markets expectations of the end of quantitative tightening and the possible restart of quantitative easing have also led to the introduction of some liquidity. Arthur Hayes, co-founder of BitMEX, tweeted, Powell has fulfilled his promise, and quantitative tightening (QT) basically ended on April 1. Next, if we really want to push the market into a bull market, we must either restore the supplementary leverage ratio (SLR) exemption policy or restart quantitative easing (QE). $77,000 may be the bottom of Bitcoin, but the stock market may have to experience another shock before Jay (Powell) can completely turn to the Trump team. So, everyone should be flexible and have cash on hand.
In this environment, the bottom and subsequent reversal of the market are still full of variables, and investors still need to pay close attention to the overall market liquidity, on-chain capital flows, and further changes in the behavior of institutional whales. For example, IntoTheBlock has monitored that although the balance of Bitcoin whales has continued to decline over the past year, the data in March suggests that a reversal may occur. Currently, the holdings of whales have increased by about 62,000 BTC from the beginning of this month, showing signs of re-accumulation.
In general, the current market is undergoing an adjustment period from a high-risk, high-volatility bull market to a low-liquidity, risk-averse situation. In the short term, market sentiment tends to be pessimistic, and insufficient capital inflows and the unwinding of arbitrage transactions will continue to exert downward pressure on prices; while the stability of long-term holders and the re-accumulation of some whales may provide necessary support for the market in the future.
