A recent assessment of the Bitcoin market has emerged, suggesting that the leading cryptocurrency lacks structural strength. In particular, the cause of weakness is a combination of interrelated fundamental factors.
Increased market volatility due to liquidity taper
In a recent CryptoQuant post via QuickTake, XWIN Research Japan highlighted that the Bitcoin market is going through a critical phase where a little bit of institutional activity can offset large changes in price. The research team first pointed out the reason for this hypothesis by citing a significant decrease in trading volume.
According to XWIN Research, this decline in trading volume occurred over several months, leaving the market with little liquidity. Under these conditions, the market is very sensitive to news as well as short-term trends, which have an exponential impact on the market.
This current situation is further reinforced by the Bitcoin: Active Addresses metric, which tracks the number of unique wallet addresses actively sending or receiving Bitcoin over a specific period of time. A decline in active addresses along with price indicates weak demand and the Bitcoin market is likely to struggle to recover.
In particular, XWIN Research Japan notes that “although some on-chain indicators have improved recently, they are not strong enough to confirm a trend reversal.” Therefore, any reversal in current market conditions may be temporary.
Growing macroeconomic pressures create room for fear
In addition to the internal dynamics of the Bitcoin market, broader macroeconomic factors are also playing a role in Bitcoin price weakness. The research team explains that inflation expectations have risen higher than usual due to the rise in oil prices due to the conflict between the United States, Israel, and Iran. For this reason, expectations for interest rate hikes and tightening financial conditions are increasing in the macroeconomic market.
At the same time, inflation concerns have led to a significant sell-off in bonds, leading to simultaneous declines across stocks, gold, and cryptocurrencies. In particular, this behavior contrasts with what is expected in traditional risk aversion scenarios, where capital is typically diverted into safer assets (e.g. bonds).
Ultimately, XWIN Research Japan expects Bitcoin price to decline further in the near term unless both current liquidity conditions and on-chain activity show a clear recovery. In this case, the key factor defining the market situation is the US-Israel-Iran conflict, which affects inflation levels and interest rates, which in turn affect the overall direction of the market.
As of this writing, the price of Bitcoin is approximately $65,981. The world’s leading cryptocurrency has depreciated by about 4.01% since the last day, according to data from CoinMarketCap.
Featured image from Unsplash, chart from Tradingview
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