Bitcoin’s Current Challenges
Bitcoin’s latest downturn seems more like a liquidity issue than a mere technical setback. Ki Yong-joo points out that the influx of new capital that once bolstered Bitcoin’s rise has significantly slowed. This situation suggests a potential -70% style yield adjustment may be necessary, contingent on a shift from buyers to notable sellers.
Will Bitcoin face another -70% bear market?
“Bitcoin is falling due to continued selling pressure and a lack of new capital,” Ki noted in a post dated February 1. He mentioned the stagnation of the realization cap, indicating that fresh money is no longer entering the market, which he believes directly reflects the market’s structure. A flat realization cap signals an absence of new investments. When market capitalization dips in this context, it signals the end of a bull market.
Ki observes that profit-taking has been prevalent and has been absorbed over time. Early investors, he notes, have realized significant gains due to their ETF and MSTR acquisitions, but they have been continuously taking profits since early last year, keeping Bitcoin close to the $100,000 mark. However, the most crucial bids have diminished, leading to a concerning drop in inflow.
This shift prompts a reconsideration of potential crash scenarios. Ki identifies MSTR as a key factor driving this upward trend. He argues that another dramatic decline, similar to those observed in past cycles, may not occur without a significant change in the company’s balance sheet strategy. “Unless Sailer offloads a significant portion of his holdings, a -70% crash akin to previous cycles seems unlikely,” he clarified, emphasizing the conditions that need to be met rather than forecasting inevitable downturns.
However, he doesn’t assert that the market has hit rock bottom. “Selling pressure remains, and we haven’t yet found a clear bottom,” Ki remarked. He added that a more plausible scenario involves a prolonged period of sideways movement, where volatility might continue but, without new marginal buyers, establishing a clear direction becomes a challenge.
Stablecoin liquidity diminishes
CryptoQuant contributor Darkfost shed light on what a lack of new capital entails. He explained that stablecoin activity, often seen as a short-term liquidity option, is swiftly declining in the midst of high uncertainty.
“Cryptocurrency markets are entering a precarious phase marked by a structural liquidity shortage against a backdrop of significant uncertainty,” he noted, describing the current environment as “not favorable for risk-taking,” especially relative to other assets like precious metals and equities, which continue to attract investment.
According to Dirkforst, while the stablecoin market has increased by over $140 billion this year, stablecoin market capitalization has started to drop since December, signaling the end of a previous growth trend. He emphasized that large capital inflows typically suggest interest in the market, while outflows indicate a focus on capital preservation and reduced risk.
He highlighted that October was the last significant month for liquidity, with average stablecoin net flows surpassing $9.7 billion, predominantly driven by Binance, which contributed nearly $8.8 billion. This influx had greatly supported Bitcoin’s surge to new all-time highs. However, since November, those inflows have drastically diminished, first reducing by $9.6 billion before stabilizing temporarily, ultimately leading to over $4 billion in net outflows, including $3.1 billion from Binance.
As of now, BTC is trading at $78,280.
