Crypto Market Faces Liquidity Crisis, Inflows Drop 97%

• Crypto capital inflows drop 97%, hitting Bitcoin liquidity and trading activity.
• Bitcoin’s hot supply has shrunk by 50% while futures open interest has fallen 35%.
• Analysts split on whether this is a healthy pullback or a bearish warning for BTC.

Cryptocurrency markets are experiencing a major contraction in capital flows. According to data shared by trader Ali, inflows plummeted from $135 billion in December to just $3 billion today. This 97% reduction coincides with Bitcoin’s continued price pressure, with BTC down 2.3% in the last 24 hours.

The sharp decline in capital entering the market is visible in Glassnode’s Aggregate Market Realized Value Net Position Change chart. This chart shows the substantial difference between December’s inflows and the current anemic market conditions.

On-chain data from Glassnode reveals multiple indicators pointing to reduced market activity and liquidity. Bitcoin’s Hot Supply metric, which tracks coins aged one week or less, has contracted from 5.9% to 2.8% of the circulating supply. This is a reduction of more than 50% over the past three months. This major decline shows a sharp reduction in liquid Bitcoin available for trading, potentially limiting market depth.

Further data from Exchange inflow confirms this trend, with daily Bitcoin inflows dropping from 58,600 BTC per day to just 26,900 BTC per day, which is a 54% decrease. This reduction in exchange deposits shows both minimal sell-side pressure and the weakening of the overall demand and trading activity in the market.

The futures market has similarly contracted, with open interest falling from $57 billion to $37 billion since Bitcoin’s all-time high, marking a 35% decline. This reduction in derivatives exposure signals decreased speculative interest and hedging activity across the cryptocurrency market. The parallel contraction in both futures open interest and on-chain liquidity points to broader risk-off behavior among traders and investors.

Market analysts note that the cash-and-carry trade, a popular arbitrage strategy in cryptocurrency markets, is unwinding as long-side bias weakens across the ecosystem. This shift is seen in both ETF outflows and CME futures position closures, which collectively add selling pressure to spot markets.

Related: Will Bitcoin’s Market Behavior Shift in 2025 Amid Changes?

At press time, Bitcoin is trading at approximately $83,800, still holding above key support levels despite the concerning capital flow trends. The current market environment is different in comparison to December’s euphoric conditions. This was when Bitcoin was trading above $98,000 and capital was flooding into the market at record rates.

The combination of reducing capital inflows, reduced exchange activity, contracting futures markets, and declining hot supply shows that the market is experiencing liquidity challenges. While some view this as a temporary consolidation phase following the bull run in late 2024, others worry it could signal an extended period of weak demand.

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