From the MVRV ratio perspective, ETH is currently at a bear market level.

Written by: ChandlerZ, Foresight News

Recently, after a period of bull market boom, the crypto asset market has begun to show signs of liquidity contraction and changes in investor risk appetite. On-chain data and key derivatives market indicators suggest that the market is transitioning from a high volatility, high speculation state to a more cautious, low liquidity phase. The on-chain activities of Bitcoin and Ethereum show a significant decrease in hot supply and a notable reduction in exchange fund inflows.

Is the market currently at a turning point? Is it a bull market reversal or the end of a bull run? How should 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 Decreased Market Activity

According to glassnode data, Bitcoin on-chain activity has dropped to a level not seen in months, with a significant decrease in transaction numbers, often indicating a consolidation period after high volatility. Bitcoin's "Hot Supply" is an indicator measuring and quantifying active market capital, representing the volume of Bitcoin held for less than a week. This indicator has dropped from 5.9% to 2.8% over the past three months, showing a decrease of over 50%, further supporting the liquidity contraction phenomenon.

Looking solely at on-chain transactions, Bitcoin's on-chain activity has also decreased to a level not seen in months, indicating a cooling period or short-term interest decline. The reduction in transaction numbers seems to suggest a decrease in speculative activity. If long-term holders are not selling and new fund inflows are limited, the market may enter an accumulation phase.

Meanwhile, Bitcoin miners' share of total on-chain transactions has dropped to 4.23%, the lowest level since November 2022. This data reflects a significant decrease in miners' participation in on-chain trading activities. The lower transaction share may indicate that miners are reducing selling behavior, more often choosing to hold coins to cope with market fluctuations, thereby reducing selling pressure from miner sales.

The relative decline in miner transaction volume may also mean that other market participants (such as long-term holders or institutional investors) are more active, with an overall change in on-chain transaction structure. Against the backdrop of market changes and declining mining revenues, miners may be adjusting strategies, reducing frequent on-chain transactions, and focusing resources on optimizing revenue structures.

In the futures market, the total open interest has dropped from the ATH of $57B to $37B, a decline of about 35%, indicating a significant reduction in hedging and speculative activities.

Simultaneously, after the US spot ETF launch in 2024, institutions had previously gained arbitrage profits (Longing ETF + Short futures) in an upward market. However, with weakening market confidence and the unwinding of long-side arbitrage, arbitrage trades have gradually withdrawn, causing ETF fund outflows and further downward pressure on the spot market.

Ethereum Exchange Supply Drops to Near 10-Year Low

According to data from crypto market analysis firm Santiment, due to DeFi protocols and staking products, the available ETH supply on exchanges has dropped to 8.97 million (equivalent to $17.8 billion at current prices, less than 7.5% of Ethereum's current market cap), the lowest level in nearly 10 years (previous low was November 2015). Compared to just 7 weeks ago, ETH on trading platforms has decreased by 16.4%.

The drop in Ethereum exchange supply to a near 10-year low indicates a significant tightening of market liquidity. Lower exchange supply means fewer ETH available for sale, reducing potential selling pressure, but also making prices more susceptible to large trades and increasing volatility.

However, in the current state, despite the decline in exchange supply showing an enhanced asset locking effect, the overall market environment and multiple factors still exert downward pressure on prices. The current uncertainty in the macroeconomic environment, changes in market risk appetite, and partial withdrawal of institutional funds are further tightening market liquidity.

Simultaneously, volatility in the DeFi sector and the development of competitive public chains are negatively impacting Ethereum's market expectations. In this context, while lower exchange supply reduces potential selling pressure, unfavorable market sentiment and external environmental factors continue to drive prices downward.

Using indicators to assess its current state, according to IntoTheBlock data, ETH's MVRV (Market Value to Realized Value ratio) has dropped to around 0.8. This level is uncommon in Ethereum's history and typically occurs during bear markets.

MVRV is usually used to compare the relationship between a token's market value and realized value, reflecting the supply and demand dynamics of the token in the market, and is used to detect whether the current market price of the token is undervalued or overvalued. It is also used to identify potential market tops or bottoms.

Summary

Looking back, Bitcoin experienced a stage of consolidation in October 2023 before a wave of appreciation. Whether the market is repeating a similar pattern remains to be observed. Some analysts, like Ki Young Ju, founder and CEO of CryptoQuant, suggest that the bull market cycle may be nearing its end, with prices more likely to show a bearish or sideways trend in the next 6 to 12 months.

However, the Federal Reserve's recent signals of a loose monetary policy have brought expectations of the end of quantitative tightening and possible restart of quantitative easing, also driving some liquidity introduction. BitMEX co-founder Arthur Hayes tweeted, "Powell has fulfilled his promise, with quantitative tightening (QT) essentially ending on April 1. To truly drive the market into a bull market, either the SLR exemption policy needs to be restored or QE restarted. $77,000 might be Bitcoin's bottom, but the stock market may need to experience more volatility before Jay fully leans towards Trump's team. So everyone needs to stay flexible and keep cash on hand."

In this environment, the market bottom and subsequent reversal remain uncertain, and investors still need to closely monitor further changes in overall market liquidity, on-chain fund flows, and whale behaviors. For instance, IntoTheBlock has detected that although Bitcoin whale balances have been continuously declining over the past year, March's data hints at a potential reversal. Currently, whales' holdings have increased by about 62,000 BTC compared to early this month, showing signs of re-accumulation.

Overall, the market is currently experiencing an adjustment period from a high-risk, high-volatility bull market to a low-liquidity, risk-averse situation. Short-term market sentiment leans pessimistic, with insufficient fund inflows and arbitrage trade unwinding continuing to exert downward pressure on prices. However, the stability of long-term holders and re-accumulation by some whales may provide necessary support for the market in the future.