Author: ChandlerZ, Foresight News

Recently, after experiencing a 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. On-chain activities of BTC and ETH 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 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 BTC and ETH, exchange fund flows, and market dynamics data.

Overall Liquidity Tightening and Decreased Market Activity

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

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

Simultaneously, BTC miners' share of total on-chain transactions has dropped to 4.23%, the lowest since November 2022. This data reflects a significant decrease in miners' participation in on-chain trading activities. The lower transaction share might indicate miners are reducing selling behavior, more often choosing to hold coins to address 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 overall on-chain transaction structures changing. Against the backdrop of market changes and declining mining revenues, miners might be adjusting strategies, reducing frequent on-chain transactions, and focusing resources on optimizing revenue structures.

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

Meanwhile, after the US spot ETF launch in 2024, institutions had previously gained arbitrage profits through cash arbitrage (longing ETF + short futures) in an upward market. However, with weakening market confidence and long-side arbitrage unwinding, 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 crypto market analysis institution Santiment, due to DeFi protocols and staking products, available ETH exchange supply has dropped to 8.97 million (equivalent to $17.8B at current prices, less than 7.5% of Ethereum's current market cap), the lowest in nearly 10 years (previous low was November 2015). Compared to just 7 weeks ago, ETH on trading platforms has reduced by 16.4%.

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

However, in the current state, despite the decreased exchange supply showing enhanced asset locking effects, overall market environment and multiple factors still exert downward price pressure. Current macroeconomic uncertainty, changing market risk appetite, and partial institutional fund withdrawals further tighten market liquidity.

Simultaneously, DeFi sector volatility and competitive public chain developments negatively impact Ethereum's market expectations. In this context, while lower exchange supply reduces potential selling pressure, unfavorable market sentiment and external environment 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) 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-demand dynamics of a token in the market, and detecting whether the current token price is undervalued or overvalued. It's also used to identify potential market tops or bottoms.

Summary

Historically, BTC experienced a stage of consolidation in October 2023 before a price surge. Whether the market will repeat a similar pattern remains to be observed. Some analysts, like CryptoQuant founder and CEO Ki Young Ju, suggest that the short-term bull market cycle might 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 loose monetary policy and market expectations of quantitative tightening ending and potential quantitative easing restart have also brought some liquidity. BitMEX co-founder Arthur Hayes tweeted, "Powell has fulfilled his promise, quantitative tightening (QT) essentially ended on April 1st. To truly drive the market into a bull market, either restore SLR exemption or restart QE. $77,000 might be Bitcoin's bottom, but the stock market may need more volatility before Jay fully leans towards the Trump team. So everyone should stay flexible and keep cash on hand."

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

Overall, the current market is experiencing an adjustment 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 price pressure. However, the stability of long-term holders and re-accumulation by some whales may provide necessary support for the market in the future.