Recently, after a period of bull market prosperity, the crypto asset market has begun to show signs of capital liquidity contraction and changes in investor risk appetite. On-chain data and key indicators in the derivatives market indicate that the market is transitioning from a high volatility, high speculation state to a more cautious, low liquidity phase. The on-chain activities of BTC and ETH show that hot supply has significantly decreased, and exchange fund inflows have notably reduced.

Is the current market at a turning point? Is the bull market returning or ending? 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 BTC and ETH, exchange fund flows, and market dynamics.

Overall Liquidity Tightening and Market Activity Decline

According to glassnode data, BTC on-chain activity has dropped to a level unseen in months, with transaction numbers significantly decreasing, often signaling a consolidation period after high volatility. BTC's "Hot Supply" is an indicator measuring active market capital, representing BTC held for less than a week, which has dropped from 5.9% to 2.8% in the past three months, showing over 50% decline, further corroborating the liquidity contraction.

From on-chain transaction perspective, BTC on-chain activity has also dropped to a months-low level, indicating market cooling or short-term interest decline. Decreased transaction numbers seemingly suggest reduced speculative activity. If long-term holders do not sell and new fund inflows are limited, the market may enter an accumulation phase.

Simultaneously, BTC miners' share of total on-chain transactions dropped to 4.23%, the lowest since November 2022. This data reflects miners' significantly reduced on-chain trading activity. Lower transaction share might indicate miners are reducing selling behavior, more often choosing to hold coins to cope with market fluctuations, thereby reducing selling pressure from miner liquidations.

Relatively decreased miner transaction volume might also mean other market participants (like long-term holders or institutional investors) are more active, with overall on-chain transaction structure changing. Against the backdrop of market changes and declining mining revenues, miners might be adjusting strategies, reducing frequent on-chain transactions and focusing on optimizing revenue structures.

In the futures market, total open interest has dropped from 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 previously gained arbitrage profits through cash arbitrage (Longing ETF + Short futures) in rising markets. However, with weakening market confidence and Long-side arbitrage unwinding, arbitrage trades gradually withdrew, 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 (approximately $1.78B 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%.

Ethereum's exchange supply dropping to a near 10-year low indicates significantly tightened market liquidity. Lower exchange supply means reduced ETH available for selling, decreasing potential selling pressure, but also making prices more susceptible to large transactions and increasing volatility.

However, from the current state, although declining exchange supply shows increasing asset lock-up 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 also negatively impact Ethereum's market expectations. In this context, while lower exchange supply reduces potential selling pressure, unfavorable market sentiment and external environment continue to drive price declines.

If examining its current state through indicators, 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 typically used to compare the "relationship between market value and realized value" of a token, reflecting the supply and demand dynamics of a token in the market, and monitoring the extent to which the current market price of the token is undervalued or overvalued. It is also used to identify the top or bottom of the token's current market.

Summary

Looking back, Bitcoin experienced a staged adjustment before a wave of increase in October 2023. Whether the market will replay a similar pattern remains to be observed. Some analysts, such as 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 recent signals of a loose monetary policy from the US Federal Reserve, with market expectations of the end of quantitative tightening and potential restart of quantitative easing, have also brought in some liquidity.

BitMEX co-founder Arthur Hayes tweeted, "Powell has fulfilled his promise, with quantitative tightening (QT) essentially ending on April 1st. Moving forward, to truly drive the market into a bull market, either restore the SLR exemption policy or restart quantitative easing (QE). $77,000 may be the bottom for Bitcoin, but the stock market might still need to experience some volatility before Powell completely leans towards Trump's team. So, everyone needs to stay flexible and keep cash on hand."

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

Overall, the current market is experiencing an adjustment period from a high-risk, high-volatility bull market to a low-liquidity, risk-averse situation. In the 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.