According to data from CryptoQuant, the total spot trading volume on major crypto exchanges has decreased from around $2 trillion in October to $1 trillion by the end of January. This drop of 50% clearly reflects the 'pullback' state of investors, amidst a backdrop of continued market liquidity contraction.
Bitcoin $BTC is currently down about 37.5% from the October peak, as the market enters a phase of strong risk aversion, combined with a lack of liquidity, causing trading activity to decline broadly.
Darkfost, a CryptoQuant analyst, believes that spot demand is gradually dwindling, also noting that the current correction "largely stems from a significant liquidation event that took place on 10/10," which has triggered a domino effect in both the derivatives and spot markets.
Trading volume has sharply decreased on major exchanges.
Since October, trading volume for crypto spot has significantly decreased on most major exchanges. Specifically, Binance - the exchange with the largest liquidity in the market has reported:
Bitcoin trading volume reached about $200 billion in October.
Down to about $104 billion at the current time.
According to analysts, this decline has brought the market back to the lowest volume levels since 2024, reflecting a significant weakening of demand and cautious sentiment among crypto investors.
Market liquidity continues to be under pressure.
Not only has trading volume decreased, but the overall liquidity of the market is also deteriorating. CryptoQuant noted:
Stablecoins are continuously being withdrawn from exchanges.
The total market capitalization of stablecoins has decreased by about $10 billion.
This development indicates that the amount of money sitting outside the market is increasing, weakening the market's ability to absorb selling pressure compared to previous periods.
"A bitter pill" but necessary for the market.
Mr. Justin d’Anethan, Head of Research at Arctic Digital, believes that the biggest risk to Bitcoin in the short term still comes from macro factors.
He stated that the hawkish stance of Kevin Warsh - a candidate for the Fed Chair position - could delay the interest rate cut path, leading to a stronger USD and higher real yields. These are all unfavorable factors for risky assets, including crypto.
However, d’Anethan emphasizes that the story of Bitcoin as a long-term hedge against inflation and currency devaluation is not over yet. In the long run, BTC is still designed to counteract excessively loose monetary policies.
He suggests that several factors could help the market turn positively again, including:
The flow of Bitcoin ETFs is returning strongly.
A more crypto-friendly legal framework.
Weak economic data forces the Fed to loosen monetary policy.
"This may be a bitter pill, but it is a necessary adjustment to unwind leverage, cool off speculation, and force the market to revalue more realistically," he stated.
Bitcoin has not yet formed a price bottom.
According to Mr. Joao Wedson, founder and CEO of Alphractal, Bitcoin can only form a bottom when two important conditions occur simultaneously:
Short-Term Holders (STH) are experiencing losses - this has occurred.
Long-Term Holders (LTH) are starting to incur losses - this has not occurred yet.
He mentioned that bear market cycles in history only end when the realized price of STH drops below the realized price of LTH, and the bull market only truly begins when this indicator crosses back up.
Currently, the realized price of STH is still higher than LTH. However, if Bitcoin loses the important support zone around the threshold of $74,000, BTC may officially enter a bear market phase according to on-chain indicators.
