Bitcoin’s market liquidity continues to contract as the cryptocurrency consolidates following a sharp pullback from its February peak above $102,000.
On-chain metrics from Glassnode reveal a notable slowdown in capital inflows, with liquidity deteriorating across both spot and futures markets. According to Glassnode’s latest report, exchange inflows—often used as a gauge of investor participation—have plunged over 54% from their cycle highs, highlighting waning activity.
Simultaneously, open interest in Bitcoin futures has dropped by 35%, declining from $57 billion at its peak to $37 billion. This reduction reflects a broader pullback in leverage and speculative trading. Bitcoin is currently down 23% from its January 20 all-time high near $109,000, with a further 15% decline over the past month, now trading around $82,800, based on CoinGecko data.
A significant driver behind the current liquidity squeeze is the unwinding of the popular cash-and-carry trade. This arbitrage strategy involves exploiting the price premium of CME Bitcoin futures over spot prices, and its reversal has contributed to the thinning liquidity.
Adding to the cautious sentiment is a shift in focus toward global macroeconomic developments. Traders are reassessing risks following the initial reaction to President Donald Trump’s tariffs earlier this month.
“In the absence of fresh tariff headlines, geopolitics has returned to the forefront,” Singapore-based digital asset trading firm QCP Capital wrote in a note on Tuesday. “Israel’s renewed strikes on Gaza following a temporary truce have pushed gold soaring past $3,000, while Bitcoin continues to exhibit a negative correlation,” they added.
As markets adopt a risk-off stance, institutional investors are pulling back, leading to ETF outflows and additional pressure on Bitcoin’s spot prices.
Meanwhile, the options market indicates growing demand for downside protection. Put options are now priced with higher implied volatility premiums compared to calls, suggesting traders expect further declines.
Short-term holders are also feeling the pinch, facing significant unrealized losses that have triggered some to sell. However, long-term holders remain largely unfazed. Glassnode reports that this group continues to hold a substantial portion of Bitcoin’s supply—a dynamic that’s unusual at this stage of the market cycle but underscores their ongoing conviction in Bitcoin’s long-term potential.
For now, Bitcoin finds itself at a critical juncture. With shrinking liquidity and reduced speculative activity, volatility is likely to stay high in the short term. Whether new capital returns to the market will depend on how macroeconomic conditions and risk sentiment evolve.
