Bitcoin Weak Institutional Demand Contradicts Long-Term Accumulation — What This Means

Bitcoin’s series of bearish swings has evidently instilled in its market participants a wave of pessimism bordering on flat-out fear. After losing almost 28% of its value this November, the flagship cryptocurrency looks set for the onset of a full bearish cycle. Interestingly, recent on-chain data has been released, which explores a few key metrics to explain the landscape of liquidity pushing Bitcoin’s price, with implied mentions of what to realistically expect in the near term.

Available Liquidity Tapers As Long-Term Demand Rises

In a QuickTake post on CryptoQuant, analytics platform Arab Chain highlights the growing divergence between Bitcoin’s seasoned investors and its ‘smart money’ market players.

The DeFi firm begins its report with readings obtained from the Total Sell-side Liquidity metric, which tracks the amount of Bitcoin available to be sold into the market, based on the behavior of parties that usually serve as liquidity sources. Per Arab Chain, this metric’s reading has recently dropped to about 975,000 BTC, indicating a decline in the amount of coins available for sale by active market participants.

In tandem, the Accumulator Address Demand indicator has shown a surge above 355,000 Bitcoin. For context, this metric reveals how much persistent buying pressure is coming from reputable Bitcoin accumulation wallets over an extended period of time. A surge to 355,000 and levels above reflects a growing accumulation appetite amid the premier cryptocurrency’s strongest holders. Typically, a positive accumulation behavior displayed by market participants helps foresee a sustainable price action in the long term. 

On the other hand, Arab Chain also cites a confluence of two indicators, the Liquidity Inventory Ratio and the ETF Demand. The first, which is a measurement of how long extant liquidity can sustain market activity, shows a reading of 2.74 months, thus indicating there is slower replenishment of active supply. The latter metric, which indicates the net outflows from US spot ETFs, has dropped to -51,000 BTC, indicating sustained net outflows. Taken together, both metrics point to weakening institutional demand, which stands in clear contrast to the rising on-chain accumulation seen elsewhere.

Notably, Binance data reveals that there has been a visible downturn in the price-to-net buying correlation. At the time of the DeFi firm’s report, when Bitcoin was around $83,000, the correlation had seen a decline to as low as 0.72. A weakening correlation typically signals declining inflows relative to price action, thereby implying that the market’s movement is based only on the increasingly fragile liquidity available. Historical data points out that in such conditions, a slight introduction of downward pressure could trigger an exaggerated price crash.

Bitcoin Price Overview 

As of the time of writing, Bitcoin is worth approximately $85,100, with about 1.81% lost over the past day.