Bitcoin trading activity cools as market liquidity contracts and investor caution grows

Macroeconomic uncertainty is keeping Bitcoin (BTC) in a tight price range as liquidity continues to contract due to declining speculative interest and trading volumes, according to the latest “Bitfinex Alpha” report.

The firm said that large investors’ interest needs to return to push Bitcoin out of its current range. It highlighted that Bitcoin briefly gained momentum after opening last week near $82,791, driven by speculation surrounding former President Donald Trump’s speech at the Digital Asset Summit.

However, despite the positive comments, the rally was short-lived, and the event became a “sell-the-news” moment for the market. It temporarily pushed BTC to as low as $81,366 before recovering to close the week up 4.2% following an optimistic FOMC meeting.

Outlook remains gloomy

Despite the modest weekly gain, underlying market indicators suggest waning momentum. The report noted that volatility and liquidity have declined, reinforcing the trend of Bitcoin responding more directly to macroeconomic developments. 

Investors remain divided over the direction of monetary policy, with no consensus on whether the Federal Reserve will adopt a dovish or hawkish stance. This lack of clarity has reduced speculative conviction and heightened Bitcoin’s sensitivity to external policy cues.

One metric reflecting the current market structure is Bitcoin’s “Hot Supply,” a measure of liquid capital defined by weekly-moving coins. After peaking in December 2024, Hot Supply has contracted from 5.9% to just 2.8% of the total circulating supply. 

This more than 50% reduction highlights a broad decline in short-term trading activity and market participation, suggesting a retreat of speculative capital and increasing investor caution. Investors are transacting fewer coins, and active trading behavior has declined.

Historically, such reductions in liquid supply tend to precede long-term market bottoms, though the report refrains from offering forward-looking statements beyond the current environment.

In tandem, Bitcoin exchange inflows—a proxy for near-term trading intent—have dropped from 58,600 BTC per day in December to 26,900 BTC, based on a 14-day rolling average.

This marks a 54% decline in coins sent to exchanges, reinforcing the broader trend of subdued market activity. Outside a brief break in range-bound trading toward the end of February, which saw BTC fall below the $91,000–$102,000 corridor, exchange-related flows have steadily declined.

Liquidity conditions

The alignment between falling Hot Supply and reduced exchange inflows indicates weakened demand-side pressure.

As traders send fewer coins to trading platforms, the likelihood of near-term selling diminishes, suggesting that market participants are adopting a wait-and-see approach.

This dynamic reflects a broader risk-off sentiment, with investors refraining from actively deploying capital without clear macroeconomic signals. 

The reduced flow of capital into the trading ecosystem suggests that institutional and retail players alike are reluctant to initiate new positions without greater conviction.

Bitcoin’s price continues to be shaped more by shifts in liquidity conditions and global economic sentiment than by endogenous crypto market developments.

The contraction in liquidity and decline in speculative behavior are key indicators of the current cautious stance across the digital asset market.

The post Bitcoin trading activity cools as market liquidity contracts and investor caution grows appeared first on CryptoSlate.