Bitcoin (BTC) recently experienced a swift rebound from a dip that saw its value fall to $93,000. However, analysts at CryptoQuant warn that the cryptocurrency may be facing downward pressure that could lead to a deeper pullback, potentially dropping to $86,000. This outlook is primarily attributed to diminishing demand, reduced blockchain activity, and a lack of liquidity inflows into the cryptocurrency market.
Demand Decline and Market Trends
The demand for Bitcoin saw a significant uptick in late 2024, driven by optimism surrounding regulatory changes following Donald Trump’s election victory. Unfortunately, this momentum appears to be fading. According to CryptoQuant, demand growth has plummeted to 70,000 BTC recently, down from a peak of 279,000 BTC on December 4. Additionally, inflows into spot Bitcoin exchange-traded funds (ETFs) – usually a strong indicator of market rallying – have dwindled, with the market observing regular net outflows over the past two weeks. This contrasts sharply with the robust inflows that peaked at 18,000 BTC in daily purchases during November and December.
Weakening Exchange Dynamics
The Inter-exchange Flow Pulse from CryptoQuant, which monitors Bitcoin transfers between exchanges, also indicates a concerning trend. Transfers to Coinbase, a key measure of U.S. spot demand, have fallen below the 90-day moving average, suggesting a weakening interest in Bitcoin among American investors.
Stablecoin Market Dynamics
Stablecoins, often a vital source of liquidity in crypto market rallies, have also seen a slowdown in growth. Although the total market capitalization of stablecoins recently reached a new all-time high, surpassing $200 billion, the rate of this expansion has significantly decelerated. The 60-day average change in the market capitalization of USDT, the largest stablecoin, has plummeted by over 90% since mid-December, dropping from over $20 billion to just $1.5 billion. This slowdown indicates that there is a lack of new capital entering the market, which is critical for driving asset purchases.
Declining Bitcoin Network Activity
Further signs of warning come from the muted blockchain activity on the Bitcoin network. According to CryptoQuant’s Bitcoin Network Activity Index, network activity has fallen to its lowest level in a year, down 17% from its peak in November 2024. This decline has resulted in the metric dipping below its 365-day moving average for the first time since July 2021, coinciding with the Chinese government’s ban on BTC mining. A decrease in transactions suggests a waning investor engagement and reduced speculative interest in Bitcoin.
Potential for a Market Bottom
After reaching an all-time high of $109,000 in January, fueled by optimism around Trump’s presidency, Bitcoin has struggled to maintain its position. It has remained trapped in a narrow range just above $90,000. The broader cryptocurrency market sentiment has also been affected by recent controversial memecoin launches, such as the TRUMP and LIBRA memecoins, which have eroded speculative capital.
Traders are now speculating that Bitcoin may be approaching the bottom of its current corrective phase. Noted trader Bob Loukas has remarked that while BTC could find a bottom soon, it may dip below the $90,000 range in the process. He emphasized that the critical question is whether the bottom of this range, at $90,000, will hold.
As Loukas stated in a post on social media, “It doesn’t matter; sentiment resetting occurs either way.” The market appears to be in a transitional phase, and investors should remain vigilant as these dynamics evolve.
