SKN | Bitcoin Rallies Likely Short-Lived Until Liquidity Returns, On-Chain Data Shows

Key Points

• Bitcoin’s recent rebounds have historically failed to sustain unless a key liquidity ratio remains above 5, a level that signals fresh capital inflows.
• More than 22% of Bitcoin’s circulating supply is now held at a loss, a condition previously seen during deep corrective phases in 2018 and 2022.
• Exchange inflows remain unusually low, suggesting investors are holding rather than selling, but liquidity confirmation is still missing.

Liquidity Still the Missing Ingredient

Bitcoin’s short-term price recoveries are likely to remain fragile until broader market liquidity returns, according to on-chain data from Glassnode.

The firm noted that strong and durable bitcoin rallies — including mid-cycle recoveries seen over the past two years — have only occurred when a key liquidity ratio stayed above 5. Historically, that threshold has marked renewed capital inflows and rotation back into bitcoin from sidelined investors.

Without that confirmation, price rebounds tend to fade as buying pressure lacks depth and follow-through.

Rising Supply Stress Raises Downside Risk

Glassnode also flagged increasing stress across bitcoin’s supply base. More than 22% of the circulating BTC supply is currently held at a loss, a level previously observed during Q1 2022 and Q2 2018 — periods that coincided with prolonged market weakness.

This matters because elevated unrealized losses increase sensitivity to downside moves. If bitcoin fails to hold critical support zones — including the minus-one standard deviation band of the short-term holder cost basis and the true market mean — selling pressure from long-term holders could re-emerge.

Historically, breaches of those levels have often marked transitions from consolidation into deeper corrective phases.

Exchange Flows Point to Holding, Not Panic

Despite the cautionary signals, near-term selling pressure remains muted. Data from CryptoQuant shows monthly bitcoin inflows to Binance averaging roughly 5,700 BTC, less than half the long-term average of around 12,000 BTC and the lowest level since 2020.

Because exchange inflows are typically associated with selling intent, persistently low inflows suggest that investors are choosing to hold rather than rush for exits. That dynamic reduces immediate downside risk and indicates a degree of conviction among existing holders.

However, analysts stress that restrained selling alone is not enough to fuel a sustained rally.

What Comes Next for Bitcoin

The current setup points to a market in balance rather than one ready for a decisive breakout. Holding behavior is limiting sharp drawdowns, but without clear evidence of renewed liquidity inflows, upside moves are likely to remain short-lived and vulnerable to reversal.

Until capital rotation and liquidity metrics improve, bitcoin’s price action may continue to oscillate between support and resistance, with rallies acting more as relief moves than the start of a new trend.