A Low Liquidity Environment
Bitcoin is the ultimate gauge for liquidity, and right now, liquidity appears to be getting pulled out of the Bitcoin market. The HODLer response however, is even more interesting to study.
G’day Folks,
‘Liquidity’ has been the buzz word of the last few years, and for good reason.
There are many definitions of liquidity, but they all generally break down to ‘how much fiat denominated capital is currently sloshing around the market’. Without an appreciable influx of capital, assets like Bitcoin will simply struggle to rise in price.
Bitcoin is one of the most sensitive instruments to liquidity, and I consider it one of the last functioning fire alarms for where global liquidity is trending.
When Bitcoin is seeing heavy investment demand, it means investors are generally expecting, and positioning for a higher liquidity environment. By the same logic, when they are NOT investing heavily in Bitcoin, it probably means the opposite.
Whilst there are plenty of proprietary and public models for tracking liquidity, I am a simple Bitcoiner, using simple Bitcoin tools.
My metric for global liquidity is the Bitcoin Realised Cap.
When it is increasing, BTC is seeing meaningful capital inflows, it is signalling an uptick in BTC demand, and investors are increasingly expressing a view that a higher liquidity environment is incoming.
When the Realised cap stalls out, or starts to decline…we’re likely entering a lower liquidity environment, which signals downside risk.
The Realised Cap is starting to stall out, and capital inflows are notably weaker. Flows are not yet negative, but we’re certainly not seeing any huge uptick in fresh demand for the corn.
Today’s post will focus in on this subject, and explore what the changing liquidity environment tells us about our beloved Bitcoin.
📈 Reminder: you can find the charts from our articles on the Checkonchain Charting Website, and a guide in our Charts Tutorial Video.
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