The Worst is Yet to Come. Bitcoin IFP Indicate Dangerous Liquidity Slowdown

Bitcoin had another massive selloff in the past hour. It retraced below $86k and hit a low of $85,100n before rebounding.

BTC opened Monday with notable buying pressure, surging to $90k after trading at $88k. However, the asset soon lost upward momentum, resulting in a nearly 3% decline. It continues the previous day’s downtrend as the bulls failed to sustain the buyback attempt.

Questions about why the apex coin retraced remain a subject of mystery for many. It’s even more surprising as it came hours after Strategy splashed a whopping $980 million on fresh Bitcoin.

The latest decline, coinciding with Strategy’s BTC  purchase, is not a new occurrence. It has happened over and over again, as other whales now see the firm buying as an opportunity to take profit.

Nonetheless, fundamentals also played a significant role in the recent plummet. Since the Bank of Japan made its intention to raise interest rates public, the crypto market has not experienced any notable surges. Since Friday, the global cryptocurrency market cap has retraced by over 7%.

Bitcoin posted slightly higher losses amid continued uncertainty since the announcement. The panic among investors is widespread across several sectors of the market, indicating the latest downturn was not solely due to leverage.

Recent data from CryptoQuant revealed that exchanges saw a significant inflow in the last 24 hours. As a result, exchange reserves are increasing. Other metrics indicate that the influx was not entirely from small wallets.

Market data show that the Coinbase Premium Index is currently negative. The metric typically reflects whales’ actions at a given time. In the last 24 hours, it dropped by over 300%, indicating that large wallets led the latest selloff.

Bitcoin IFP. A Ticking Time Bomb

While the bulls count the losses in the spot market, those who went long on Bitcoin lost $194 million in the last 24 hours.

The highlighted data reflects what happened, the possible cause, and how it affected traders. However, an event that took place beneath the radar may spell a massive decline for Bitcoin.

XWIN Research Japan noted that the Inter-Exchange Flow Pulse (IFP) turned red. The metric measures Bitcoin’s movement between exchanges, serving as a proxy for internal market liquidity and capital circulation. When it is high, key functions like arbitrage and liquidity provision run smoothly, and prices remain stable as the order books remain thick.

However, when it is low, the highlighted functions experience difficulty as market flow weakens, resulting in prices becoming more sensitive to relatively small trades.

The earlier correction may be a sign of negative IFP. In either case, it’s worth noting that weakened inter-exchange flow pulses do not always result in massive downtrends, nor do they necessarily signal recovery. In a nutshell, Bitcoin will see stronger price swings in the coming days, and it could be upward or downward.

Nonetheless, considering the bearish sentiment across the market, the declining IFP may spell a steeper downtrend for the apex coin.

The effect will also spread into derivatives, making leveraged trading riskier.

Away from onchain data, Bitcoin may end Monday around $86k. Previous price action suggests a higher likelihood of further recovery from this key level.

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