Bitcoin's January Rally Stalls, Yet Liquidity Signals May Spark Recovery

Bitcoin's price [BTC] surged to a local high of $94.7k on Monday, January 5. Earlier reports from AMBCrypto noted that analysts predicted a potential retracement towards $80.6k due to certain market conditions. Key liquidation levels above the $94.5k resistance and a cluster of liquidations beneath the support at $84k explain this expectation. While a price drop may be unfolding, it could still be premature to draw firm conclusions.

Key Takeaways

Bitcoin reached a local high of $94.7k but saw a decrease to $92.5k shortly thereafter.
Analysts predict a potential price drop toward $80.6k based on liquidity levels.
Recent data indicates strong buying power in the market due to stablecoin inflows.
Capital flows shifted positively after several days of negative performance.
The Bitcoin profit/loss ratio has improved, suggesting the potential for further gains.

Bitcoin’s January rally comes to a halt, but liquidity signals could save it again

After reaching the peak on Monday, Bitcoin experienced a decline of 2.40%, trading at $92.5k at the time of writing. Despite the possibility of a short-term price dip, there is convincing evidence that idle liquidity could help Bitcoin's recovery.

Analyzing Bitcoin's Buying Power and Net Capital Flow

Bitcoin Stablecoin Ratio

Source: CryptoQuant

In a recent post on CryptoQuant Insights, analyst Darkfost pointed out that the current Bitcoin/stablecoin ratio is indicative of strong market health. Recent inflows of stablecoins into exchanges, coupled with Bitcoin's price correction in December, led this ratio to drop. This decline signals significant buying power is present in the market. At the time of writing, this signal is "especially compelling." Since the beginning of January, the ratio has rebounded, suggesting that investors are beginning to allocate capital.

Bitcoin Net Capital Flows

Source: Axel Adler Jr Insights

Analyst Axel Adler highlighted that net capital flows remained negative from December 26 to January 3. This trend indicated that losses exceeded profits, with the most substantial pressure occurring on December 26. However, by the end of the week, capital flows turned slightly positive, with realized profits outweighing losses. Data from Glassnode corroborated this recent bullish shift in the market.

Moreover, the 7-day moving average of Bitcoin's profit/loss ratio had stayed below 1 for much of December. Recently, it pivoted back to above 1, reaching a notable 1.78. A decreasing supply of Bitcoin in circulation, along with strong inflows to exchange-traded funds (ETFs), reinforces the expectation of potential gains for Bitcoin in the upcoming weeks.

Conclusion

Despite challenges in January, key liquidity indicators suggest Bitcoin may be positioned for a rebound. As the market adapts, it will be essential to monitor these developments closely.