The recent fluctuations in cryptocurrency markets highlight that capital flows and liquidity play a crucial role in sustaining price movements, contrary to the common belief that narratives alone drive market dynamics. Over the past year, measurable on-chain activities and liquidity conditions have emerged as significant determinants of price stability.
For instance, following the U.S. election, Bitcoin experienced a 56% increase, which was accompanied by a notable rise in futures open interest. However, the trend was short-lived due to insufficient spot market demand. A significant decrease in stablecoin exchange inflows, which fell by 50%, further weakened buying power, exposing the fragility of rallies driven by positive narratives.
From March to October 2024, Bitcoin fluctuated between $50,000 and $74,000, despite numerous bullish headlines. The situation shifted in the fourth quarter as market participants began pricing in the potential election victory of U.S. President Donald Trump. Following his win, Bitcoin surged above $100,000 within 42 days, yet the lack of sustained spot demand left it vulnerable to a decline.