Bitcoin (BTC) Faces Liquidity Challenges Amid Market Uncertainty

Bitcoin (BTC) has continued to trade within a narrow range, reflecting a broader trend of liquidity drying up in the market. According to a recent report by Bitfinex Alpha, the cryptocurrency's price briefly dipped below the weekly open before closing 4.2% higher. This movement was influenced by optimistic news from the Federal Open Market Committee, although the subsequent 'sell-the-news' trading highlighted Bitcoin's sensitivity to macroeconomic factors.

Market Dynamics and Liquidity Concerns

Bitcoin's current price behavior mirrors that of a macro-sensitive asset, as volatility compresses and liquidity thins. The 'Hot Supply' metric, which measures speculative participation, has contracted from 5.9% in December 2024 to 2.8% recently. This indicates a cooling of speculative interest, with fewer coins changing hands and liquid capital exiting the market. Daily exchange inflows have also declined by over 54% from their cycle peak, reflecting broader investor hesitancy and a reduced appetite for near-term risk.

As Bitcoin consolidates near the lower end of its range, significant price movements will likely depend on renewed institutional flows and macroeconomic clarity, particularly concerning liquidity conditions and central bank policies.

Macroeconomic Factors at Play

The US economy faces mounting pressure, with trade tensions, slowing growth, and cautious consumer sentiment contributing to a fragile outlook. The Federal Reserve recently held its benchmark interest rate steady at 4.25–4.5%, adopting a wait-and-see approach amid rising uncertainty. Although industrial production surged in February due to defensive inventory stockpiling, the Federal Reserve views this as a temporary measure rather than an indication of sustainable demand.

The Conference Board's Leading Economic Index fell for the third consecutive month, highlighting weakening economic fundamentals. Consumer expectations, new manufacturing orders, and equity market declines, particularly in tech and small-cap stocks, indicate growing risk aversion. Bond yields also decreased following the Fed meeting, reflecting investor expectations for slower growth and a potential policy pivot.

Significant Developments in the Crypto Industry

The crypto industry witnessed significant developments last week, signaling growing institutional support and regulatory clarity. The US Securities and Exchange Commission (SEC) officially dropped its lawsuit against Ripple Labs, ending a long-standing legal battle over the status of XRP. This move triggered a 13% price surge and renewed investor confidence.

In another legal reversal, the US Treasury lifted sanctions on Tornado Cash after courts ruled that the initial ban overstepped legal bounds. This marks a victory for privacy advocates and reignites debate over the limits of financial surveillance. Additionally, President Donald Trump became the first sitting US president to address a crypto summit, advocating for stablecoin legislation, confirming the Strategic Bitcoin Reserve, and pledging regulatory clarity.

Together, these developments reflect a maturing industry entering a new phase of legitimacy and growth.