BIT Research: As Liquidity Fades, Will Bitcoin Repeat the 2021 Bottoming Pattern?
- Key Insight: The current market is in an adjustment phase dominated by a hawkish shift in policy expectations and ongoing liquidity contraction. Bitcoin faces short-term pressure, but this adjustment process could lay the foundation for a cyclical bottom before the next bull run.
- Key Factors:
- Hawkish signals from Fed Chairman Kevin Warsh have shattered easing expectations. With inflation at 4.2%, far above the target, the prospect of rate hikes is re-emerging, raising risk premiums.
- The trend model indicates that if Bitcoin remains below $73,700, it maintains a bearish outlook. The key support level is $62,446; a break below could accelerate the downside.
- Daily trading volume has shrunk to approximately $50 billion, only 25% of the 2025 peak of around $200 billion, signaling significant liquidity contraction.
- The 12-month growth rates for stablecoins USDT and USDC have fallen from their peaks to around 20%, with 6-month growth rates nearing zero, indicating insufficient new capital inflow.
- The supportive effect of Strategy purchasing Bitcoin through STRC preferred stock financing is gradually fading. The market's 30-day rolling capital flow remains in a state of net outflow.
The current market is in an adjustment phase jointly driven by policy expectations and liquidity shifts. Geopolitical easing and an outperformance in the SpaceX IPO initially pushed Bitcoin to bounce from technically oversold levels. However, unexpected hawkish signals from newly appointed Fed Chair Kevin Warsh stripped the market of its anticipated loose policy support. Concurrently, stablecoin liquidity continues to contract, with a notable lack of new capital inflows, leading the market back into the typical low-volume summer trading period.
Based on current pricing, the market still lacks the macro catalysts needed to fuel a new rally. Daily trading volumes have shrunk significantly compared to the 2025 peak, stablecoin growth rates continue to decelerate, and the supporting effect from Strategy (formerly MicroStrategy) buying Bitcoin via STRC preferred stock financing is gradually fading. Under the combined pressures of policy uncertainty, seasonal weakness, and liquidity contraction, Bitcoin's short-term outlook remains under strain.
Escalating Hawkish Expectations: Policy Uncertainty Suppressing Market Risk Appetite
The market had broadly anticipated dovish signals from the new Fed Chair Kevin Warsh, but the FOMC surprisingly pivoted hawkish. Several committee members hinted that further rate hikes are possible this year if inflationary pressures persist, and Warsh clearly expressed his determination to rebuild policy credibility.
Trend models indicate that as long as Bitcoin remains below $73,700, the overall trend remains bearish, with key resistance levels gradually moving lower over time. Meanwhile, Warsh’s refusal to disclose his personal dot plot projections has left the market without a clear policy anchor, causing risk premiums to rise. Historically, such uncertainty tends to be unfavorable for sustained Bitcoin rallies.
From a technical perspective, $62,446 remains a critical support level. A break below this point could accelerate the downward trend. However, similar to the bottoming process seen in 2022, the market may also undergo a prolonged period of consolidation, gradually forming a cyclical low.
Persistent Liquidity Contraction: Insufficient New Inflows Limiting Upside Potential
Beyond macro factors, insufficient liquidity is becoming a core constraint for the market. Daily trading volume has sometimes shrunk to around $50 billion, while the average daily volume during the July-October 2025 rally was approximately $200 billion—only about 25% of that previous peak.
Stablecoin growth has also slowed markedly. The 12-month rolling growth rates for USDT and USDC reached 52% and 122%, respectively, at the end of 2025. Current year-over-year growth rates have pulled back to around 20%, and six-month growth rates are nearing zero, reflecting a significant weakening in new liquidity.
Meanwhile, capital inflows from Bitcoin ETFs and Strategy have notably diminished compared to before. Previously, Strategy’s aggressive issuance of STRC preferred stock drove Bitcoin up by approximately $15,000, a gain of nearly 20%, but this supporting effect is now waning. The current 30-day rolling net flows remain negative, and without strong new catalysts, a sustained uptrend is difficult to establish.
Overall, with an inflation rate of 4.2% well above the Fed's 2.0% target, coupled with a hawkish stance, typical summer seasonal weakness, and insufficient liquidity, Bitcoin currently lacks adequate support to sustainably hold above $60,000. However, as the market gradually completes the clearing process, this adjustment could still form a cyclical low this summer. While a rapid new uptrend may not be imminent, this process might be laying the groundwork for the next bull market cycle.
Some of the above insights are from BIT on Target, contact us to obtain the full BIT on Target report.
Disclaimer: The market carries risks, and investment requires caution. This article does not constitute investment advice. Digital asset trading may involve significant risks and volatility. Investment decisions should be made after careful consideration of personal circumstances and consultation with financial professionals. BIT is not responsible for any investment decisions made based on the information provided in this content.
