Bitcoin’s price [BTC] reached a local high of $94.7k on Monday, January 5. In an earlier report, AMBCrypto highlighted why analysts thought a retracement towards $80.6k was likely.
The presence of liquidation levels above the local resistance of $94.5k and a cluster of liquidations below the local support of $84k provided the response to this expectation. Such a price drop could occur, although it may be too early to be sure.
After reaching Monday’s high, Bitcoin fell 2.40%, with the crypto trading at $92.5k at the time of writing. However, despite the risk of a near-term price drop, there are compelling indications that liquidity could come into play and help BTC recover.
Bitcoin Purchasing Power and Net Capital Flow Evidence
Source: CryptoQuant
In a post on CryptoQuant Insights, analyst Donkerfost noted that current Bitcoin/stablecoin data “remains very constructive.” New inflows of stablecoins to the exchange, combined with the falling BTC price during the December correction, pushed the ratio lower.
This showed that there was great purchasing power in the market. The signal it gave at the time of writing was “particularly convincing”. The ratio has moved higher since early January, which could mark the early stages of capital deployment.
Analyst Axel Adler noted that overall capital flows remained negative from December 26 to January 3. This meant that realized losses exceeded realized gains, with peak pressure on December 26.
By the end of the week, capital flows had turned weakly positive. The realized gains slightly outweighed the losses. Glassnode data confirmed the bullish shift of recent days.
Finally, the 7-day moving average of the Bitcoin profit/loss ratio was below 1 for most of December, but turned back above 1 and reached 1.78.
The drop in Bitcoin supply in circulation, alongside strong ETF inflows, supported the idea that Bitcoin could post further gains in the coming weeks.
Final thoughts
- Bitcoin is up 6% so far in January, with capital sidelined reflecting the high purchasing power in the market.
- Short-term capital flows have not yet offset December’s heavy losses.