A recent evaluation of the Bitcoin market has surfaced, suggesting that the premier cryptocurrency is suffering from a lack of structural strength. Notably, the cause of the weakness is a combination of interrelated underlying factors.

In a recent CryptoQuant post via QuickTake, XWIN Research Japan highlights that the Bitcoin market is going through a critical phase, where slight institutional activity could offset major changes in its price. The research group points out reasons for this hypothesis, stating first that there has been a significant decline in trading volume.

According to XWIN Research, this fall in trading volume has occurred for several months, resulting in little market liquidity. In this condition, the market is highly sensitive to news and even short-term flows, creating an exponential effect on the market.

This present situation is further reinforced by the Bitcoin: Active Addresses metric, which tracks the number of unique wallet addresses actively sending or receiving Bitcoin over a given period. When active addresses decline alongside price, it indicates a weak demand is present, and that the Bitcoin market is likely to struggle with a recovery.

Notably, XWIN Research Japan states that “while some on-chain metrics have recently improved, they are not strong enough to confirm a trend reversal.” As such, any reversal seen in the current market conditions could be merely temporary.

Aside from the internal dynamics of the Bitcoin market, broader macroeconomic forces are also playing a significant role in Bitcoin’s price weakness. The research group explains that the rise in oil prices caused by the US-Israel-Iran conflict has boosted inflation expectations higher than usual. For this reason, the macroeconomic market is witnessing a rise in expectations for a rate hike and tightening financial conditions.

Concurrently, inflation concerns have led to significant sell-offs of bonds, causing a simultaneous decline across equities, gold, and cryptocurrencies. Notably, this behavior is in contrast with that expected during traditional risk-off scenarios, where capital typically rotates into safer assets (bonds, for example). 

Ultimately, XWIN Research Japan sees the Bitcoin price dropping further in the near-term, except in the event where current liquidity conditions and on-chain activity both see definite recovery. In this case, the central factor that would define the market conditions is the US-Israel-Iran conflict, as this influences inflation levels and interest rates, which would in turn affect the overall direction of the market.

At the time of writing, the price of Bitcoin stands at around $65,981. Per data from CoinMarketCap, the world’s leading cryptocurrency has been devalued by approximately 4.01% since the past day.

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