Bitcoin stagnation hints at potential volatility as demand decreases

Bitcoin’s (CRYPTO:BTC) market is currently experiencing stagnation, with limited capital inflows and outflows, according to a new report by on-chain analytics firm Glassnode. 

The report highlights that this period of inactivity could lead to heightened volatility in the near future. 

Researchers Ukuria OC and Cryptovizart revealed that Bitcoin’s Realized Cap, which reflects net capital flow, has remained flat over the past two months, standing at $622 billion. 

Glassnode’s analysis shows that demand for Bitcoin has diminished, with transactions occurring close to the original acquisition price. 

"At present, we can see that both profit and loss forces are largely equal, resulting in a marginal net flow and a general oscillation around the zero bound," the report explained. 

This current market behavior bears similarities to the August-September period of 2023, suggesting a degree of equilibrium has been established. 

On the supply side, the market is tightening as fewer coins are available for immediate transactions. 

The report notes that the "Hot Supply," or coins held for less than a week, has dropped to just 4.7% of the total network wealth. 

This indicates that long-term holders, or "hodlers," are increasingly dominating the market, while short-term trading activity has declined significantly. 

The Glassnode researchers pointed out that this increased "stored supply" suggests a further tightening of the market. 

As long-term holders continue to hold onto their coins, the volume available for active transactions continues to shrink. 

Meanwhile, stablecoin liquidity remains at historically high levels, yet this capital is not being deployed into Bitcoin or other risk assets. 

Glassnode analysts believe that the combination of a stagnant Bitcoin market and a growing stablecoin reserve could lead to increased volatility. 

The Sell-Side Risk Ratio, which measures profit and loss-taking behavior, shows that both short-term and long-term holders are largely inactive, waiting for the next significant market shift. 

At the time of reporting, the Bitcoin (BTC) price was $62,349.10.