- Bitcoin’s liquidity inventory ratio fell sharply in July, leaving the market unable to handle even minimal sell-side pressure efficiently.
- ETF demand showed unstable flows with no steady inflows, removing institutional support and exposing Bitcoin to sharper price corrections.
- Accumulator addresses showed weak and delayed activity, failing to provide immediate market support during the steep end-of-month decline.
Bitcoin’s sharp price drop at the end of July can be traced to three main issues: collapsing liquidity, unstable ETF demand, and weak accumulation activity. The absence of strong market participants amplified the downward move.
Liquidity Inventory Ratio Fell Sharply
According to an analysis shared by CryptoQuant’s contributor @ArabxChain, the liquidity inventory ratio dropped drastically beginning mid-July. This ratio measures the number of months of available Bitcoin liquidity on exchanges. It fell to just over three months—levels not seen before.
While a shrinking supply typically favors higher prices in healthy markets, this time, the shortage met with weak demand. Without adequate buyer interest, even minimal selling pressure began to move the market lower. The situation created what is described as a fragile, thin market, where liquidity was too shallow to absorb regular trading activity without triggering volatility.
This liquidity crunch meant sell orders, even small ones, led to outsized price movements. Rather than supporting price growth, the supply-side contraction worsened the situation due to the lack of active capital on the demand side.
ETF Demand Remained Volatile and Inconsistent
ETF flows, often seen as a support system for Bitcoin during turbulent phases, showed unusual volatility. As Cryptoquant.com tweeted, inflows into Bitcoin ETFs were volatile, and sudden positive inflows were likely to be accompanied by equal negative outflows. These inconsistent patterns weakened institutional support during critical phases.
The inconsistency in ETF inflows meant that during fund withdrawals, there was no alternative demand to counterbalance the effect. As ETFs remain a major source of institutional interest in Bitcoin, their withdrawal at key moments made the market more vulnerable to further losses.
This pattern of erratic ETF activity sent mixed signals and removed a layer of reliability that typically underpins price floors. Without consistent participation from ETFs, the spot market was left exposed, especially when paired with weakening liquidity conditions.
Accumulation Activity Was Passive and Poorly Timed
The role of smart portfolios and accumulator addresses also came into focus. As shown in the chart referenced by Arab Chain, the pink shaded area indicated some accumulation activity, but it was slow and lacked momentum. There were no aggressive buy-ins during the downturn.
While these wallet addresses were adding Bitcoin, their pace did not align with the periods of market stress. The lack of synchronized buying meant that these accumulations did little to halt or cushion the price drop. Their passive nature made them ineffective as a stabilizing force.
This behavior suggested there was an underlying interest, but it was not strong enough to counter the immediate sell pressure. The timing of the accumulation was not aligned with the price drop, leaving the market without a dependable safety net.
