Money Is Rotating Back Into Bitcoin, On-Chain Data Shows

Bitcoin (BTC) is showing early signs of a liquidity rotation, with on-chain metrics and futures positioning both pointing to a gradual shift in investor behavior.

The move comes as BTC’s price has seen a modest recovery amid the conflict between the US, Israel, and Iran.

Stablecoin-to-BTC Pipeline Reopens

In a post on X (formerly Twitter), analyst Darkfost noted that at the end of February, Bitcoin’s realized cap hit an extreme low of -$28.7 billion. At the same time, stablecoin market capitalization grew to over $6 billion.

This reflected defensive positioning by investors looking to preserve capital without fully exiting the market. According to the analyst,

“This marked the first time such a rotation had been observed since the previous bear market. At that stage, this configuration signaled a clear intention from investors to protect their capital.”

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Capital Rotation Between Stablecoins and Bitcoin. Source: X/Darkfost

However, the picture has since shifted. Bitcoin’s realized cap has recovered to -$3 billion. Meanwhile, stablecoin capitalization has declined to -$1 billion. Capital that once sat on the sidelines appears to be flowing back into the largest cryptocurrency.

Futures Positioning Mirrors 2023 Pre-Breakout Setup

Derivatives data support the optimism. Analyst Michaël van de Poppe noted that speculators are now net long on Bitcoin.

“Very similar to previous cases where we’ve seen the same before a big breakout in 2023. Commercials’ Net Position has been net short on the markets, which is the inverse of the speculators,” Poppe said.

Bitcoin Commercials and Speculators’ Position. Source: X/Michaël van de Poppe

Van de Poppe suggested that BTC could reach $80,000- $85,000. He cautioned, however, that the data points to elevated volatility rather than a guaranteed directional move.

“Now, this doesn’t guarantee that we’re going to be breaking upwards massively. It does say that there’s a significant chance for volatility, also knowing that we’ve been ranging in this area for two months and markets refused to fall down,” he wrote.

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The timing of these shifts is worth noting. Darkfost stated that it began as uncertainties surrounding the Iran conflict reached their peak. 

“Almost as if some investors are starting to view Bitcoin as an edge against inflationary and economic risks stemming from the situation,” he remarked.

Bitcoin has gained over 10% since the war began on February 28. For now, the recovery remains modest, but Darkfost suggested that if the rotation continues, the asset’s recovery could continue.

BeInCrypto Markets data showed that BTC gained over 1% over the past day as ceasefire negotiations continue in Pakistan. At press time, the cryptocurrency traded at $72,900.

Bitcoin Price Performance. Source: BeInCrypto Markets