Deteriorating macro-financial conditions and sustained capital outflows continue Bitcoin’s cyclical deleveraging | Bitcoin | Research Report | Cryptocurrency Market Analysis | Bear Market Recovery

During the reporting period (May 17–23), $Bitcoin (BTC.CC)$ Bitcoin opened at $78,105.46 and closed at $76,650.00, down 1.86%. Tightening macro-financial conditions, pressure from the 200-day moving average, and stop-loss selling by long-term holders on a single-cycle timeframe jointly dampened the rebound sentiment that had built up since April, triggering two-way capital outflows and keeping loss-making trades dominant in the market.

The Fed's hawkish May 20 meeting minutes—which triggered the most dissent since 1992 with four opposing votes—and persistently high inflation data (CPI up 3.80% year-over-year and PPI surging 6.00% YoY) jointly pushed global financial conditions into a 'tightening' regime. This 'macro headwind' transmitted to crypto markets, triggering significant spot-market capital outflows.On-chain, the short-term holder MVRV ratio fell to 0.98, and the network-wide SOPR metric dropped comprehensively below the 1.0 equilibrium level, indicating further deterioration in on-chain structure under dominant spot outflows and selling pressure. The liquidation cohort has expanded from long-term holders in single-cycle positions to short-term holders.

Macro Finance

During this reporting period, global financial conditions were classified as 'tightening,' creating clear 'headwinds' for Bitcoin valuation.

On the policy front, the Fed’s May 20 meeting minutes signaled the most divided hawkish pivot since 1992. Traders now price in a 60% probability of a rate hike by December. The event’s impact magnitude is rated 'high' with 'structural' persistence, making it the core driver shaping this period’s financial environment.

This week saw liquidity and monetary policy exerting simultaneous quantitative contraction and pricing-tightening pressures. Fed net liquidity declined to $5,926.80 trillion, down 0.71% week-over-week, reflecting continued erosion of base liquidity. Although the Secured Overnight Financing Rate (SOFR) stood at 3.51%, down slightly by 4 bps week-over-week—indicating modest short-term funding relief—this failed to offset medium- to long-term liquidity tightening. On the inflation front, CPI rose 3.80% YoY (above the expected 3.70% and prior 3.30%), while PPI surged to 6.00% YoY (far exceeding the prior 4.30%), reigniting inflation alarms and further diminishing prospects for marginal liquidity easing, thereby cementing a materially tightening policy stance.

Amid resurgent inflation and hawkish minutes, Treasury yields and exchange rates remained elevated. The 2-year U.S. Treasury yield closed at 3.59% (unchanged from last week), staying stubbornly high; the 10-year yield dipped slightly to 4.56% (down 4 bps week-over-week), maintaining a deeply inverted yield curve. Meanwhile, the U.S. Dollar Index edged up 0.05% to close at 99.32. Additionally, the U.S. unemployment rate came in at 4.30% (below the prior 4.40%), underscoring labor market resilience and providing fundamental support for the Fed to delay rate cuts—or even restart hikes.

Despite the tight macro backdrop, U.S. equities posted gains this week: the S&P 500 rose 0.88%, the Nasdaq edged up 0.45%, and the Dow Jones Industrial Average climbed significantly by 2.13%. This counter-trend rally in risk assets diverges from hard data showing declining Fed net liquidity, suggesting a lag in transmission between tightening liquidity and short-term market sentiment.However, as a 'leading indicator of global risk appetite and liquidity,' Bitcoin declined first. Going forward, attention should focus on whether U.S. equities—currently trading at elevated valuations with narrowing breadth of gains—can sustain their highs.

Cryptocurrency market

Against this macro tightening backdrop, the crypto market this week was characterized by spot-market selling pressure and persistent capital outflows.

In terms of price and volume performance, Bitcoin traded sideways to lower this week, posting a weekly decline of 1.86% with a volatility range of 5.60%. As prices softened, market activity showed signs of contraction, with 7-day average daily trading volume down 3.30% compared to last week.

In terms of marginal fund flows, external incremental capital showed a pronounced outflow. Bitcoin ETFs recorded a net outflow of $1.25 billion this week, with the single-day peak outflow reaching $644.56 million on May 18. Meanwhile, stablecoin supply decreased by $541.55 million this week. The simultaneous contraction in both ETFs and stablecoins indicates that the market as a whole is experiencing capital outflows and bleeding.

From the perspective of exchange and derivatives market structure, spot selling pressure was the dominant force driving price declines this week. Net inflows to exchanges reached 17,761 BTC, with weekend balances increasing by 16,973 BTC, indicating a significant amount of coins flowing into exchanges for distribution. Meanwhile, open interest (OI) in the derivatives market remained broadly stable at $66.14 billion, showing no blind accumulation of leverage, and highlighting a clear spot-driven market dynamic.

Regarding on-chain profitability and holder behavior, the network-wide MVRV ratio slightly declined to 1.42, the long-term holder (LTH) MVRV dipped modestly to 1.58, while the short-term holder (STH) MVRV fell to 0.98—indicating that short-term holders are facing substantial unrealized losses and pressure. Behaviorally, the overall SOPR dropped to 0.99 this week, with LTH SOPR and STH SOPR falling to 0.93 and 0.99 respectively, all below the breakeven threshold of 1.0. This implies that various holder cohorts are realizing losses and choosing to sell at a loss. During this period, short-term holder supply sharply declined by 23,882 BTC, while long-term holder supply increased by 9,527.03 BTC, suggesting concentrated capitulation by short-term holders under loss pressure, while long-term holders demonstrated strategic accumulation and absorption.

According to the 'EMC Labs Bitcoin Cycle Assessment Framework,' Bitcoin remains in the latter stage of a cyclical bear market, characterized by ongoing capital outflows, declining activity, and continued liquidation of both long- and short-cycle positions.

Market Dynamics

Combining macro and micro data, the current Bitcoin market is exhibiting profound structural shifts.

First, regarding the 'relationship between macro conditions and the crypto market,' the two are clearly in a state of 'resonance.' Structural macro policy tightening and reignited inflation constitute systemic headwinds, while Bitcoin’s price decline—driven by spot selling—is directly synchronized with macro tightening.

Second, in terms of the 'transmission mechanism,' this cycle has confirmed 'active transmission.' Expectations of structurally tighter Federal Reserve policy have directly triggered the withdrawal of external capital through spot channels, which subsequently generated direct spot selling pressure via net exchange inflows, pushing Bitcoin prices lower. Although U.S. equities briefly exhibited lagging divergence, Bitcoin—as a highly sensitive asset—has clearly absorbed the full transmission of liquidity contraction.

Third, in 'market structure assessment,' the market exhibits significant fragility and extremely limited strength. Fragility is primarily reflected in the 'resonance between spot outflows and loss-driven liquidation.' The only remaining resilience stems from sustained on-chain accumulation by long-term holders, indicating that while short-term holders panic-sell at a loss, long-term capital continues strategic bottom-fishing—providing a degree of marginal cushion during the sharp downturn.

Market Outlook

Given the strong resonance between macro liquidity tightening and cyclical crypto market deleveraging, any near-term stabilization or structural reversal will require close monitoring and validation of marginal changes in the following core indicators.

Macro-financial context verification: Geopolitical tensions continue to fuel inflation expectations. Whether the U.S. and Iran can reach an agreement and whether the Strait of Hormuz can reopen soon will be critical in lowering crude oil futures prices and dampening inflation expectations. Additionally, next week’s release of PCE data, the revised annualized Q1 GDP growth rate, and the May Consumer Confidence Index from The Conference Board will provide further trading guidance.

Verification of reversal in external capital flows: Whether Bitcoin ETFs can reverse their current net outflow of $1.25 billion this week and resume substantial net inflows; simultaneously, whether stablecoin supply resumes growth, confirming the re-establishment of external liquidity 'infusion' channels.

Verification of diminishing spot selling pressure on exchanges: Assess whether this week's net inflow of 17,761 BTC into exchanges and the increase of 16,973 BTC in exchange balances significantly slows down or even shifts to sustained net outflows, confirming the end of the spot-selling peak.

On-chain holder cost recovery verification: Closely monitor whether short-term holders’ MVRV can move back above the 1.0 equilibrium level, and whether overall SOPR and short-term holder SOPR can break above 1.0. If these indicators rise back above 1.0, it would confirm that loss-making coins have been fully transferred, the capitulation phase among short-term holders has ended, and market confidence is being restored.

The above analysis is provided by EMC Labs.

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About EMC Labs

EMC Labs is a partner of Victory Securities, and together they have launched the only virtual asset fund approved by the SEC to accept stablecoin subscriptions—the Victory EMC BTC Cycle Fund. EMC Labs was co-founded by seasoned virtual asset investors and data scientists, with a core team hailing from JD.com Finance, Bell Labs, Marsbit, and other companies. EMC Labs has invested substantial resources in building a professional engine to analyze Bitcoin’s on-chain data and technical indicators.

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