Around Christmas, Bitcoin experienced a significant correction, with a decline of 22.8%. Many new investors who entered the market during this wave suffered losses, and there have been numerous messages expressing confusion—unable to understand why Bitcoin is rising or falling, and unsure how to seize opportunities or avoid risks.

In fact, Bitcoin's price fluctuations are not as complicated as they seem. Ultimately, there are three core factors driving price movements: capital flow, market demand, and investor sentiment. These three influence each other and complement each other, ultimately determining Bitcoin's performance in the market.

**Capital flow is the primary driving force.** From a different perspective, the ups and downs of Bitcoin's price are essentially the result of capital movements. Continuous inflow of funds into the market will keep the price rising; conversely, persistent outflow will naturally lead to a decline. Judging capital trends is quite straightforward—just observe two sets of data: first, whether institutional funds are net inflows or net outflows; second, the change in trading volume for the day. When institutional funds are continuously net inflows and trading volume is expanding simultaneously, it indicates that large capital is actively positioning, and the probability of price increases is higher. Conversely, if institutional funds are constantly flowing out and trading volume is shrinking, it’s a warning sign, indicating that market enthusiasm is cooling down. The current market situation reflects this—institutional funds are continuously net outflows, and trading activity is noticeably declining. This trend is difficult to reverse in the short term.

**Demand directly influences price direction.** From a basic economic perspective, when demand is sufficient and buying interest is strong, prices naturally rise; when demand is weak and there are few buyers, prices are under pressure to fall. To accurately gauge demand, one can refer to on-chain data platforms, where demand heat indices reflect market participation and purchasing willingness in real time.

**Sentiment often acts as a catalyst for price fluctuations.** When market sentiment is optimistic, investors are more willing to chase the market; when sentiment is pessimistic, they tend to sell off and exit. Around Christmas, the overall market sentiment is relatively weak, which is an important background for the correction. Going forward, investors need to stay alert in three dimensions—funds, demand, and sentiment—to better grasp market rhythm and avoid blind trading.