Arbitrum [ARB] has not escaped the broader market downturn, despite improving network fundamentals. Arbitrum, a leading Layer 2 blockchain with its native token ARB, experienced a sharp pullback that resulted in a 10% loss over the past 24 hours, at press time.
What makes the recent pullback notable is that it was not solely driven by perpetual futures traders, as is often the case. Instead, on-chain capital rotation played a significant role in ARB’s underperformance.
Fundamentals paint a contrasting picture
From a fundamental standpoint, activity on the Arbitrum chain over the past 24 hours suggested the potential for a rebound rather than a decline. However, price action told a different story.
During this period, both Daily Transactions and Daily Active Users rose simultaneously. Data from Artemis shows that Daily Active Users climbed to 4.3 million, while active addresses reached 162,700.
This translates to an average of approximately 26 transactions per user, signaling strong network engagement.
Source: Artemis
At first glance, this level of activity appears fundamentally bullish. Increased on-chain transactions typically support network utility and, by extension, token demand, as the native asset often facilitates ecosystem interactions.
However, deeper analysis reveals that while ARB may have seen modest utility growth, significant capital outflows undermined the broader outlook.
Capital outflows shift market confidence
The bearish tilt emerged primarily from substantial on-chain outflows. Artemis reports that Arbitrum recorded the largest bridged net outflow among major chains in the past day.
Approximately $56.9 million worth of capital exited the network and rotated into other chains, a common sign of liquidity reallocation within the crypto market.
Two ecosystems benefited most from this movement: Ethereum [ETH] and Hyperliquid [HYPE]. Ethereum absorbed roughly $34.7 million, accounting for 59% of the outflows, while Hyperliquid attracted about $17.7 million, representing 30.59%.
Source: Artemis
Despite these inflows, price action for both assets remained relatively neutral, indicating that the capital migration did not immediately trigger strong upward momentum.
Nonetheless, this rotation reflects a shift in market confidence away from ARB and toward rival ecosystems.
Community Sentiment data from CoinMarketCap underscores this trend, with bullish conviction for ARB falling from 83% on the 18th of February to 48% at press time. The decline in sentiment closely mirrors ARB’s recent price drop.
Derivatives market amplifies downside pressure
While spot outflows initiated the weakness, derivatives markets appear to have intensified it.
At the time of writing, data from CoinGlass indicated that the OI-Weighted Funding Rate turned negative, printing at -0.0056%.
A negative Funding Rate suggests that short traders are paying longs, meaning that a growing share of Open Interest (OI) is positioned for further downside.
In addition, approximately $3 million in fresh liquidity entered the derivatives market. Rather than supporting price stability, this capital largely reinforced short exposure, increasing downside pressure on ARB.
Source: CoinGlass
The imbalance between long and short liquidations further highlights the prevailing bearish bias. Over the past 24 hours, for every $1 lost by short traders, long traders lost approximately $37. This sharp divergence underscores the extent to which bullish positions were aggressively unwound.
From a technical perspective, the current structure favors sellers. Price continues to decline while trading volume rises, a pattern that often reflects strong distribution. Historically, this divergence between falling price and rising volume tends to precede further downside.
For now, both spot-driven capital rotation and derivatives positioning suggest that bearish momentum remains elevated, leaving the possibility of additional declines in ARB firmly in play.
Final Summary
- Arbitrum recorded a surge in transactions and user activity, with little impact on the ARB token.
- On-chain liquidity outflows reached $56.9 million, while derivatives markets channeled $115 million largely into short positions.