Stablecoin Supply Stagnation Poses Potential Risk to Bitcoin’s Bullish Momentum
Bitcoin’s (BTC) recovery from below $90,000 earlier this week suggests promising bullish prospects. However, there is one critical factor that could undermine the sustainability of these gains: the stagnation in stablecoin supply, which points to a lack of fresh capital entering the market. This could lead to significant downside volatility, especially if upcoming U.S. inflation data shows stronger-than-expected results on Wednesday.
According to data from Glassnode, the combined supply of the top four stablecoins—USDT, USDC, BUSD, and DAI—has remained virtually unchanged over the past 30 days, stabilizing around $189 billion. This marks a meager 0.37% net change over the period. Stablecoins are pegged to external assets like the U.S. dollar and are commonly used to fund crypto purchases or as a safe haven during market downturns, as seen in the 2022 bear market.
The current slowdown in stablecoin liquidity highlights a cooling demand environment heading into the release of U.S. Consumer Price Index (CPI) data. This is in stark contrast to the robust liquidity expansion observed during the November-December rally and early 2024, which contributed to rising prices. “The late-2024 rally required nearly 2x the capital inflow for a smaller price gain, emphasizing the speculative demand and liquidity-driven momentum that has since slowed,” Glassnode explained in a Telegram update.
The CPI data is expected to show a 0.3% month-on-month increase for December, matching the previous month’s pace, with the year-on-year figure forecasted at 2.9%—a slight rise from 2.75% in November. The core CPI, excluding volatile food and energy prices, is projected to increase by 0.2% month-on-month and 3.3% year-on-year.
If these figures exceed expectations, it could reinforce concerns about the Federal Reserve’s ability to cut interest rates more aggressively, which was a key factor in Bitcoin’s decline to below $90,000 earlier in the week. The drying up of stablecoin liquidity—often seen as dry powder ready to fuel crypto purchases—contrasts sharply with the $27.3 billion in inflows during November and December that played a significant role in pushing Bitcoin from $70,000 to over $108,000.
In comparison, during the first quarter of 2024, stablecoin inflows were much lower at $14.68 billion, despite Bitcoin prices rising by nearly 70% to surpass $70,000. The absence of strong new liquidity entering the market could be a key indicator of the challenges ahead for Bitcoin and the broader cryptocurrency market.
