Bitcoin (BTC)’s rapid recovery from below $90,000 since Monday hints at bullish prospects. However, one factor casts doubt on the sustainability of these gains, indicating room for significant downside volatility if the impending US inflation data comes in hotter than expected on Thursday.
That factor is the supply of major stablecoins, which has stagnated, indicating the absence of new capital inflows into the market. Data tracked by Glassnode shows that the supply of the top four stablecoins by market value (USDT, USDC, BUSD, and DAI) has stabilized around $189 billion, representing a net 30-day change of just 0. .37%.
Stablecoins are cryptocurrencies with values linked to an external reference such as the US dollar. These tokens are widely used to fund cryptocurrency purchases and acted as a safe haven during the 2022 bear market.
The latest slowdown in new liquidity through stablecoins, which suggests a weakened buying environment as the release of the US consumer price index (CPI) approaches, stands in stark contrast to the liquidity expansion of stablecoins observed during the November-December rally and early last year.
“The fact that the late 2024 rally required nearly double the capital inflow for a smaller price gain underscores the speculative demand and liquidity-driven momentum that has since cooled,” Glassnode said in a note. from Telegram.
Data due to be released on Wednesday at 13:30 UTC is expected to show that the cost of living rose 0.3% month-on-month in December, matching the pace of November. The year-on-year figure is expected to be 2.9%, up from 2.75 in November. The core figure, which excludes the volatile food and energy component, is expected to have increased 0.2% month-on-month and 3.3% year-on-year.
A higher-than-expected headline/core figure will likely reinforce recent concerns that the central bank will be less aggressive in cutting interest rates than expected. These concerns, reinforced by Friday’s spectacular jobs report, were partly responsible for BTC falling below $90,000 on Monday.
The latest depletion of stablecoin liquidity, often touted as dry powder waiting to be used for cryptocurrency purchases, stands in stark contrast to the $27.3 billion in inflows recorded in November and December that partly fueled the bull run. of BTC from $70,000 to over $108,000.
Meanwhile, a much smaller stablecoin inflow of $14.68 billion was seen during the first quarter of 2024, when prices rose nearly 70% to over $70,000.
