The rapid recovery of Bitcoin (BTC), below $90,000 since Monday, suggests a bullish outlook. However, one factor casts doubt on the sustainability of these gains, pointing to significant downward volatility if impending U.S. inflation data is hotter than expected on Wednesday.
This factor is the supply of major stablecoins, which has stalled, 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 30-day net change of only 0.37%.
Stablecoins are cryptocurrencies whose values are linked to an external reference such as the US dollar. These tokens are widely used to finance cryptocurrency purchases and served as a safe haven during the 2022 bear market.
The latest slowdown in new liquidity via stablecoins, which suggests a weakened buying environment ahead of the release of the U.S. Consumer Price Index (CPI), stands in stark contrast to the expansion stable liquidity seen during the November-December rally and early last year.
“The fact that the late 2024 rally required almost twice as much capital inflow for a smaller price gain highlights the speculative demand and liquidity-driven momentum that has since cooled,” Glassnode said in a note from Telegram.
Data due Wednesday at 1:30 p.m. UTC is expected to show that the cost of living rose 0.3% month-on-month in December, matching the pace in 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 than expected in cutting interest rates. These concerns, reinforced by Friday’s explosive jobs report, are partly responsible for BTC falling below $90,000 on Monday.
The latest drying up of stablecoin liquidity, often presented as dry powder waiting to be deployed for crypto purchases, stands in stark contrast to the $27.3 billion in inflows recorded in November and December that partly greased the race bullish BTC from $70,000 to over $108,000.
At the same time, a much smaller stablecoin inflow of $14.68 billion was seen in the first quarter of 2024, when prices increased by almost 70% to over $70,000.
