Coinbase expects the cryptocurrency market to enter a recovery phase in December as liquidity improves and selling pressure from long-term Bitcoin holders decreases.
On December 5, the US cryptocurrency trading platform reported that market conditions have changed in recent weeks. It pointed to an influx of new capital, narrower spreads, and stronger macroeconomic support.
Coinbase: Liquidity conditions are improving as the chances of Fed cuts rise
The exchange highlighted the increase in expectations for a rate cut by the Federal Reserve. Data from CME FedWatch shows a probability close to 90% for the meeting on December 10.
The platform added that the rebuilding of liquidity is a sharp turnaround from the sustained outflow that defined October and November.
Indeed, broader money supply data seems to support this thesis. Data from the Federal Reserve shows that M2 has risen to a record level of $22.3 trillion, surpassing the peak from early 2022 after a rare, multi-year contraction.
Analysts often track M2 to understand changes in liquidity and inflation expectations. Furthermore, increased liquidity has historically coincided with stronger Bitcoin performance. All this, considering the fixed supply of this asset of 21 million coins.
At the same time, Coinbase stated that positioning against the dollar looks attractive at current levels. This could further attract more risk-seeking investors back to cryptocurrencies.
Additionally, the company argued that so-called AI trading still has momentum and continues to attract money to the sectors of digital assets related to automation and demand for computers.
Long-term Bitcoin holders are stepping back from selling
It is worth noting that on-chain indicators are pointing in the same direction as Coinbase. In this context, on-chain researcher in CryptoQuant Darkfost stated that spending from Bitcoin wallets older than five years has sharply declined after months of heightened activity from this group.
He noted that the average daily sales of these long-term holders have decreased. This is a drop to about 1000 BTC from approximately 2350 BTC on a 90-day moving average. This metric often signals pressure from investors who accumulated coins at lower historical price ranges, including around $30,000.
Darkfost also added that declines in UTXO activity and issued production indicate a reduction in tension as the market cycle progresses. Thus, reduced selling from 'OG' gives Bitcoin more room to consolidate after a tumultuous autumn. The analyst explained:
"These data suggest that selling pressure from OG is decreasing, giving the market a bit more breathing room. It is worth noting that their selling pressure seems to be diminishing as the cycle progresses, and STXO peaks (90-dma) from these OG are becoming lower and lower."
Putting all this together, Coinbase believes that improving liquidity, supportive macroeconomic indicators, and easing supply pressure create the foundations for a stronger December. If momentum holds, Bitcoin could record its first positive December result since 2023.
To check out the latest cryptocurrency market analysis from BeInCrypto, click here.
