Bitcoin (BTC) dropped below $90,000 again today during the early Asian trading hours, despite positive macroeconomic developments.
An analyst indicated that the decline in stablecoin inflows is a significant reason for Bitcoin's ongoing weakness. He suggests that fresh liquidity is necessary for a bullish rally.
The key catalyst Bitcoin needs to become bullish again
Data from BeInCrypto Markets shows that December has been a volatile month so far for the largest cryptocurrency. This comes after two consecutive months of losses, with Bitcoin even recording the largest monthly loss of the year in November.
At the time of writing, BTC was trading at $89,885, a decrease of 2.7% in the past 24 hours. This decline follows despite the Federal Reserve's decision yesterday to lower the interest rate for the third time this year.
The bank lowered the interest rate by 25 basis points to a range of 3.50%–3.75%. Interest rate cuts are typically seen as bullish for the crypto market. Many people also expected a recovery.
Yet, the price moved in the opposite direction. So if this isn't it, what does Bitcoin need to break out of the downward trend?
According to Darkfost, it's liquidity. The analyst explains that the inflow of stablecoins to exchanges has dropped from $158 billion in August to about $76 billion now.
That means a drop of 50% in just a few months. Meanwhile, the 90-day average fell from $130 billion to $118 billion, indicating a clear downward trend.
"One of the main reasons Bitcoin is struggling to recover now is the lack of incoming liquidity. When we talk about liquidity in the crypto market, we primarily mean stablecoins," the report states.
The analyst adds that this strong drop in stablecoin inflow indicates declining demand. Bitcoin is now facing persistent selling pressure that is not being met by new capital. The trend also shows that small recoveries mainly come from less selling, not from new buyers.
"For Bitcoin to become truly bullish again, it is important that new liquidity enters the market," notes Darkfost.
BeInCrypto also pointed out in a recent report that stablecoin issuers are still creating new tokens. The market capitalization of major stablecoins such as Tether (USDT) and Circle's USDC even reached new highs this month.
Yet, the data shows that much of the supply is being used for cross-border payments. Moreover, a large portion of the inflow is going to derivatives exchanges instead of spot platforms.
"Asia leads with the highest volume of stablecoin activity, more than North America. Compared to gross domestic product, Africa, the Middle East, and Latin America stand out. Most flows go from North America to other regions," the IMF wrote in a recent report.
The recent drop in Bitcoin shows that macroeconomic factors alone are no longer enough to drive the market. The data clearly indicates that new stablecoin liquidity is the missing ingredient for a sustainable bullish recovery. Market sentiment also needs to improve. Fearful behavior and low engagement continue to slow the capital flow to Bitcoin.
