Bitcoin (BTC) fell again below $90,000 in early Asian markets today, although positive macroeconomic factors supported the sentiment.
One analyst pointed out the decrease in stablecoin investments as one of the main reasons for Bitcoin's recent weakness. According to him, new liquidity is essential for a bullish price rally.
The key catalyst that Bitcoin needs to return to a bull market
Data from BeInCrypto Markets showed that December has been volatile for the largest cryptocurrency. This follows two consecutive months of decline, and in November, Bitcoin experienced its largest monthly drop of the entire year.
At the time of writing, the price of BTC was $89,885, which is 2.7% less than a day ago. The decline occurred despite the fact that the U.S. central bank decided yesterday to cut the interest rate for the third time this year.
The central bank lowered the benchmark interest rate by 25 basis points to a range of 3.50%–3.75%. A decrease in interest rates is generally seen as a positive signal for the crypto market. Many anticipated a price recovery.
However, prices moved in the opposite direction. If this is not enough, what does Bitcoin actually need to reverse the decline?
According to Darkfost, it's about liquidity. The analyst explained that stablecoin investments in exchanges have fallen from $158 billion in August to about $76 billion currently.
The decline was only 50% in a few months. At the same time, the 90-day average fell from $130 billion to $118 billion, indicating a clear downward trend.
"One of the main reasons why Bitcoin is currently struggling to recover is the lack of fresh liquidity. When talking about liquidity in the crypto markets, it mainly refers to stablecoins," the post stated.
The analyst added that the sharp decline in stablecoin investments signals weak demand. Bitcoin is now facing continuous selling pressure that new capital has been unable to absorb. Furthermore, the trend indicates that small recoveries are more due to a decrease in selling rather than an increase in buying.
"For Bitcoin to initiate a new uptrend, the key is the influx of new liquidity into the market," Darkfost noted.
BeInCrypto also emphasized in a recent report that stablecoin issuers continue to create new tokens, and the market capitalizations of major assets like Tether (USDT) and Circle's USDC have hit new highs this month.
Nevertheless, data shows that a large portion of the supply goes to cross-border payment usage. Additionally, a significant portion of investments is directed towards derivative exchanges instead of spot markets.
"Asia sees the largest amount of stablecoin activity, surpassing the level in North America. However, relative to GDP, Africa, the Middle East, and Latin America stand out. Most of the flow is moving from North America to other regions," the IMF wrote in a recent report.
Bitcoin's recent decline shows that mere macro drivers no longer guide the market. Data clearly highlight that new stablecoin liquidity is crucial for a longer uptrend. Sentiment also needs to improve. Fearful behavior and low activity slow down the flow of capital into Bitcoin.
