Bitcoin (BTC) fell once again below $90,000 in the early Asian trading hours today, despite positive macroeconomic factors.
An analyst pointed to the decline in cryptocurrency inflows of stablecoins as a key reason for Bitcoin's ongoing weakness, suggesting that new liquidity is crucial for a bullish rise.
The most important catalyst Bitcoin needs to become bullish again
Data from BeInCrypto Markets shows that December has been a volatile month for the largest cryptocurrency. This comes after two consecutive months of losses, where Bitcoin had its largest monthly decline of the year in November.
At the time of writing, BTC was trading at $89,885, down 2.7% in the last 24 hours. The drop came even though the Federal Reserve lowered rates for the third time this year yesterday.
The central bank lowered the interest rate by 25 basis points to a target range of 3.50%–3.75%. Interest rate cuts are generally considered bullish for the crypto market. In fact, many expected a rise.
Prices went in the opposite direction, however. So if it's not this, what does Bitcoin really need to reverse the decline?
According to Darkfost, it is liquidity. The analyst explained that the inflow of stablecoins into exchanges has fallen from $158 billion in August to around $76 billion now.
This represented a 50% decline in just a few months. At the same time, the 90-day average has fallen from $130 billion to $118 billion, indicating a clear downward trend.
“One of the main reasons Bitcoin is struggling to rise now is the lack of liquidity supply. When we talk about liquidity in the crypto market, we primarily mean stablecoins,” it stated in the post.
The analyst added that this sharp decline in crypto inflow of stablecoins indicates weakened demand. Bitcoin is still facing selling pressure that is not being absorbed by new capital. Additionally, the trend shows that small rises are mainly due to less selling rather than increased buying.
“For Bitcoin to start a truly bullish trend, the key is that new liquidity comes into the market,” noted Darkfost.
BeInCrypto also pointed out in a recent report that issuers of stablecoins continue to issue new tokens, and the market value of major assets like Tether (USDT) and Circle's USDC has set new records this month.
However, data shows that much of the supply is being absorbed by demand for cross-border payments. Additionally, a large portion of the crypto inflow goes to derivative exchanges rather than spot exchanges.
“Asia leads with the highest volume of stablecoin activity, surpassing North America. Relative to gross domestic product, Africa, the Middle East, and Latin America stand out. Most of the flow goes from North America to other regions,” wrote the IMF in a recent report.
Bitcoin's recent decline thus shows that macro factors alone no longer control the market. The data clearly shows that renewed liquidity from stablecoins is the missing ingredient for a sustained bullish turnaround. Market sentiment must also improve. Fear and low activity continue to hinder capital rotation into Bitcoin.
