Bitcoin (btc) has once again recorded a drop below the $90,000 mark during early Asian trading hours today, despite positive macroeconomic incentives.
An analyst pointed to the decline in stablecoin flows as a key factor behind Bitcoin's current weakness, noting that new liquidity is essential for a bullish rise.
The main factor that Bitcoin needs to rise again
Data from BeInCrypto Markets showed that December was a volatile month for the largest cryptocurrency. This followed two consecutive months of losses, with Bitcoin recording its largest monthly decline of the year in November.
At the time of writing this report, BTC was trading at $89,885, down 2.7% in the past 24 hours. The decline came despite the Federal Reserve's decision yesterday to cut interest rates for the third time this year.
The bank reduced interest rates by 25 basis points to a target range of 3.50%–3.75%. A reduction in interest rates is generally viewed as a bullish trend for the crypto market. In fact, many expected a recovery.
However, prices moved in the opposite direction. So, if that’s not the case, what does Bitcoin specifically need to reverse its downward trend?
According to Darkfost, liquidity is the reason. The analyst explained that stablecoin flows to exchanges dropped from $158 billion in August to about $76 billion today.
This represents a decline of 50% over just a few months. During this time, the 90-day moving average dropped from $130 billion to $118 billion, indicating a clear downward trend.
A Darkfost publication noted that one of the main reasons Bitcoin is struggling to recover right now is the lack of incoming liquidity, and when talking about liquidity in the crypto market, we mainly refer to stablecoins.
The analyst noted that this sharp decline in stablecoin flows indicates weak demand. Bitcoin is now facing ongoing selling pressure that has not been absorbed by new capital. The trend also showed that slight rebounds are driven more by a decrease in selling rather than new buying.
Darkfost stated that "the key to Bitcoin returning to a true bullish trend lies in the influx of new liquidity into the market."
BeInCrypto highlighted in a recent report that stablecoin issuers continue to issue new tokens, as the market capitalization of major assets like Tether (USDT) and Circle’s USD Coin (USDC) reached record levels this month.
Data, however, indicated that a large part of the supply is being absorbed through demand for cross-border payments. Additionally, a significant portion of the flows is moving toward financial derivatives platforms rather than spot exchanges.
The International Monetary Fund mentioned in a recent report that "Asia leads with the highest volume of stablecoin activity surpassing North America, but in terms of GDP, Africa, the Middle East, and Latin America stand out, with most flows coming from North America to other regions."
Bitcoin's recent decline highlighted that macroeconomic stimuli are no longer the sole drivers of the market. Data clearly showed that renewed liquidity for stablecoins is the missing element for a sustainable bullish reversal, and market sentiment must improve, while fear behavior and lack of participation continue to hinder capital rotation toward Bitcoin.
