Bitcoin's Surge in Question as Stablecoin Liquidity Dries Up

Bitcoin 's swift rebound from below $90,000 since Monday has sparked discussions on its bullish prospects. However, uncertainties cloud these recent gains, particularly regarding looming U.S. inflation data, expected to be announced on Wednesday. A critical factor contributing to this uncertainty is the stalling of major stablecoin supplies, pointing to a lack of fresh capital inflows into the market.

According to Glassnode, the supply of the top four stablecoins remains steady around $189 billion, showing minimal growth of only 0.37% over the past 30 days.

Stablecoins serve as pivotal assets in the cryptocurrency realm, maintaining values pegged to references like the U.S. dollar. These tokens play significant roles in funding crypto transactions and providing stability during volatile market phases, as seen during the 2022 bear market.

The current stagnation in stablecoin liquidity signals a lessened buying stance going into the U.S. Consumer Price Index (CPI) release. This is a stark change from the buoyant expansion in stablecoin liquidity noticed during last year’s November-December surge. “The late-2024 rally necessitated nearly double the capital inflow yet yielded a smaller price increase, highlighting speculative demand that has since diminished," noted Glassnode in a Telegram briefing.

On Wednesday at 13:30 UTC, data is expected to indicate a 0.3% month-on-month increase in living costs for December, remaining consistent with November’s rate. The annual estimate anticipates a rise to 2.9%, edging up from November's 2.75%.

The core CPI, excluding volatile food and energy prices, is projected to increase by 0.2% month-on-month and 3.3% year-on-year. A higher-than-expected reading could fuel concerns that the central bank may not cut interest rates as aggressively as anticipated, concerns that contributed to Bitcoin dropping below $90,000 on Monday.

This recent liquidity slowdown, often described as 'dry powder' ready for crypto investments, starkly contrasts the $27.3 billion in inflows seen in November and December. These inflows helped fuel Bitcoin’s bull run from $70,000 to over $108,000.

Conversely, the first quarter of 2024 witnessed a modest $14.68 billion in stablecoin inflows, coinciding with a 70% Bitcoin's price increase to surpass $70,000.