The crypto market is at a critical point with its stablecoin liquidity continuing to shrink as the year nears its end. Over the past four weeks, more than $14.20 billion in stablecoins have left the market.
Currently, the stablecoin market cap has declined below $300 billion, which is its lowest level in 14 months. That is, the cap plunged from $313 billion to $298 billion, the fastest contraction since June 2022.
Additionally, Tether’s USDT was trading below $1 at the time of press, showing that the stablecoin’s buying power was weakening too.
This contraction implies that crypto liquidity in the market is thin and fresh capital is limited to support a bullish recovery. Both Bitcoin [BTC] and Ethereum [ETH] have been averagely on a decline when gauging this month’s performance.
This suggests that both BTC and the broader altcoin market are bearish. Thus, the stablecoin supply did not necessarily go into buying and holding like in the previous years.
Bitcoin derivatives and spot demand shrink
Meanwhile, Bitcoin’s price remained heavily influenced by liquidation-driven moves rather than organic spot demand. As per the Binance Liquidation Accumulation Index, the volatility was driven by two-way liquidations.
Between September and November, the index has visited the upper and lower bands, at 80 and 20, respectively, more than three times each. This implies that both longs and shorts are being wiped out at this juncture.
With that, the price of BTC could continue bouncing between $60K and $87K until either bears or bulls win the battle.
At the same time, Spot demand was struggling to provide consistent support.
For instance, Binance Buy/Sell Delta has declined from 0.07 to below the neutral level, affirming the weak spot demand. In fact, traders on the exchange were selling.
Additionally, U.S. Spot Bitcoin ETFs saw net outflows of over $1.60 billion over the past 20 sessions. Over the past 24 hours, around $299.90 million exited the BTC ETFs market.
Similarly, Ethereum and Solana ETFs lost $144.81 million and $5.85 million, respectively, while those of Binance Coin [BNB] and XRP remained inactive.
Therefore, if crypto liquidity and spot demand do not return, then a general market recovery would be hard to materialize. Thus, a turnback to stablecoin market cap growth would be the first sign of new money.
Final Summary
- Crypto liquidity contracted by over $14.20 billion as the stablecoin market fell below $300 billion for the first time in 14 months.
- Bitcoin was seeing weak spot demand and two-way liquidations, reinforcing its price stagnation between $67K and $87K levels.