An unsettling question is being raised by the recent behavior of the Bitcoin market: are rallies turning into short-term traps before the next leg down? Liquidity may hold the key to the solution.
Market slows down significantly
Market liquidity has been steadily declining, according to recent stablecoin flow data. The supply growth of both $USDT and USDC has significantly slowed down in comparison to earlier times, resulting in a situation where capital entering the cryptocurrency market is just insufficient to maintain long-term upward momentum.
Major Bitcoin rallies in the past have been bolstered by growing stablecoin supplies that offered new purchasing power. That support seems to be conspicuously lacking today. The graphic draws attention to a recurrent pattern. Every significant drop in the growth of stablecoins has been accompanied by a decline in the price of Bitcoin. Even brief comebacks have failed to create long-term momentum, which has ultimately led to fresh selling pressure.
The most recent decline in stablecoin growth is now getting close to the levels that came before major corrections in the past. This worry is supported by the technical picture of Bitcoin. The asset experienced a severe breakdown from the $80,000 area and is currently trading close to $59,000. The price is still below all significant moving averages, including the downward-sloping 50-day, 100-day, and 200-day trends.
Momentum isn’t encouraging
An established bearish market structure is typified by this alignment. When Bitcoin moved closer to the 200-day moving average in May, a brief attempt at recovery appeared encouraging. But the rally was short-lived, resulting in what now seems to be a typical bear market bounce. Almost immediately, sellers took back control, sending Bitcoin back toward regional lows. Additionally, momentum indicators are not very encouraging. Despite several attempts at stabilization, the RSI is still weak and finds it difficult to escape bearish territory.
This implies that buyers are not challenging the current downtrend with enough vigor. Perhaps the main cause is the absence of stablecoin inflows. Rallies rely more on speculative positioning and short covering than on actual demand when new capital does not enter the ecosystem.
Although those actions can result in dramatic increases, they seldom become long-lasting trends. Any bounce that does occur in this type of setting is more likely to be a transient technical response than the start of a trend reversal. Bitcoin may continue to go through the same cycle — strong relief rallies followed by fresh selling pressure — until liquidity conditions improve and stablecoin growth resumes. The dry powder required to support a long-term recovery is currently absent from the market.
