Can Bitcoin Begin a Bullish Trend Again? Here's What It Needs

Bitcoin (BTC) has fallen below the $90,000 mark during early Asian trading hours today, despite favorable macroeconomic conditions. An analyst has pointed out that the decrease in stablecoin inflows is a significant reason for Bitcoin’s current weakness, suggesting that new liquidity is essential for a bullish trend.

Key Takeaways

Bitcoin (BTC) fell below $90,000 despite favorable macroeconomic conditions.
Analysts attribute Bitcoin's weakness to declining stablecoin inflows.
Liquidity is essential for a bullish trend; new inflows are crucial.
Although stablecoin market capitalization is increasing, most activity is directed towards cross-border payments and derivatives exchanges.
An improvement in market sentiment and liquidity is needed for Bitcoin to regain momentum.

What Bitcoin Needs to Regain a Bullish Streak

Data from BeInCrypto Markets indicates that December has been a turbulent month for Bitcoin, which has already experienced two consecutive months of losses. In fact, November marked its largest monthly decline of the year.

As of this writing, BTC was trading at $89,885, reflecting a 2.7% drop within the last 24 hours. This decline occurred despite the Federal Reserve's announcement yesterday to cut interest rates for the third time this year.

The central bank reduced rates by 25 basis points to a target range of 3.50%–3.75%. Such rate cuts are generally seen as favorable for cryptocurrencies, leading many to anticipate a market rebound. However, prices have instead moved downward. So, what exactly does Bitcoin require to change its downward trend?

According to analyst Darkfost, it is liquidity. Darkfost explained that stablecoin inflows into exchanges have plummeted from $158 billion in August to about $76 billion today, representing a 50% drop in just a few months. The 90-day average has also decreased from $130 billion to $118 billion, indicating a consistent downward trend.

“One of the main reasons why Bitcoin is struggling to recover right now is the lack of incoming liquidity. When we discuss liquidity in the crypto market, we’re primarily referring to stablecoins,” stated the analyst.

The decrease in stablecoin inflows indicates waning demand. As a result, Bitcoin faces persistent selling pressure without being buoyed by new capital. Moreover, any slight price rebounds seem to be fueled more by reduced selling rather than renewed buying activity.

“For Bitcoin to restart a genuine bullish trend, the key lies in new liquidity entering the market,” Darkfost emphasized.

BeInCrypto also noted in a recent report that stablecoin issuers continue to produce new tokens, with the market capitalization of significant assets such as Tether (USDT) and Circle's USDC hitting new peaks this month. However, the data suggests that much of this supply is being consumed by cross-border payment demands. Additionally, a considerable portion of the inflows is being directed towards derivatives exchanges rather than traditional spot platforms.

According to a recent report by the IMF, “Asia leads with the highest volume of stablecoin activity, surpassing North America. In relation to gross domestic product, however, Africa, the Middle East, and Latin America exhibit significant activity. Most of the flow is from North America to other regions.”

Thus, Bitcoin's recent downturn illustrates that macroeconomic factors alone are not sufficient to drive the market. The data indicates that a revitalization of stablecoin liquidity is crucial for a lasting bullish reversal, along with an improvement in market sentiment. Fearful attitudes and low investor engagement have been hampering the rotation of capital back into Bitcoin.