The collapse of the U.S.-Iran ceasefire on July 8 sent prices back toward $62k, from a brief move into the $64k resistance zone. AMBCrypto reported that shortly after the news broke out, $300 million worth of long positions had been liquidated.
The rising leverage and inclination from derivatives traders to catch the market lows, without structural support, was a warning sign of deeper drawdown.
There was another factor to keep an eye on.
Stablecoin liquidity increases price sensitivity to bearish catalysts
Crypto analyst Crypto Onchain drew attention to the liquidity drain seen in the centralized exchange Binance. USD Coin reserves have fallen by 21% over the past month, and Tether saw massive single-day outflows.
Anomalous outflows of $997 million on June 26 and $838 million on July 7 were seen. Together, they have taken Binance stablecoin outflows to a figure of –$115 million per day for the past week.
Stablecoin reserves on exchanges can be thought of as “dry powder”. This ammunition can be useful in buying local or cyclical crypto bottoms. Sustained stablecoin outflows mean holders are exiting the market.
Liquidity is migrating to DeFi, cold storage, and OTC desks, the analyst concluded. This could leave crypto vulnerable to localized bouts of volatility.
The 21% Bitcoin decline since May is a direct result of the fuel shortage
Crypto analyst Axel Adler Jr. pointed out that stablecoin inflows to exchanges were drying up. The monthly average inflow fell 18%, from $3.20 billion to $2.65 billion.
The combined market capitalization of USDT and USDC has been falling in recent weeks. It showed a decreasing dollar base in the crypto market.
In mid-May, the 30-day market cap change was at zero, but fell to -$4.2 billion in early June, and was at -$3.2 billion now. Rather than being reallocated across assets, the stablecoin capitalization is actually shrinking.
Capital is leaving the system, the metrics confirmed. This loss of liquidity helps explain the market sentiment and why Bitcoin is down after the bounce to $83k.
Final Summary
- The liquidity drain in the form of stablecoin outflow from exchanges could leave crypto vulnerable to sudden bouts of volatility.
- Stablecoins are the fuel for crypto growth. Falling stablecoin market capitalization points to capital fleeing the crypto sphere.
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