Stablecoin supply is shrinking, and it’s becoming one of the biggest reasons behind Bitcoin’s weak price action. New data from CryptoQuant shows fresh stablecoin inflows to exchanges have dropped 31% yearly.
Meanwhile, the combined supply of USDT and USDC is also falling, reducing the buying power needed to support Bitcoin’s recovery.
Stablecoins like USDT and USDC, which are often called the cash of the crypto market are seeing its value shrink by nearly $3 billion every month.
According to CryptoQuant analyst Axel Adler Jr., stablecoin exchange inflows are now 31% below their yearly average, indicating that investors are pulling money out instead of bringing new capital into crypto exchanges.
The 30-day average of stablecoin inflows has fallen from $3.2 billion in mid-May to around $2.65 billion. Meanwhile, the yearly average remains near $3.86 billion, showing that exchanges are receiving much less fresh capital than normal.
On top of that, the combined USDT and USDC market cap has dropped from almost flat growth in May to nearly negative $3.2 billion today.
Adler says the drop in the stablecoin market is directly affecting crypto, especially Bitcoin.
“When more stablecoins enter the market, buying power grows. When supply shrinks, demand also weakens.”
And since mid-May, supply has been shrinking, reducing liquidity and making it harder for Bitcoin to recover. This lack of new capital has made it harder for Bitcoin to recover. Therefore, Bitcoin has seen a drop of about 19% in May and 20.5% in June.
The slowdown is also visible on-chain. Monthly USDT and USDC transfer volume on Ethereum dropped from about $2.84 trillion in March to nearly $1.5 trillion in May before seeing a small recovery in June.
The current trend looks similar to what happened during the 2022 crypto crash. During the bear market, stablecoin supply dropped 34%, while Bitcoin lost around 43% of its value.
Today, the decline is much smaller, but the direction remains the same. But, the Stablecoin supply has slipped about 4.4% from its $321 billion peak, while Bitcoin has already fallen roughly 32% from its recent year highs.
However, if stablecoin supply continues to surge, Bitcoin could see a bullish rally, as more capital will flow back to the crypto market.
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