Cryptocurrency analyst Nicholas Merten, closely followed in the crypto markets, warned that Bitcoin (BTC) and other cryptocurrencies could experience a deeper market correction due to a certain factor. Merten, the host of DataDash, claimed in his comments on YouTube that stablecoin liquidity is an important indicator of crypto market trends.
In his comments on YouTube, senior crypto analyst warned that stablecoin liquidity continues to shrink. In this case, it could indicate further price drops for Bitcoin and other cryptocurrencies. The analyst made the following statements about the issue:
If we are in an environment where liquidity is contracting, how will this affect the crypto? Let’s take a look at the increasing importance of liquidity. For example, from April 2019 to July 2019, when we made the first relief rally before really starting the bull market, we see that Bitcoin rose from $3,500 to $12,000. It was around $13,000 at that time. And during this period, we saw an increase of about 119% in stablecoin liquidity, where the stablecoin supply in the crypto space doubled… This stablecoin growth stagnated in late 2019 and early 2020. So what happened here? The trend became stagnant… There is a very clear reason, and the reason Bitcoin stopped here was not just its spread. Because there was no liquidity expansion.
Furthermore, it is stated that when Bitcoin reached the range of $3,900 to $65,000 in 2021, there was a corresponding increase of 2,183% in stablecoin liquidity. According to the investor, it seems unlikely that the crypto price will rise in the current environment where stablecoin liquidity is shrinking. The analyst emphasized the following in his comments:
Liquidity and price momentum go hand in hand. If you have decreasing or stagnant liquidity, the price is unlikely to increase. This is true not only for US stocks or global assets like foreign stocks and stocks but also for cryptocurrencies… For these assets to continue to double, for Bitcoin to reach $1 trillion from a $500 billion asset… It will take more amounts of dollars to do that. So we are in a contract environment. The dollar is becoming scarcer. Stablecoin liquidity is not lying here. If we speak in general terms from week to week, from month to month, we still see a decrease in stablecoin liquidity.