Matrixport: $260 Billion Stablecoins Turn Dead Water, Crypto Liquidity Exhausted

Matrixport latest report reveals a deadly paradox in the crypto market: the total supply of stablecoins has surpassed 260 billion USD, hitting a record high, but the inflow of new capital has peaked and slowed, causing Bitcoin to lose a key moving average and drop below 86,000 USD. The core issue lies in the Federal Reserve’s cautious stance on rate cuts, suppressing risk appetite, turning massive stablecoin reserves into “dry powder” rather than market-driving fuel.

The Deadly Discrepancy Between Liquidity Stock and Liquidity Flow

(Source: Matrixport)

The Matrixport report points out that the current crypto market is not facing a liquidity scale problem, but a liquidity velocity crisis. The combined market cap of Tether (USDT) and Circle (USDC) exceeds 260 billion USD, seemingly indicating ample liquidity, but this figure masks a more critical fact: the marginal liquidity needed to sustain price increases is drying up.

The 12-month rolling growth rate of stablecoin issuance peaked in late October and has since slowed, aligning with approximately a 3% decline in Bitcoin’s price. Bitcoin traded near 85,860 USD on Tuesday morning, struggling to regain the key moving averages, indicating that buying momentum has significantly weakened.

Matrixport emphasizes: “While liquidity reserves continue to grow, providing ample dry powder, capital turnover has sharply declined. Funds are not rotating into risk assets but are instead idle or shifting into yield-generating instruments.” This divergence means that even with a large stablecoin supply, if it does not enter market circulation, its impact on prices is effectively zero.

Institutional investors interpret this phenomenon as a difference between liquidity stock and liquidity impulse. While 260 billion USD sounds positive, if issuance and deployment do not accelerate, it acts more like a water reservoir than a flood. When capital stops flowing, the market loses upward momentum.

Uncertainty in Fed Policy Suppresses Risk Appetite

Matrixport attributes the liquidity depletion mainly to the Fed’s cautious approach toward future rate cuts. Recent FOMC minutes did not provide clear guidance on the timing or magnitude of easing, and this policy uncertainty directly dampens institutional risk-taking.

The report states: “Political restrictions on market liquidity may have a greater impact than investor perceptions.” In an environment of high capital costs and ambiguous rate cut expectations, institutional investors prefer to allocate stablecoins into yield products or hold cash equivalents rather than invest in more volatile crypto assets.

This cautious attitude is reflected in stablecoin usage patterns. Historically, an increase in stablecoin supply signaled investors preparing to buy Bitcoin or other crypto assets. Currently, stablecoins serve more as hedges or buffers awaiting clearer signals, rather than active deployment ammunition.

Since the Fed is unlikely to adopt aggressive easing in Q1, Matrixport warns that unless new macroeconomic or liquidity catalysts emerge, the “correction phase since October” may continue. This suggests the market will experience volatility and range-bound trading rather than sustained breakout rallies.

Bitcoin Technical Breakdown Sends Dangerous Signals

Price action has turned defensive. Matrixport notes that Bitcoin has, for the first time in months, lost its “bullish trend indicator,” indicating its potential momentum is waning. This is a critical technical turning point, signaling that market structure has shifted from strong to neutral or weak.

Bitcoin traded near 85,860 USD on Tuesday morning, struggling to regain the key moving averages. This moving average has served as strong support in recent months; losing it signifies a clear weakening of bullish control. Technical deterioration not only reflects price weakness but also signals shaken market confidence.

When technical indicators worsen alongside liquidity drying up, it often foreshadows a deeper correction. Historical experience shows that in a liquidity-rich environment with falling prices, markets typically take longer to find a true bottom. Investors are not only waiting for prices to stabilize but also for signals of renewed liquidity.

The Gap in Perception Between Institutions and Retail Investors

Matrixport emphasizes that a key difference between institutional positioning and retail narratives lies in their understanding of liquidity. Retail investors often see increasing stablecoin supply as a bullish signal, believing it indicates rising potential buying pressure. However, institutional investors focus more on liquidity velocity and willingness rather than absolute numbers.

Institutions interpret Fed hesitation as a restriction on leverage and risk-taking. In this environment, even holding large amounts of stablecoins, they are reluctant to build positions actively. This cautious stance stems from risk management considerations amid macroeconomic uncertainties, rather than a change in their view of crypto assets.

Additionally, Matrixport notes that low retail participation continues to limit liquidity. Retail traders are typically market volatility amplifiers, driving rapid price increases in bull markets. When retail involvement is subdued, the market lacks sufficient momentum to break key resistance levels, leading to sideways trading.

Three Core Indicators of Liquidity Exhaustion

According to Matrixport analysis, the following three indicators clearly illustrate the current liquidity dilemma:

Stablecoin issuance growth slowing: The 12-month rolling growth rate peaked in late October and has since declined, indicating a slowdown in new capital inflows.

Sharp decline in capital turnover: Stablecoins are either idle or shifting into yield instruments rather than rotating into risk assets, creating a liquidity dead zone.

Low retail participation: Lack of retail-driven market momentum, with cautious institutional stance dominating, leading to weak price breakthroughs.

Future Outlook: Speed Matters More Than Scale

Matrixport’s core conclusion is that, in the current market environment, liquidity velocity is more important than scale. While 260 billion USD in stablecoin issuance sounds impressive, if these funds do not enter market circulation, their impact on prices is minimal.

Unless capital costs significantly decrease or stablecoin issuance continues to accelerate, Matrixport expects continued volatility and range-bound trading. This outlook aligns with the reality of Bitcoin losing key technical indicators, pointing to a possible prolonged correction phase lasting weeks or even months.

For investors, this means reassessing the effectiveness of stablecoin supply as a market indicator. Relying solely on total stablecoin volume to gauge market direction is no longer reliable; greater focus should be placed on liquidity velocity, Fed policy trends, and retail participation changes. Only when these factors improve together can the crypto market restart a sustained upward cycle.