“Stablecoin supply stagnation casts a shadow on Bitcoin’s bullish recovery prospects, with the U.S. inflation report looming.”

Bitcoin (BTC) has surged back above the $90,000 mark, but one significant factor casts doubt on whether the rally will be sustained in the coming weeks. The slowdown in stablecoin liquidity is raising concerns about the strength of Bitcoin’s recovery, particularly as fresh capital inflows remain lackluster ahead of the U.S. inflation data release on Wednesday.

According to data from Glassnode, the supply of the top four stablecoins—USDT, USDC, BUSD, and DAI—has been largely unchanged over the past 30 days, hovering around $189 billion with only a minor increase of 0.37%. Stablecoins, often pegged to the U.S. dollar, have been a key source of liquidity for the crypto market, especially during times of market volatility. However, the lack of significant supply growth suggests that demand for crypto may be cooling, with less fresh capital entering the market.

This trend contrasts with the massive capital inflows seen during the November-December period when stablecoin liquidity surged, helping fuel the rally that pushed Bitcoin to new highs above $108,000. The current market environment, with subdued stablecoin inflows, suggests a potential weakening of the bullish momentum, which could pose risks if the upcoming inflation data adds to concerns about the Federal Reserve’s rate-cutting trajectory.

The U.S. Consumer Price Index (CPI) data, set to be released on Wednesday, is expected to show a 0.3% month-on-month increase in December, matching the pace seen in November. The year-on-year inflation rate is anticipated to rise to 2.9% from 2.75% in November, while the core CPI, excluding food and energy prices, is projected to show a 0.2% increase month-on-month and 3.3% year-on-year.

If the inflation data comes in higher than expected, it could dampen market sentiment and reinforce fears that the Federal Reserve may scale back its plans for rate cuts. These concerns have already contributed to Bitcoin’s volatility, with prices briefly dipping below $90,000 earlier this week before making a quick recovery.

The current stagnation in stablecoin liquidity signals that the market may not have the same amount of “dry powder” as it did during previous rallies. With only $14.68 billion in stablecoin inflows recorded during the first quarter of 2024, far less than the $27.3 billion seen during the last rally, traders will be closely monitoring the price action in the coming days for further clues about Bitcoin’s potential for continued growth or downside risk.