Despite cash still flowing into Bitcoin exchange-traded funds (ETFs), the potential for sizable Bitcoin price gains ahead could be held back by stablecoin liquidity, according to analysts. 

Market intelligence firm CryptoQuant told Decrypt that “stablecoin liquidity [has] yet to fully pick up, especially from Tether’s USDT, in order for Bitcoin prices to increase further.”

And in a Wednesday note, the firm added: “While there is some positive movement in the stablecoin market capitalization, USDT’s market cap monthly growth is still near zero, still dampening the potential for a more significant Bitcoin price rally.”

Stablecoins are digital tokens pegged to stable assets, usually the U.S. dollar. They are the backbone of the crypto economy—Tether (USDT) has the highest 24-hour volume of any coin—and are used by traders to enter and exit trades without switching to fiat currencies or traditional banks.

Without enough stablecoin liquidity flowing around the crypto ecosystem, there is likely to be less Bitcoin buying and selling, in CryptoQuant's view—hence the potentially stunted price of the asset, per its analysis.

Bitcoin is now trading for $64,360 per coin, CoinGecko data shows. That’s not only about 13% below its March all-time high of $73,737, but also under the top it hit of $69,044 back during the 2021 bull run.

The asset had been on a roll since the U.S. Securities and Exchange Commission in January gave the green light to 10 spot Bitcoin ETFs after a decade of saying no to the products. A flood of capital ensued, and the price of the virtual coin shot up.

Cash then began to flow out of the ETFs months later as investors lost interest in risk assets like Bitcoin thanks to various macro factors, including geopolitical conflicts and fear that the Federal Reserve would continue to keep interest rates high. The impending repayment to creditors from collapsed exchange Mt. Gox has also prompted concern about the potential impact on Bitcoin.

But the appetite for Bitcoin and crypto is back: Over $422 million flowed into the funds on Tuesday alone, according to Farside Investors data. That’s the highest single day of inflows since the start of June. 

But will Bitcoin ETF demand keep the bull run growing if there isn’t enough stablecoin liquidity to support such growth? That’s the burning question raised by CryptoQuant.

Edited by Andrew Hayward