Crypto Rally 'Unfunded,' Data Strongly Suggests

A growing gap between traditional risk assets and cryptocurrency markets is being revealed by Bitcoin's inability to follow the S&P 500 higher. It's not hard to explain why $BTC is still close to $64,000 and stocks are still moving toward record territory: the cryptocurrency market seems to be lacking new funding.

Supply stays limited

The supply of stablecoins is the main problem. Since mid-May, about $14 billion in stablecoin liquidity has allegedly disappeared from the market. One of the main sources of deployable capital for cryptocurrencies is stablecoins, which enable investors to invest in Bitcoin and other assets without first adding new fiat money to exchanges. For this reason, a contracting supply is significant.

Although it decreases the amount of easily accessible liquidity that could support a sustained rally, it does not automatically push Bitcoin lower. This explains why Bitcoin and the S&P 500 appear to be diverging.

As investors anticipate future monetary easing, lower interest rates, and better financial conditions, equities may rise. Liquidity has historically had a significant impact on cryptocurrency as well, but when ecosystem capital is also declining, expectations might not be enough. That issue is reflected in the Bitcoin chart. For the majority of July and August, Bitcoin fluctuated between $62,000 and $66,000.