Dollar-linked liquidity underpinning the bitcoin market is shrinking quickly. Stablecoin supply fell by $14.2 billion, or about 18.98 trillion won, over the past 30 days, marking the fastest drop since June 2022. U.S. spot bitcoin ETFs also saw $1.6 billion, or about 2 trillion won, in net outflows, an analysis showed, weakening the marketā€™s capacity to buy.

As of Nov. 11, local time, blockchain analytics firm Glassnode said total stablecoin supply fell by $14.2 billion in the 30 days to Nov. 9. Total supply is below $280 billion, or about 374.22 trillion won.

Stablecoins are generally crypto assets pegged to the U.S. dollar. Investors hold them on exchanges or blockchains as cash-like assets before buying other cryptocurrencies. A drop in supply means holders are redeeming stablecoins for dollars and moving funds outside the crypto market. Glassnode assessed this as "fuel supporting the bull market is shrinking." It added that a return to growth in supply could be the first signal confirming new inflows.

Demand from U.S. investors has also weakened. U.S. spot bitcoin ETFs recorded about $1.6 billion in net outflows over the past 20 trading days. The Coinbase premium, a gauge of U.S. investor buying, has stayed negative since a September peak and showed its biggest discount since February. The indicator adjusts for the impact of tetherā€™s discount to the dollar.

Bitcoin prices also fell below the average purchase price of recent buyers. Bitcoin dropped below $75,600, the average entry price for short-term holders who bought within the past 155 days, and traded around $74,000 on Nov. 11. Among short-term holders, most of whom were in profit at the September peak, only about 35 percent are currently in profit. About two-thirds of holdings were bought between August and October at $83,600 or lower, raising the possibility that even if prices rebound, some supply may emerge from holders looking to sell around breakeven.

Some positive signals appeared even as prices fell. Many leveraged long positions that had built up around current levels were cleared out, and buy orders continued to outnumber sell orders in the spot order books on Binance and Coinbase since Nov. 5. Wallets holding 100 to 1,000 BTC and 1,000 to 10,000 BTC in particular have recently returned to accumulation. Other holder groups, including large wallets with more than 10,000 BTC and small wallets with less than 1 BTC, are still reducing holdings, meaning accumulation has not spread across the market.

Glassnode presented $73,000 as a key support level. It said a sustained break below that level could lead to a prolonged sideways phase, and a close below the June low of $58,500 could invalidate the trend reversal that has continued since August. On the other hand, it said regaining $75,600, the short-term holder average entry price, and rising to $77,500, the realised market average price, could support a market recovery.

Competition in traditional finance over the stablecoin market is also intensifying. Global banks including Goldman Sachs, Citi and Deutsche Bank are providing $270 million, or about 360.8 billion won, in funding to challenge major stablecoin issuers. The Federal Reserve has also recently announced rules on stablecoin reserve assets and capital requirements.

Ultimately, a sustained bitcoin rebound is expected to depend on a return of new liquidity, including a recovery in stablecoin supply and renewed ETF inflows.