A sharp drop in stablecoin supply is raising concerns that a crypto market recovery may lack the liquidity needed to gain significant momentum.
Summary
- Stablecoin market cap fell $2.24B in 10 days, reducing short-term crypto buying power
- Capital appears to be rotating out of crypto and into gold and silver at record highs
- On-chain analysts say liquidity remains sidelined, not gone, delaying but not ending the cycle
On-chain data shared by Santiment on Jan. 26 showed that the combined market capitalization of the 12 largest stablecoins declined by about $2.24 billion over the past 10 days.
During the same period, Bitcoin (BTC) fell roughly 8%, suggesting that capital may be leaving the crypto market rather than remaining parked in stable assets waiting to re-enter.
Capital rotates out of crypto as risk appetite cools
The decline in stablecoin supply stands out because stablecoins often grow during market pullbacks, preserving buying power within the ecosystem. This time, the opposite appears to be happening. Investors seem to be converting digital assets back into fiat and re-allocating toward lower-risk assets.
That shift is visible in traditional markets. Gold and silver both hit new record highs during the same period. Gold moved above $5,000, while silver surged more than 8% in a single session to trade above $110 an ounce on Monday, extending a rally that has pushed prices sharply higher since early 2025.
The parallel movements suggest that investors are taking a defensive stance. Rather than staying in volatile markets like cryptocurrency, capital tends to move toward assets seen as stores of value when uncertainty increases.
This rotation reduces the immediate purchasing power of digital assets and makes it harder to sustain price increases. With less liquidity circulating, smaller and higher-risk tokens often see deeper drawdowns, while Bitcoin tends to hold up better.
On-chain indicators point to delayed, not broken, recovery
Not all analysts are bearish for the broader cycle. A Jan. 27 analysis from CryptoQuant contributor CoinNiel argues that exchange-level data suggests liquidity is still present, just not yet active.
The Exchange Stablecoin Ratio, which compares the value of cryptocurrencies held on exchanges to stablecoin balances, has dropped to the lowest level of the current halving cycle. In previous cycles, comparable readings happened when Bitcoin was cheap rather than close to market peaks.
All things considered, the data suggest a pause rather than a complete market reversal. Short-term gains could be limited and any recovery slowed by a drop in stablecoin supply.
In the long run, analysts are keeping an eye out for stablecoin market capitalization to either stabilize or resume growth, as this would be a more convincing indication that fresh money is returning to the cryptocurrency space.
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