The cryptocurrency market is seeing an interesting trend as liquidity continues to grow, although the impact on the market remains moderate.
According to a report by CryptoQuant analyst Cauê Oliveira, more than $3.65 billion has flowed into the market via the USDT stablecoin in the last 30 days.
Liquidity increases, but market is not affected
This increase in liquidity, as Oliveira points out, signals that new capital is entering the cryptocurrency market, potentially paving the way for future price movements.
However, despite this influx, the capital has yet to translate into significant buying pressure in the market, leaving many wondering when the full impact of this liquidity will be felt.
So far, the global cryptocurrency market has fallen below the $2 trillion mark. In particular, below this valuation mark, the cryptocurrency market has seen a gradual decline, which has now brought its valuation to $1.94 trillion, down 4.8% over the last day.
The increase in liquidity is evident in the increase observed in stablecoin reserves, according to Oliveira. Stablecoins like USDT are particularly essential in bridging the gap between traditional finance and the digital asset space.
For new USDT to be issued, assets in the traditional financial system must be backed, indicating that much of this new liquidity is tied to outside capital entering the cryptocurrency market.
While the increase in stablecoin reserves suggests growing demand for digital assets, Oliveira stressed that capital remains largely on the sidelines.
According to the analyst, these funds were not directed towards immediate purchases, but they represent significant “firepower” that could be unleashed at any time.
When will the market feel it?
The current state of the cryptocurrency market raises the question: why is this capital not being deployed immediately? According to the CryptoQuant analyst, one possible explanation is that institutional investors are cautiously entering the market through methods designed to minimize short-term price fluctuations.
The analyst explained:
It is possible that institutional investors will buy digital assets via TWAP orders or with algorithms to reduce the impact on the price in the short term.
To put this in context, many institutions use techniques such as time-weighted average price (TWAP) orders or algorithms to execute large trades incrementally, ensuring that they do not drive prices up too quickly with their buying activity.
This strategy helps reduce market impact while allowing these investors to accumulate positions over time. Notably, institutional interest has been a major driver of cryptocurrency market growth, especially since the 2021 bull run.
Large players such as hedge funds, asset managers, and even traditional financial institutions are exploring cryptocurrencies, but they generally avoid causing large and sudden price swings.
As a result, even if liquidity increases, the full effects of this influx of capital could take time to materialize in the form of price increases for major cryptocurrencies like Bitcoin and Ethereum.
Featured image created with DALL-E, chart by TradingView
