Transcription
Today I want to explain why I'm still constructive on Bitcoin heading into next year despite the volatility, despite the draw downs, and despite the fact that sentiment right now swings from belief to despair on a weekly basis.
We're going to start with a quick macro update because, in my view, macro liquidity is playing the single biggest role in crypto right now. And when I say liquidity, I don't mean the usual M2 money supply charts that get passed around Twitter. Those matter, but not quite as much as this.
What I want to focus on instead is stable coin liquidity. Because if you're analyzing crypto or Bitcoin without factoring stable coin supply dynamics, you're missing a huge piece of the puzzle. Stable coins are the base layer of crypto liquidity. They are the dry powder sitting on the sidelines. They're the bridge between fiat capital and crypto. And over the past few years, they've quietly become one of the most important macro indicators that we have.
Now, if we zoom out and look at the stable coin market capitalization over time, the growth is nothing short of exponential. Just a few years ago, at the start of the previous bull market, the total stable coin market cap was at roughly $10 billion. And at the start of this current bull market, that figure was closer to $115 billion. And today, stable coins sit at over $270 billion in total market cap. That's a structural shift of capital choosing to live inside the crypto ecosystem. And it's important to understand why this matters for price.
Stable coins represent capital that has already crossed the regulatory, banking, and psychological hurdle of entering crypto. And once that capital is on chain, it doesn't need permission to rotate. It can move into Bitcoin, altcoins, or into DeFi instantly. So rising stable coin liquidity isn't just money existing; it is money that's ready to be deployed. And this is why stable coin liquidity often leads price rather than follows it.
And one of the most powerful ways to analyze this is on a year-on-year basis, which is where the stable coin year-on-year percentage change indicator comes in. This indicator provides a long-term perspective on stable coin supply dynamics by calculating the percentage change in the combined market cap of all the major stable coins, which is primarily Tether's USDT and Circle's USDC, and compares that to exactly 365 days prior. And this lets us see whether liquidity is structurally expanding or contracting over multi-year periods.
And when you see extended green filled areas on this indicator, that signals robust, sustained stable coin issuance growth. Historically, those green regimes tend to mark the foundational liquidity buildup that supports major bull markets. This is the phase where capital is being quietly committed, often before price really takes off. And in the past, it's reflected increasing retail onboarding or institutional participation, or both.
And on the flip side, prolonged red areas indicate persistent contraction in stable coin supply. Those periods have historically aligned with bearish regimes or risk-off regimes where capital is either leaving crypto or simply not re-entering it in size.
Now, if we zoom in on the past 3 years, we can get a clearer picture of what's going on. Right now, stable coins are still growing at roughly 42% on a year-on-year basis, which equates to about $79 billion of net new stable coin supply compared to last year. And that, to me, is not a bearish signal. As long as this year-on-year growth remains meaningfully positive, the implication is just simple: More capital continues to enter the crypto ecosystem than leave it. And unless that growth rate materially slows or flips negative, the base layer of liquidity supporting crypto prices remains intact.
In plain terms, this means that the fuel for higher prices is still being added to the system. Price may chop, consolidate, or even correct along the way. But structurally, the liquidity backdrop remains supportive. And this is where a lot of people get tripped up. They look at the price action in isolation and conclude that the cycle is over or that Bitcoin is just weak. But price is downstream of liquidity. Liquidity expands first, then price reacts afterwards.
Now, another interesting way to analyze these dynamics is when we zoom in from the long-term growth to the short-term momentum, which brings us to the crypto liquidity flow indicator. And this is one of the most important charts I'm watching right now. This flow indicator measures the short-term acceleration or deceleration of stable coin supply growth. And it does this by calculating the same year-on-year percentage change in the combined market cap of major stable coins, again, primarily USDT and USDC. Then it subtracts that year-on-year value from the 30 days prior. And the result is a momentum-adjusted flow index. Or, in other words, it doesn't just tell us whether the stable coin supply is growing; it tells us whether that growth is speeding up or slowing down.
And when you see positive green histogram bars on this indicator, that reflects accelerating stable coin issuance momentum. Historically, those green expansions tend to precede or confirm local bull markets because fresh capital is building and positioning itself for deployment into risk assets like Bitcoin and altcoins. And when you see the red negative bars, that indicates decelerating liquidity growth. It doesn't necessarily mean that stable coins are shrinking; it just means that they're growing more slowly than before. And historically, those red phases often coincide with risk-off periods or local corrections as marginal buying power temporarily wanes.
Now, we can see here that we've just experienced one of the largest negative readings on the crypto liquidity flow indicator during this recent price downturn. And at first glance, that sounds scary. But if you assume it means that liquidity is gone and that Bitcoin is just screwed, then that interpretation is lazy. What this reading actually tells us is that the rate of stable coin growth has slowed sharply over the past few months compared to earlier in the year. And that slowdown coincided with the price draw down, which makes sense when liquidity momentum stalls, price has to struggle.
However, and this is crucial, this slowdown is happening on top of a still strong positive year-on-year growth rate. Or, in other words, liquidity growth has decelerated, but it's not reversed. And historically, large negative spikes in the liquidity flow indicator during broader uptrends have often marked reset phases and not cycle ends. And these normally mark periods where excess leverage has been flushed out, which we have seen in the derivative space, or just during sentiment resets and capital pauses before re-accelerating.
You can think of it like this: Liquidity doesn't move in straight lines, and even in bull markets, it pulses up and down. You get an expansion phase, a cooling phase, and then a renewed expansion phase. And the liquidity flow indicator is showing us that we're in currently one of those cooling phases. And those phases are often uncomfortable, but they're also where long-term positioning is built.
And when you zoom out on the liquidity flow indicator to show the start of the previous bear market, you get some much-needed perspective. What looks like a massive red reading right now is actually just a small blip when compared to the extreme liquidity outflows we saw back then. Those earlier readings marked a genuine regime shift where capital was leaving the crypto ecosystem in size. And that's what truly kicked off the bear market. But by comparison, today's move looks far more like a temporary slowdown in liquidity momentum rather than a structural exodus.
Now, let's connect all this back and tell you why I'm positive for Bitcoin heading into 2026. Firstly, stable coin supply is not just high; it's structurally entrenched. Now, stable coins are no longer a speculative niche. They're increasingly used for remittances, on-chain settlements, yield strategies, and even corporate treasury operations now. And that means that the stable coin supply is less likely to fully unwind the way it did in earlier cycles.
And secondly, the year-on-year stable coin growth remains firmly positive. And that tells us that on a 12-month basis, capital is still flowing into the crypto ecosystem, not out of it. And until that changes materially, the long-term liquidity foundation remains supportive.
And thirdly, negative liquidity flow readings of this magnitude during price drawdowns have historically been more consistent with cyclical resets rather than terminal tops. To me, they reflect hesitation in the market and not total abandonment.
And finally, Bitcoin itself sits at the top of the crypto liquidity hierarchy. When stable coin capital redeploys after these cooling phases, Bitcoin is almost always the primary beneficiary first. It's the lowest risk crypto asset, the deepest market, and the default destination for sideline capital that's re-entering the system.
So when I look forward into next year, I don't see a market starved of liquidity. I see a market that is digesting enormous amounts of inflows, pausing, resetting, and preparing for the next phase of expansion. And that doesn't mean price just goes straight up once we get into the new year. Volatility and draw downs are always part of the process, and they're the price of admission for higher prices. But structurally, the macro liquidity signals, especially these stable coin dynamics, argue against a long sustained crypto winter into next year.
So if the stable coin year-on-year growth remains positive, and if the liquidity flow eventually turns back up positive, the path of least resistance for here over the next couple of months definitely remains higher. And that's why I'm not obsessed with the short-term price. I'm instead watching liquidity. And the liquidity tells me that Bitcoin's long-term setup into 2026 is still very much alive.
Now, I'll probably be posting a little less over the next week or so over the Christmas period just to take a short break before really hitting the ground running in the new year. There are a lot of exciting things to come, especially on the new platform, which is currently being upgraded to handle the level of traffic that we've seen in its first week since launch. But anyway, I hope you all have a great festive period wherever you are, and I'll catch you all in the next one.