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Author: Jasper De Maere, Source: Wintermute, Compiler: Shaw Bitcoin Vision
Key points at a glance
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Liquidity drives cryptocurrency cycles, while inflows to stablecoins, ETFs and DATs have slowed.
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Global liquidity remains strong, but the high overnight secured financing rate (SOFR) has caused more funds to flow into U.S. Treasury bonds and away from the cryptocurrency market.
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Cryptocurrencies are currently in the self-funding stage, funds circulate internally until the strong return of capital inflows.
Liquidity determines every cycle of cryptocurrencies.Adoption may drive long-term growth, but it’s the flow of money that determines price fluctuations.Inflows have slowed in the past few months.Whether it isStablecoins, exchange-traded funds (ETFs) or digital asset treasuries (DATs), all channels into the cryptocurrency ecosystem, the momentum of capital inflows has weakened, making cryptocurrencies currently in a self-funding stage rather than an expansion stage.
Technology adoption is important, but liquidity is the key factor that truly drives and defines every cryptocurrency cycle.It’s not just about market depth;Availability of the funds themselves.When the global money supply expands or real interest rates fall, excess liquidity inevitably seeks venture capital, and cryptocurrencies have historically been among the biggest beneficiaries, especially in the 2021 cycle.
In previous cycles, liquidity entered digital assets primarily through stablecoinsThe issuance of stablecoins is the core way for legal currency to flow into digital assets.As the cryptocurrency space matures, three major liquidity channels have gradually dominated the direction of new capital inflows into the cryptocurrency market:
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Digital Asset Treasury (DAT), tokenized funds and revenue structures that connect traditional assets with on-chain liquidity.
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Stablecoin, as an on-chain representative of fiat currency liquidity, serving as the basic collateral for leverage and trading activities.
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Exchange Traded Funds (ETFs), the traditional financial gateway for passive and institutional funds seeking investment exposure to Bitcoin and Ethereum.
Combine ETF asset management (AUM), DAT net value (NAV) and stablecoin issuanceCombined, they provide a reasonable representation of the total amount of funds flowing into digital assets.The chart below shows how these components have evolved over the past 18 months.The bottom chart highlights the strong correlation between changes in these metrics and the total market capitalization of digital assets, showing that when inflows accelerate, prices rise as well.
The key observation is thatDAT and ETF inflow momentum has slowed significantly.Both were strong in the fourth quarter of 2024 and the first quarter of 2025, with a brief uptick in early summer, but the momentum has since faded.Liquidity (M2 money supply) no longer flows naturally into the ecosystem as it did at the beginning of the year.Since the beginning of 2024, the total size of DATs and ETFs hasFrom about $40 billion to $270 billion, and the size of stablecoins has doubled from about $140 billion,reachApproximately US$290 billion, showing strong structural growth, but also a significant growth slowdown.
This slowdown is important because each liquidity channel reflects a different source of liquidity.Stablecoins reflect crypto-native risk appetite, DATs capture institutional yield needs, and ETFs reflect broader traditional financial asset allocation trends.The flattening of growth across these three channels suggests a general slowdown in new capital investment, not just a rotation of funds between different products.Liquidity has not disappeared, it is simply recycled within the system rather than expanded..
Looking at the broader economy beyond cryptocurrencies, liquidity (M2 money supply) is not stagnant either.While high SOFR rates have created some constraints in the short term by keeping cash yields attractive and locking liquidity in short-term Treasuries, we are still in a global easing cycle and quantitative tightening in the United States has officially ended.The structural backdrop remains favorable, butLiquidity currently tends to choose other forms of risk expression, such as the stock market.
Market dynamics are increasingly closed due to reduced external capital inflows.Funds rotate more between mainstream and alternative sectors rather than entering new areas, thus forming a situation of competition within the sectors.This also explains whyThe rebound lasts for a short time, and whyMarket breadth narrows, even if the total asset management scale remains stable.Nowadays,The surge in volatility is primarily driven by liquidation ripple effects rather than sustained trend formation.
Going forward, if any of these liquidity channels recover significantly, e.g.Stablecoin issuance grows again, new ETF launches or DAT issuance picks up, will all indicate that macro liquidity is flowing into the digital asset field again.Prior to this, cryptocurrencies were still in the self-funding stage, with capital just circulating but not achieving compound interest growth.
