Wintermute has cautioned that the digital asset market cycle is running on "recycled liquidity" as three primary funding channels have slowed. The crypto market-maker released this warning in a Wednesday blog post.
Liquidity drives every crypto cycle, according to the firm's analysis. While blockchain adoption continues expanding, fresh capital inflows have decelerated significantly in recent months.
Key Liquidity Channels Show Slowdown
Stablecoins, exchange-traded funds (ETFs), and digital asset treasuries serve as the three main liquidity conduits for the crypto market. Wintermute warned that inflows across all three of these channels have hit a plateau.
The market-maker's data showed sector expansion since the beginning of 2024. ETF and digital asset treasury holdings grew significantly, increasing from $40 billion to $270 billion, while stablecoin issuance doubled to roughly $290 billion.
However, growth momentum has faded, leaving markets in a "self-funded phase," according to Wintermute. The firm clarified that tighter monetary policy isn't solely responsible for this slowdown, as aggregate money supply has remained supportive, and central banks began easing after two years of rate hikes.
Liquidity Allocation Over Availability Creates Challenges
The current problem stems from liquidity allocation rather than its overall availability, Wintermute asserts. Elevated short-term rates and a high Secured Overnight Financing Rate have pushed investors toward U.S. Treasury bills over crypto assets.
Trading volumes have stayed healthy while growth has stagnated, as capital has rotated between cryptocurrencies without fresh ecosystem inflows. Wintermute characterized this situation as a "player-versus-player" market, where rallies tend to be temporary.
Current volatility is a result of liquidation cascades rather than sustained buying pressure. A revival in any major liquidity channel could signal a return of macro capital to crypto assets.
Potential Catalysts for a Liquidity Wave
New ETFs, renewed stablecoin minting, or increased digital asset treasury issuance might trigger the next liquidity wave. Price action may remain directionless until such catalysts emerge, despite ongoing blockchain infrastructure development. Wintermute noted that liquidity is currently recycling within the system rather than expanding it.
Conflicting Observations on Corporate Adoption
Other analysts have reported that larger players are increasing their positions, despite Wintermute's observation of a treasury slowdown. A Bitwise report documented 48 new Bitcoin treasuries launching in the three months leading up to October 15. Rachael Lucas, an analyst at BTC Markets, stated that these companies acquire Bitcoin via over-the-counter transactions, creating "quieter accumulation" that avoids significant price volatility. This suggests that corporate Bitcoin adoption does not immediately impact market prices.