Altcoins at a price floor but buying interest remains muted…trading volume hits a 7-month low

Ethereum·Solana·XRP extend weakness

Stablecoin supply shrinks·shift toward safe-haven assets

"A liquidity issue, not fundamentals"

With the US central bank (Fed) holding its policy rate steady in January and dampening expectations for rate cuts, caution is resurfacing in the altcoin (cryptocurrencies other than Bitcoin) market around liquidity and investor sentiment.

According to CoinMarketCap on the 3rd, Ethereum has given back all of its year-to-date gains and remains on a weak trend around $2,300. In Korea, it is trading in the 3.4 million won range. Solana and XRP have also fallen 16% and 12%, respectively, so far this year. The total cryptocurrency market capitalization has recently slipped below $3 trillion and is hovering around $2.65 trillion (about 3,819 trillion won). Total trading volume across major cryptocurrency exchanges in January was tallied at $1.118 trillion (about 1,613 trillion won), the lowest level since July last year. Crypto-focused media outlet BeInCrypto said, "Even though many altcoins are trading 70–90% below their highs, buying interest is not coming in—a clear sign of weakened investor sentiment."

On the liquidity front, a decline in stablecoin supply is being cited as a headwind. According to CryptoQuant, total supply of Ethereum-based stablecoins has fallen about 5% so far this year, and stablecoin balances held by major digital-asset exchanges are also down 9% from last year’s peak. The market typically interprets simultaneous declines in these two indicators as a signal of capital outflows.

Uncertainty around the regulatory environment is also weighing on sentiment. Crypto services firm Matrixport analyzed that "with the US GENIUS Act and the CLARITY Act under review expected to restrict interest payments by stablecoin issuers, funds are moving out of stablecoins and into traditional safe-haven assets such as gold and silver." It added that "this is contributing to tighter liquidity and weakening short-term buying demand."

The market is viewing the current phase as a structural inflection point. Crypto analytics firm Swissblock said, "The market has entered an inflection point where Bitcoin dominance (market share) is beginning to rise," adding, "If Bitcoin continues its upward trend, an altcoin rotation could unfold; conversely, if it declines, there is a strong possibility that market instability will quickly intensify."

While some small-cap altcoins such as Axie Infinity have posted sharp short-term gains recently, some observers note that given overall market volume and liquidity conditions, it will be difficult for such a move to persist for an extended period.

Some say altcoins may have limited room to rebound. Crypto analyst Benjamin Cowen said, "This cycle formed a top amid indifference rather than euphoria, similar to the 2019 bear market," adding, "As back then, the weakening momentum that repeatedly drove rebounds and pullbacks is likely to persist for some time." Crypto strategist Michaël van de Poppe also said, "The current decline is closer to a market-structure and liquidity issue than fundamentals," adding, "There is no reason to engage in aggressive trading until most altcoins recover their prices from before last October’s 'mass liquidation' event."

Kang Min-seung, Bloomingbit reporter minriver@bloomingbit.io