tl;dr
The U.S. money supply reached a record $22.02 trillion in June, up 4.5% year-over-year, typically signaling rising asset prices and inflation. However, cryptocurrency markets are declining as much of this liquidity remains pooled in money markets and short-term Treasuries, not invested in risk asset...
The U.S. money supply has surged to a record $22.02 trillion in June, marking a 4.5% year-over-year increase, a broad indicator that often correlates with rising asset prices and inflation. Yet, despite this flood of liquidity, cryptocurrency markets are bucking the trend by continuing their decline. Experts suggest this liquidity is primarily "pooled, not deployed," with much of it held in money markets or short-duration Treasuries rather than invested in risk assets like cryptocurrencies.
Bitcoin’s market capitalization has dropped by $117 billion since its recent peak, highlighting a disconnection from the rising money supply. Analysts point to elevated options activity and increasing liquidation risks causing volatility. Small price movements have triggered cascading liquidations and short squeezes—both phenomena that amplify market swings through forced selling or rapid buying in reaction to price changes.
Leveraged positions, particularly in altcoins such as XRP, have intensified the selling pressure. XRP experienced a significant $89 million single-day long liquidation, exemplifying how forced selling accelerates downward momentum. With risk sentiment cooling, traders appear cautious, waiting for clearer signals before reentering the market.
Major altcoins have suffered notable losses: Ethereum down 4.8%, Solana 6.2%, and XRP 7.1%. Ethereum faces substantial ask-side supply, requiring clearance of $260 million in sell orders before breaking through the $4,000 price level cleanly. Solana's position is more precarious, with leverage exceeding spot demand, increasing liquidation risks. Despite these challenges, experts characterize the current downturn as a healthy correction rather than a market breakdown.
The prevailing view suggests this market decline is a temporary phase following a major rally, necessitating a consolidation period. Investors should anticipate heightened short-term volatility but maintain confidence in the long-term growth prospects of the cryptocurrency market amid expansive U.S. liquidity.