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Cryptocurrency expert Nicholas Merton of Data Dash offered a sobering perspective on the current state of the crypto market in a recent video. He addressed the question on every crypto investor’s mind – when will it be time to buy Bitcoin and other altcoins?

Liquidity: The Fundamental Driver of Price Action

Merton’s theory hinges on one key principle: liquidity. According to him, the fundamental element that drives crypto prices higher or lower is the liquidity within the market, specifically, stablecoin liquidity.

He explained how in periods of increasing stablecoin liquidity, prices across the crypto market tend to rise. Conversely, when stablecoin liquidity begins to flatline or decline, the market enters a period of stagnation or decline.

“We find if we look back at history, even beyond this, in prior bull markets… we see that there is an increase in Tether as it became a growing player and tool within the crypto space since back in 2015,” Merton explained.

An Alarming Correlation

Interestingly, he observed a strong correlation between stablecoin liquidity and the total market capitalization of the crypto industry, minus Bitcoin. He postulated that more risk-on plays tend to be impacted significantly by changes in stablecoin liquidity.

Now, despite Bitcoin and Ethereum holding up better than most altcoins due to their position and established status within the market, the reality of liquidity contraction is impossible to ignore. Even if there’s excitement about ETH 2.0 and proof of stake, or a belief that liquidity is migrating predominantly to Bitcoin, the harsh truth remains.

Merton emphasizes that one’s fondness for a particular asset or its historical performance doesn’t guarantee future gains. He underscores a critical issue the crypto market faces – the stagnant and declining stablecoin liquidity over the past year. Unless there’s a solution that revitalizes stablecoin liquidity, the value of cryptocurrencies might stay put or possibly correct downwards.

The expert warns that the current landscape is not favorable for the crypto market. The declining stablecoin liquidity, lack of developmental optimism, shaken investor sentiment, market makers exiting the space, and looming regulatory threats paint a rather grim picture.