Ethereum-based stablecoin supply fell from ~$162 billion to $155 billion over the past week (ending January 26, 2026), marking the largest single-week contraction in ERC-20 stablecoins during the ongoing bull market cycle. Analyst Darkfost flagged the move as a clear bearish liquidity signal, the first meaningful weekly burn of this magnitude since the 2021–2022 bear market.
When stablecoin supply shrinks rapidly, issuers (primarily Tether and Circle) are burning tokens faster than new minting occurs. This usually happens when users redeem stablecoins back into fiat or move capital out of crypto entirely.
On-chain and exchange flow data support the narrative of broad capital withdrawal:
The simultaneous outflow of risk assets (BTC/ETH) and stablecoins is a classic sign of de-risking rather than simple rotation within crypto.
U.S. Federal Reserve system liquidity (Treasury General Account + Reverse Repo balances) fell by approximately $90 billion between January 21–24, 2026. Historically, sharp reductions in net Fed liquidity have pressured risk assets, including cryptocurrencies, especially during periods of profit-taking or macro uncertainty.
This macro backdrop aligns with the recent Bitcoin pullback below $88,000 (weekly loss >5%) and continued weakness in altcoins.
Despite the short-term liquidity squeeze, longer-term analysts remain constructive:
The current dip in supply is viewed as a healthy de-leveraging phase rather than the start of a structural bear market, provided macro conditions stabilize and rate-cut expectations remain intact.
If stablecoin supply stabilizes or begins rebounding in February 2026, it would signal renewed risk appetite and potential reversal.
