Bitcoin's Potential Bottom Formation Amid Rising Stablecoin and Onchain Liquidity

The cryptocurrency market in Q3 2025 has been defined by a confluence of macroeconomic shifts, regulatory clarity, and on-chain liquidity dynamics. As Bitcoin navigates a potential bottom formation, the interplay between stablecoin adoption, institutional positioning, and on-chain metrics offers critical insights into the asset's trajectory. This analysis synthesizes recent data to evaluate whether the conditions are aligning for a sustainable Bitcoin recovery.

Stablecoin Growth: A Liquidity Catalyst

Stablecoins have emerged as the backbone of crypto liquidity in 2025. Tether's USDT supply surged to $181.4 billion, maintaining a 60% market share, while Circle's USDC expanded to $75.7 billion, capturing 24.6% of the sector, according to Coinotag data. The total stablecoin supply surpassed $230 billion by mid-2025, driven by the U.S. passing the GENIUS ACT in July 2025. This legislation mandated 1:1 reserves, monthly disclosures, and AML compliance, effectively legitimizing stablecoins as a regulated asset class, according to the 99Bitcoins report.

Coinbase's Q3 2025 earnings-detailed in its Coinbase Q3 report-underscored the sector's utility, with stablecoin revenue hitting $355 million and average USDC balances on its platform reaching $15 billion. The 99Bitcoins report also noted a $4 trillion monthly transaction volume in stablecoins, further reinforcing their function as a bridge between fiat and crypto ecosystems, creating a fertile ground for Bitcoin's rebalancing.

On-Chain Metrics: Mixed Signals Amid Market Reset

Bitcoin's on-chain activity in Q3 2025 revealed a nuanced picture. The Net Unrealized Profit/Loss (NUPL) metric remained in positive territory for most of the quarter, indicating that a majority of investors held profitable positions, the 99Bitcoins report found. However, the MVRV (Market Value to Realized Value) ratio plummeted in late September, signaling a market reset and heightened selling pressure. This divergence suggests that while retail investors may still be in profit, larger holders are liquidating positions amid macroeconomic uncertainty.

Exchange inflows and outflows also told a story of shifting priorities. Long-term Bitcoin holders moved funds into altcoins outside the top 10, contributing to a $343 billion market cap for non-dominant cryptocurrencies, the 99Bitcoins analysis noted. Meanwhile, Ethereum's on-chain metrics outperformed Bitcoin, with TVL rising to $90 billion and staking activity hitting near all-time highs, according to a Coinotag analysis. Ethereum's network dominance climbed to 13.2%, reflecting a temporary shift in institutional capital toward Layer 1 infrastructure and tokenized real-world assets.

Institutional Positioning: ETF Inflows and Regulatory Tailwinds

The third quarter of 2025 marked a turning point for institutional Bitcoin adoption. Crypto dealmaking exceeded $10 billion, fueled by U.S. regulatory easing under the Trump administration and global interest rate cuts, according to a Coinotag report. ETF inflows, particularly into BlackRock's IBIT, surpassed $173 billion, signaling robust demand for Bitcoin investment vehicles. The SEC's approval of over 20 spot ETFs since 2024 further normalized crypto for pension funds and endowments, with institutions allocating capital to Bitcoin as a hedge against inflation, a separate Coinotag analysis observed (see below).

That Coinotag analysis also reported that exchange balances for Bitcoin were in decline, a sign of reduced selling pressure and sustained institutional confidence. Long-term holders controlled a near-record supply of Bitcoin, reinforcing the narrative of a market bottom forming as large investors accumulate at lower prices. This trend aligns with historical patterns where institutional buying pressure precedes bull market cycles.

Synthesis: A Bottom in the Making?

The interplay of stablecoin liquidity, on-chain dynamics, and institutional flows suggests Bitcoin is navigating a complex but potentially constructive phase. While the MVRV reset and Ethereum's TVL gains indicate short-term volatility, the broader picture is one of structural strength:

1. Liquidity Infrastructure: Stablecoins have created a robust on-ramp for institutional and retail capital, reducing friction in Bitcoin trading and hedging.
2. Regulatory Clarity: The GENIUS ACT and SEC approvals have demystified crypto, enabling large-scale capital inflows.
3. Institutional Confidence: ETFs and dealmaking activity demonstrate Bitcoin's growing acceptance as a store of value, even as altcoins capture short-term momentum.

However, risks remain. The 22.4% decline in DApp active addresses was highlighted by the Coinotag report, and Ethereum's dominance underscores that Bitcoin's leadership is being challenged by innovation in DeFi and tokenized assets. Investors must monitor whether the current on-chain consolidation translates into a sustained rally or a prolonged sideways phase.

Conclusion

Bitcoin's potential bottom formation in Q3 2025 is supported by a trifecta of factors: expanding stablecoin liquidity, regulatory tailwinds, and institutional inflows. While on-chain metrics like the MVRV ratio and Ethereum's TVL gains introduce short-term uncertainty, the underlying infrastructure for Bitcoin's recovery is firmly in place. As the market digests these dynamics, the coming months will test whether the asset can capitalize on its newfound institutional credibility to break out of its consolidation phase.