Key Points
- Stablecoin supply increased by 17% in Q4, impacting Bitcoin’s price positively.
- Investors are becoming more cautious, indicating a maturing cryptocurrency market.
Stablecoin Supply and Bitcoin’s Price Connection
Stablecoin supply and Bitcoin’s price show a strong correlation. For example, during the so-called ‘Trump Pump’ in Q4 last year, the supply of stablecoins increased by 16.9%, reaching $188.82 billion. Concurrently, Bitcoin (BTC) saw a rise from $67.8k to $106.1k. This trend is an example of liquidity driving momentum.
However, the current scenario is different. Liquidity inflows are slowing down, suggesting that investors are becoming apprehensive. As the next ‘Trump Pump’ approaches, it seems the high-risk, high-reward allure of cryptocurrencies is losing its shine.
Market Shifts Towards Caution
Bitcoin’s recovery from $91k to $97k, a 6.6% increase in just a week, indicates that traders are preparing for the next big rally. During the same period, Tether USD (ERC20) stablecoins saw an influx of $311.5 million.
This supports the theory that when liquidity rises, investors double down, bolstering their portfolios. However, this is just the start. It pales in comparison to last year’s Election Day, when a whopping $2.15 billion in stablecoins entered the market. This resulted in BTC surging by 8.24% in one day, breaking the $70k barrier for the first time in eight months.
Following the ‘Trump Pump,’ $27.35 billion in stablecoins flowed into exchanges, fueling BTC’s 56.5% surge to $106.5k. This period shattered the safe haven image of stablecoins. However, the situation has changed since then. Two clashes with the Federal Reserve, high inflation, and increasing selling pressure have impacted the market. Open Interest (OI) has decreased from $68 billion to $61 billion, and the stablecoin market cap has only seen a modest +0.56% change in the last 30 days.
Despite this, there’s a silver lining. Reduced liquidity could lead to greater market stability. Combined with the drop in Open Interest (OI), this suggests that investors are becoming more cautious, speculating less on BTC’s future. This caution could indicate a maturing market.
Bitcoin vs. Stablecoins
Mathematically, a 56.5% surge like the ‘Trump Pump’ could push Bitcoin past $140k by Q1, with $90k acting as a strong support level. Interestingly, the past three days have seen stablecoin net flows turn positive, sparking a rally that’s bringing the market back into the green.
However, a 50% rally might still be overly ambitious. With 88% of Bitcoin’s supply in retail hands, their next moves could be the key to pushing BTC closer to its Q1 target. The real game-changer could be a stablecoin influx crossing the billion mark, a far cry from the current 130 million.
A breakthrough to $100k in the short term seems likely for Bitcoin, but whether it can maintain these levels remains to be seen. Therefore, keeping an eye on the stablecoin chart is crucial. Even a slight panic could turn the market red in no time.
