A market analyst has detailed how the current Bitcoin correction phase might differ from that of 2024, using data from a specific on-chain metric.
Stablecoin Supply is Showing a Distinct Trend During This Bitcoin Downturn
In a recent CryptoQuant Quicktake post, an analyst discussed the trends in the circulating supply of stablecoins. “Stablecoins” are digital currencies designed to maintain parity with a fiat currency, with the USD being the most widely used. While these tokens operate on various networks, the focus here is on the Ethereum-based variants.
Stablecoins are inherently more stable in value, which leads investors to purchase them when seeking to mitigate the volatility seen with assets like Bitcoin.
Investors who buy stablecoins typically intend to transition back into the more volatile sectors of the cryptocurrency market. If they didn’t plan to do so, they would instead cash out into fiat. When these traders believe the timing is favorable, they convert their stablecoins into Bitcoin or another cryptocurrency of choice. This conversion generates a buying pressure on the asset’s price.
Given their potential to serve as a reserve for trading back into more volatile cryptocurrencies, stablecoins are often viewed as the ‘active’ buy supply within the market. Therefore, an uptick in their supply can be interpreted as a bullish indicator.
Below is the chart provided by the analyst, showcasing the trend of ERC-20 stablecoin supply over the past 18 months:
The graph above indicates that the stablecoin supply has increased over the recent months, suggesting that more capital has been directed towards these fiat-linked tokens as Bitcoin experienced bearish momentum.
Additionally, the analyst points out the trend of this supply indicator during Bitcoin’s previous bearish period last year, where it remained relatively stable.
This suggests that during Bitcoin’s correction in 2024, there was a net outflow of capital from the crypto sector, which normally would have shown an increase in stablecoin supply had funds shifted into them.
In contrast, it appears that a rotation of capital is currently happening, with stablecoin purchasers possibly biding their time for a strategic entry point. However, this situation isn’t entirely bullish; an ideal bullish sign would be the simultaneous increase in both Bitcoin’s market cap and stablecoin supply.
Nevertheless, the fact that stablecoins have not declined during this market downturn may still be viewed as a positive sign for Bitcoin.
BTC Price
Bitcoin has experienced yet another unsuccessful recovery attempt, with its price falling back to $84,000 after briefly exceeding $87,000.
Disclaimer: This content is for informational purposes only. Past performance is not indicative of future results.
