An analyst has shed light on how the current Bitcoin correction phase may differ from that of 2024, drawing insights from this specific on-chain metric.
Stablecoin Supply Is Showing A Unique Trend In This Bitcoin Downturn
In a CryptoQuant Quicktake article, an analyst discussed the current movement in the stablecoin circulating supply. “Stablecoins” refer to cryptocurrencies that mirror the value of fiat currencies, with the USD being the predominant choice. These tokens operate across various networks, but for this discussion, we will focus on those based on Ethereum.
Stablecoins are inherently designed to maintain a stable value, prompting investors to acquire these assets to evade the volatility typically associated with cryptocurrencies like Bitcoin.
Investors who turn to stablecoins often intend to transition back into more volatile assets eventually. If they did not have this intention, they would have converted their holdings to fiat instead. When these traders feel the timing is right, they convert their stablecoins to Bitcoin or their preferred cryptocurrency. This movement naturally creates buying pressure on the asset’s price.
Given their role as potential capital for volatile cryptocurrencies, stablecoins are frequently considered as the ‘available’ purchasing supply within the sector. Thus, an increase in stablecoin value can be viewed as a bullish indicator.
Now, take a look at the chart shared by the analyst, illustrating the trend in the supply of ERC-20 stablecoins over the past year and a half:
The chart above indicates that supply in stablecoins has been increasing over the last few months, suggesting that capital has been directed towards these fiat-pegged assets as Bitcoin experiences a period of bearish momentum.
The analyst also pointed out a trend in the chart during Bitcoin’s downturn last year, where the stablecoin supply remained relatively stable.
This suggests that during Bitcoin’s correction in 2024, there was a net outflow of capital, implying that funds were rotating into stablecoins, which should have shown an increase in supply.
In contrast, a capital rotation is currently underway, with stablecoin buyers potentially poised on the sidelines for an opportune entry. However, this setup is not particularly bullish; a more favorable scenario would involve both Bitcoin’s market cap and stablecoin supply increasing concurrently.
Nevertheless, the lack of a reduction in stablecoin supply during this market downturn could still be interpreted as a positive sign for Bitcoin.
BTC Price
Bitcoin has encountered yet another unsuccessful recovery rally, with its price retreating back to $84,000 after briefly surpassing $87,000 earlier.
