The supply trend of stablecoins may have provided an indication that the Bitcoin rally would not be sustained for a long period of time.
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Bitcoin Stablecoins Supply Hasn’t Moved Much Recently
According to a recent CryptoQuant Quicktake post, stablecoins supply has remained unaffected by the latest news. Stablecoins are typically used by investors to avoid the volatility associated with most cryptocurrencies. When the stablecoins supply increases, it indicates that new tokens are being minted due to the demand for converting to them from other assets or fresh demand coming into the market. Investors who seek safety in fiat-tied tokens usually do so because they don't want to exit the cryptocurrency sector completely; they only require a temporary place to station their capital. Eventually, when these holders find that the prices are right to jump back into volatile coins like Bitcoin, they swap their stablecoins into them, thus putting buying pressure on their prices. Below is a chart showing the trend in stablecoins supply over the past year.
According to the graph, the quant has identified a correlation between the Bitcoin spot price and the stablecoin supply. It seems that all major increases in the former during the past year have followed rises in the latter metric. This trend occurred three times in this period, before the January rally, the March rebound, and the June surge.
However, it's important to note that the price increase in the asset wasn't caused by the increases in the supply of the stablecoins, but rather the decline in them that followed afterward. The increases in the supply of the stablecoins likely occurred due to fresh capital injections. When this new capital was deployed into Bitcoin and other assets, the assets obtained the fuel for their rallies when the indicator declined.
The most recent rally in the asset was instigated by the news of Grayscale's victory against the US SEC, and there was no such pattern in the supply of these fiat-tied assets. This may have been one of the early signs that the rally wasn't backed by constructive market growth, as the stablecoins supply has only been moving sideways. The Bitcoin retrace below the $26,000 level may have only been a natural consequence of this weak structure.
BTC Price
Bitcoin had earlier fully retraced the gains of the Grayscale rally, but it would appear that the decline isn’t over just yet, as the asset has now gone below the $26,000 level it had been at before the surge.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
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