Stablecoin Supply Stalls, Casting Doubt on Bitcoin’s Bullish Prospects
Key Factors to Consider
Bitcoin’s rapid recovery from below $90,000 since Monday hints at bullish prospects. However, one factor casts doubt on the sustainability of these gains, indicating scope for significant downside volatility if the impending U.S. inflation data comes in hotter-than-expected on Wednesday.
Stablecoin Supply
That factor is the supply of major stablecoins, which has stalled, indicating the absence of fresh capital inflows into the market. Data tracked by Glassnode shows that the supply of the top four stablecoins by market value – USDT, USDC, BUSD, and DAI – has stabilized around $189 billion, representing a 30-day net change of just 0.37%.
Stablecoins: A Safe Haven
Stablecoins are cryptocurrencies with values pegged to an external reference like the U.S. dollar. These tokens are widely used to fund cryptocurrency purchases and acted as a safe haven during the 2022 bear market.
Liquidity and Volatility
The latest slowdown in new liquidity via stablecoins, which suggests a weakened buying environment while heading into the U.S. consumer price index (CPI) release, starkly contrasts the expansion of stablecoin liquidity observed during the November-December rally and early last year.
A Comparison to Previous Inflows
The fact that the late-2024 rally required almost 2x the capital inflow for a smaller price gain underscores the speculative demand and liquidity-driven momentum that has since cooled.
The Impact of Stablecoin Supply on Bitcoin
The data due at 13:30 UTC Wednesday is expected to show the cost of living rose 0.3% month-on-month in December, matching November’s pace. The year-on-year figure is seen printing at 2.9%, up from November’s 2.75. The core figure, which strips out the volatile food and energy component, is forecast to have risen 0.2% month-on-month and 3.3% year-on-year.
Conclusion
The stalling of stablecoin supply casts doubt on the sustainability of Bitcoin’s recent gains, indicating a weakened buying environment and potential scope for significant downside volatility if the U.S. inflation data comes in hotter-than-expected. As investors await the release of the CPI figures, it remains to be seen whether the cryptocurrency market can sustain its recent rally.
FAQs
Q: What is the current supply of stablecoins?
A: The current supply of stablecoins is around $189 billion, representing a 30-day net change of just 0.37%.
Q: Why is the supply of stablecoins important for Bitcoin’s price?
A: The supply of stablecoins is important because it can indicate the level of buying interest and liquidity in the market, which can impact Bitcoin’s price.
Q: What is the expected impact of the U.S. inflation data on Bitcoin’s price?
A: The expected impact of the U.S. inflation data on Bitcoin’s price is uncertain, but it could potentially lead to significant downside volatility if the data comes in hotter-than-expected.
Q: Why did the rally in November-December require more capital inflow than the current rally?
A: The rally in November-December required more capital inflow because it was driven by speculative demand and liquidity-driven momentum, whereas the current rally is driven by a weakened buying environment.
