In the bitcoin and cryptocurrency market, stablecoins have emerged as a critical component of liquidity, often dubbed the “dry powder.” Stablecoins such as Tether (USDT), USD Coin (USDC), and TrueUSD (TUSD) provide a safe haven for investors, allowing them to park money on the sidelines before making strategic moves in BTC and altcoins.
However, recent observations by industry experts and data analysts suggest that stablecoin fuel is running out, which raises questions about the upside potential that the market is currently offering.
The importance of stablecoins
Stablecoins has gained prominence as one of the most liquid trading pairs along with Bitcoin on most cryptocurrency exchange platforms. Its high liquidity and stable value make it an attractive option for investors seeking to time their market entry effectively.
According to Ki Young Ju, co-founder and CEO of CryptoQuant, the percentage of stablecoin market capitalization on exchanges has historically been associated with higher bitcoin prices, providing insights into investor sentiment and willingness to spread money. Today, Joe subscriber The following chart and tweet, “Stablecoin fuel is running out.”
Ju’s joint chart highlights the interesting correlation between bitcoin price movements and the ratio of the stablecoin in the market against BTC and ETH. During the FTX crash, investors turned to stablecoins due to the price crash, which led to a spike in the stablecoin ratio against BTC and ETH.
On the contrary, the Bitcoin price rally in mid-March was preceded by a rise in the stablecoin percentage. In the lead-up to this, the stablecoin’s ratio increased from less than 0.2 to more than 0.25. By mid-April, the bitcoin price had reached a temporary high for the year, while investors’ reserves of stablecoins had been depleted and the stablecoin ratio had fallen to 0.15.
The potential upside seems limited for Bitcoin and altcoins
The most recent example is the price hike from mid to late April. The stablecoin ratio has seen slow but steady growth, rising from 0.15 to 0.18. The dry powder accumulated in the latest bitcoin price rally from $27,000 to $31,500 has been unloaded.
With the coin currently stable at 0.155, there appears to be limited scope for rapid upward price jumps in Bitcoin. New capital in the form of stablecoins needs to flow into the market to support any significant price movements. “The market is boring until more stablecoins are injected for buy-side liquidity,” says Joe.
Kaiko is also a digital asset data provider pointing to From a worrying trend about the stable market value of currencies today. The total market capitalization of the top five stablecoins has reportedly declined for five consecutive quarters.
However, it should be noted that Tether (USDT) and TrueUSD (TUSD) managed to overcome this bearish trend.
Moreover, the overall market depth in terms of USD has only seen a slight uptick since the XRP ruling. Market depth, which measures the sum of bids and asks within 1% of the average price of all order books, provides important insights into the supply and demand dynamics of cryptocurrencies.
At the time of publication, BTC is priced at $29,269.
Featured image from iStock, chart from TradingView.com