On-chain data shows that exchanges have just received significant inflows of stablecoins, something that could ultimately benefit Bitcoin’s rally.
Stablecoin exchange flows have been on the rise recently
As one analyst at CryptoQuant Quicktake pointed out mailthe exchange flow of stablecoins recorded a sharp jump. “Exchange flow” here refers to an on-chain metric that tracks the total amount of a particular asset or group of assets transferred to wallets linked to exchanges.
When the value of this indicator is high, it means that investors are depositing a large number of asset tokens on these centralized platforms at the moment. This trend indicates a rise in demand for trading the currency away.
What this trend means for the broader sector depends on the exact type of cryptocurrency or group of cryptocurrencies in question. In the case of volatile currencies such as Bitcoin, exchange inflows can have a bearish impact, because they signal investors’ willingness to sell these assets.
For stablecoins like Tether’s USDT, exchange flows also indicate traders’ willingness to sell these tokens, but this has no impact on their prices because they are, by definition, stable around the $1 mark. However, this does not mean that stablecoin exchange flows have no relevance at all.
Investors typically store their capital in these tokens when they want to avoid the volatility associated with Bitcoin and other assets. Generally, these holders eventually plan to buy back on the volatile side, as they would have picked up the fiat currencies themselves if they wanted to exit the sector entirely.
When stablecoin investors feel it’s a good time to buy into Bitcoin and others, they turn to exchanges to make the swap. This can of course have an upward impact on the prices of the currencies they convert to.
Exchanges appear to have been receiving huge deposits of ERC-20 stablecoins recently, as the Exchange Inflow data graph shows.
The value of the metric appears to have been quite high in recent days | Source: CryptoQuant
As can be seen in the chart above, the exchange flow for all ERC-20 stablecoins saw a significant rise of $9.3 billion. This is the second largest index ever.
According to quantitative analysis, the majority of these flows went to only two exchanges: Binance and Coinbase. Of the two countries, the former witnessed larger inflows, amounting to $4.3 billion (compared to $3.4 billion for the latter).
Given that these inflows came in a bullish atmosphere that swept the cryptocurrency market in the wake of the US presidential election, it is likely that these inflows were made to make large purchases of Bitcoin and other assets.
In the chart, the analyst highlighted how significant spikes in the flow of stablecoins on the exchange also occurred in the run-up to the bull run of 2021. It now remains to be seen whether the recent surge will also trigger a similar chain of events.
Bitcoin price
At the time of writing, Bitcoin is trading at around $74,800, up 4% over the past week.
Looks like the price of the coin has seen a notable rise recently | Source: BTCUSDT on TradingView
Featured image by Dall-E, CryptoQuant.com, chart from TradingView.com
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