Stablecoin Liquidity: Key to Reviving Bitcoin’s Bull Market

Bitcoin, Stablecoins


  • Stablecoin liquidity increase is crucial for Bitcoin's next rally.
  • Bitcoin has traded sideways since reaching $73,700 in March 2024.


CryptoQuant analyst highlights the crucial role of stablecoin liquidity in driving Bitcoin’s next rally. With BTC trading sideways since March, increased stablecoin circulation could be the catalyst for breaking new highs.


The cryptocurrency market has been eagerly awaiting a catalyst to reignite Bitcoin’s bullish momentum, which has stalled since reaching its all-time high of $73,700 in mid-March 2024. According to a recent analysis by CryptoQuant, the key to reviving Bitcoin’s bull market lies in increasing stablecoin liquidity and circulation.


In a Wednesday memo, CryptoQuant analyst Mac.D emphasized the critical role of stablecoins in driving Bitcoin’s price higher. “The bottom line is that in order for Bitcoin to rally in earnest, we need to see an increase in stablecoin liquidity and circulating supply,” Mac.D stated. This insight comes as Bitcoin has been trading sideways for several months, leaving traders searching for signals to re-enter the market.


The analyst attributes Bitcoin’s inability to break new highs to the tightening monetary policy conditions in the United States over the past two years. Higher interest rates globally have negatively impacted liquidity across the economy, including both stablecoin liquidity and total circulating supply.


Stablecoins, such as Tether (USDT), play a crucial role in the crypto trading ecosystem as dollar equivalents and are often held by traders in preparation for future Bitcoin purchases. The market cap of USDT, the world’s most popular stablecoin, has seen significant fluctuations over the past two years. It contracted from $83 billion in April 2022 to $65 billion in November 2022, before recovering to over $82 billion in Q2 2023 and climbing to over $112 billion in the following quarters.


The growth in USDT’s market cap has closely mirrored Bitcoin’s price movements during these periods. However, total stablecoin liquidity has remained relatively flat during Q2 2024, coinciding with Bitcoin’s price stabilization.


Mac.D argues that Bitcoin’s price increase over the past year can be attributed to two main factors: expectations of lower interest rates and continued fiscal policy bringing liquidity into the market. This view aligns with BitMEX co-founder Arthur Hayes’ recent essay, which suggests that ongoing U.S. government fiscal spending will continue to push up prices for assets like Bitcoin.


Despite these positive factors, the analyst believes that the market’s next significant upward movement will require more accommodative monetary policy in the United States. Currently, market predictions suggest that the Federal Reserve may only begin cutting interest rates in September.


In conclusion, Mac.D advises investors to take a long-term view of the market, stating, “Until we see these signals, Bitcoin is likely to trade sideways or correct further, and investors would be wise to take a long-term view of the market.


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