On-chain data shows that stablecoin supply has increased recently, a sign that could potentially be bullish for Bitcoin.
Stablecoins have recently registered an increase in their supply
As noted by an analyst in a CryptoQuant after, every increase in stablecoin supply since late 2022 has been accompanied by an increase in the price of Bitcoin. The metric that matters here, of course, is the combined circulating supply of all stablecoins.
When the value of this indicator rises, it means that capital is currently entering the stables as more of their tokens are minted. On the other hand, a decline involves investors exchanging these fiat-bound tokens for currencies like the dollar or shifting them to other cryptocurrencies like Bitcoin.
In general, investors use stalls when they want to avoid the volatility associated with most coins in the industry. So when the supply of these tokens rises, it could also be a sign that investors may be withdrawing from the volatile markets.
When such investors finally feel that the prices are right to jump back into the other assets, they simply exchange their stablecoins for their desired coins. Of course, this can put bullish pressure on the price of the cryptocurrency they switch to.
Now, here is a chart showing the trend in the combined stablecoin circulating supply over the past year and a half:
The value of the metric seems to have been going up in recent days | Source: CryptoQuant
As shown in the chart above, the combined stablecoin circulating supply began to move in an overall downward trend as Bitcoin reached the top of the bull market. This decrease in the supply of these tokens implied the exit of capital from the market, as BTC and other coins fell in value alongside this downward trend.
However, at the end of 2022, the indicator finally showed a short deviation from the downward trajectory as the value registered a sharp increase. Interestingly, not long after this peak appeared, the price of Bitcoin started to rise.
This increase in stablecoin supply could be a sign that a capital injection was taking place in the market, and when these freshly piled stables were converted into the other coins, the market fueled the rally.
In March of this year, when the rally had paused and Bitcoin price was falling, the statistic had risen again, implying that investors may have withdrawn their BTC into the stables.
However, after bottoming below $20,000, stablecoin supply fell again, suggesting holders may have traded back into Bitcoin. Naturally, this gave the asset’s price a bullish boost as the rally started again.
The chart shows that the indicator has been rising again recently. Given that all such increases in the metric have been bullish for BTC in recent months, it’s possible that this new influx of capital could also fuel the asset this time around.
BTC price
At the time of writing, Bitcoin is trading around $26,400, up 2% over the past week.
The value of the asset has gone up over the weekend | Source: BTCUSD on TradingView
Featured Image of CoinWire Japan on Unsplash.com, Charts from TradingView.com, CryptoQuant.com
