How stablecoins are crucial for the crypto market’s future

Bart Millican November 29, 2023
How stablecoins are crucial for the crypto market’s future

The ongoing crypto market rally that began in mid-October is more of a turning point rather than a year-end rebound.

With optimism around potential approvals of more than half a dozen spot Bitcoin [BTC] exchange-traded funds (ETFs) reaching a fervor pitch, most analyses today will tell you that the worst of the bear market is behind us.

The global market capitalization increased 34% since mid-October, marking an addition of nearly $360 billion until press time, according to CoinMarketCap data accessed by AMBCrypto.

With valuations surging, trading activity across the market witnessed a strong turnaround. The daily volumes have averaged close to $50 billion in the last month, a welcome respite from the $25 billion-$30 billion recorded over the last two quarters.

The on-chain analytics firm Santiment drew attention to key developments that could have strongly aided the ongoing rally.

From the period between 19 August to 16 October, about 3.54% of stablecoin Tether’s [USDT] circulating supply was deposited on exchanges. In absolute terms, this amounted to a flight of more than $3 billion in USDT tokens.

Additionally, 0.72% of the entire supply of USD Coin [USDC]  entered exchanges around the same time.

Typically, such large inflows act as bullish signals for the market. This is because investors who are sending stablecoins are likely doing it to buy other cryptocurrencies.

As is well known, stablecoins are the primary way for traders on non-fiat crypto exchanges to enter and exit trades. Stablecoins allow traders to keep their fiat value without going off-chain and cashing out.

Hence, increases in stablecoin deposits are a precursor to strong trading activity in the market.

The subsequent rally, which began in mid-October, backed up the reasoning presented above.

However, as most stablecoins got converted to other cryptos, their supply on exchanges dipped. From 26.74% on the 9th of November, USDT’s deposits on trading platforms plunged to 22.13% at press time.

Examining the developments, Santiment noted,

The circulating supply of ERC-20 stablecoins saw a noticeable increase in the last two weeks, as per AMBCrypto’s examination of CryptoQuant. A continued increase in the stablecoin market cap would support the notion of a market recovery.

Bart Millican