According to data from the blockchain, the amount of stablecoins in circulation has increased lately, which could indicate a positive outlook for Bitcoin. An analyst at CryptoQuant noted that every increase in stablecoin supply since late 2022 has coincided with a rise in the price of Bitcoin.
A possible way to measure the total amount of stablecoins in circulation is, to sum up their circulating supplies.
What This Data Means for Bitcoin
This indicator measures the amount of capital that flows into the stablecoins, which are digital tokens that maintain a stable value. A higher value of this indicator indicates that more stablecoins are being minted, which means more money is entering the stablecoin market.
Rather, a dip implies that investors are trading these tokens tied to the value of fiat currencies like the dollar for other cryptocurrencies like Bitcoin or withdrawing them for fiat money.
Stablecoins are cryptocurrencies that try to fix their market value to some external reference, such as a fiat currency or a tangible asset. The main objective of creating a stablecoin is to try to give investors refuge in times of volatility.
Stablecoins are mainly used to hedge against price fluctuations of other cryptocurrencies. Investors typically use stablecoins when they want to avoid the volatility associated with most industry coins. Therefore, a rise in the amount of these tokens may indicate that investors are seeking to avoid unstable markets.
Stablecoins allow investors to wait for the optimal time to buy other assets. When they see a favorable price, they exchange their stablecoins for the desired coins. This can naturally put upward pressure on the price of the cryptocurrency they are moving into.
At the end of 2022, the indicator finally showed a brief deviation from the downward trajectory by registering a strong increase in its value. Interestingly, this spike coincided with a surge in the Bitcoin price.
This increased supply of stablecoins could have been a sign of a capital injection into the market, and as these newly accumulated stablecoins were converted to other coins, the market was getting its fuel for the rally.
