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Stablecoin Inflows May Not Sufficient to Push Bitcoin to New ATH for Now

Published: Jan 15, 2025, 14:38 GMT+00:00

Looking closely at stablecoin flows, the past three times that Bitcoin (BTC) has hit fresh all-time highs, this has been accompanied and possibly fueled by a major increase in the combined market cap of stablecoins.

Tether. FX Empire

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Stablecoin inflows have stabilized in January following the sharp increase that they experienced from late October to December as fresh capital seems to be waiting on the sidelines while the next catalyst for the crypto market makes its way to the surface.

According to data from DeFi Llama, the combined market capitalization of all stablecoins currently stood at $206.5 billion as of yesterday compared to $202.8 billion 30 days ago, resulting in a 1.8% increase during this period.

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Comparatively, stablecoins saw their market value expand from around $170 billion in late October to over $200 billion by the end of December as fresh capital flooded the market in response to Donald Trump’s victory in the U.S. presidential election.

During this 30-day period, Tether (USDT) and Ethena (USDE) saw their market cap shrink by 2.2% and 1.5% respectively while USD Coin (USDC) experienced an 8.7% increase.

Interestingly Usual USD (USD0), a stablecoin launched in July 2024 by the Usual blockchain, has seen its market cap surge by 79.8% during this same period and has become the 6th largest stablecoin with $1.53 billion worth of tokens currently in circulation.

Stablecoins are typically fiat or crypto-backed digital assets whose price is pegged to that of a fiat currency – typically the U.S. dollar. They are considered the gateway to the crypto ecosystem as investors commonly swap fiat currency for their digital peer and then convert these assets into Bitcoin (BTC) and other cryptocurrencies.

Stablecoin Flows Have Surged Alongside BTC the Past Three Times

Looking closely at stablecoin flows, the past three times that Bitcoin (BTC) has hit fresh all-time highs, this has been accompanied and possibly fueled by a major increase in the combined market cap of stablecoins.

For example, when BTC rose to its November 2021 peak of $69,000, stablecoins saw their market value nearly tripled from $60 billion to $150 billion. Moreover, when Bitcoin spiked to its March 2024 all-time high of nearly $74,000, stablecoin flows rose by almost 19% to $160 billion.

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Similarly, this recent ATH of $108,000 for BTC was possibly catalyzed by a $30 billion expansion in the market value of stablecoins as well.

Hence, it is safe to say that there’s a correlation between stablecoin flows and Bitcoin’s price.

Based on this analysis and the relative stalled expansion of this segment of the crypto space in the past 30 days, there does not seem to be enough fuel for Bitcoin to experience a rally of a high magnitude.

That does not necessarily mean that BTC may not be propelled to local highs perhaps 5% to 10% higher than the most recent peak but it would be difficult to see its price moving from $100,000 to $200,000 in the next 30 days if stablecoin flows continue to expand at this slow rate.

BTC Rallies as Inflation Slowed Down in December

The Bureau of Labor Statistics (BLS) in the United States released its inflation data for December just a few minutes ago and the annualized figure came slightly below analysts’ estimate for the period.

Last month, prices rose by 3.2% compared to the same period a year ago or 10 basis points lower than the market’s consensus estimate.

Inflation is a critical variable that central bankers take into account to make monetary policy decisions. If inflation is under control, they will be more inclined to keep lowering interest rates, which benefits high-risk assets like cryptocurrencies.

The market responded positively with Bitcoin is surging nearly 6% thus far in the session as lower-than-expected inflation could prompt the Federal Reserve to reconsider its monetary policy decision and perform additional interest rate cuts in 2025.

Yesterday, the producer price index (PPI), which measures how wholesale prices have evolved in the economy, expanded at a lower rate than expected as well at 0.2%. This helped catalyze the rally that we witnessed in the crypto market yesterday, which saw BTC recover strongly from its recent pullback.

About the Author

Alejandro Arrieche specializes in drafting news articles that incorporate technical analysis for traders and possesses in-depth knowledge of value investing and fundamental analysis

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