Stablecoins play a crucial role in both bullish and bearish phases of the Bitcoin market. They serve as a conduit for liquidity inflow into BTC and act as a safeguard for preserving value during downtrends. However, is there a possibility that stablecoin liquidity is impeding Bitcoin’s growth?
In a recent analysis by Ki Young Ju, the founder of CryptoQuant, it was suggested that stablecoins might not be driving bullish momentum. Taking into consideration reserves of both Bitcoin and stablecoins, Ju stated,
“Recent weeks have seen notable inflows into ETFs, particularly led by BlackRock’s IBIT.
If the influx of spot ETFs begins to decelerate, the buying pressure on BTC/USD from brokerage entities like Coinbase Prime could dwindle, possibly resulting in market stagnation.…”
According to Ju’s analysis, Bitcoin reserves exceeded stablecoin reserves by more than six times. This indicates that the current reserves of stablecoins might be insufficient to meet the peak demand for Bitcoin.
At the time of writing, Bitcoin boasted a market capitalization of $1.38 trillion. In contrast, the combined market cap of stablecoins stood at $172.887 billion.
It’s noteworthy that the latter figure has risen from a low of $123.74 billion in September 2024 – marking its lowest level in the past three years.
Bitcoin Exchange-Traded Funds (ETFs) Driving Market Demand
The analysis also delved into the influence of ETFs on Bitcoin’s price movements. It highlighted that a slowdown in demand for Spot ETFs over the previous two weeks was followed by weakened market interest.
The analysis further speculated that if Spot ETF demand dwindles significantly, Bitcoin’s price trajectory risks stagnation.
This assessment aligned with the most recent market trends and ETF activities. Notably, there was a drop in demand for Bitcoin ETFs on the final day of October following a week of positive inflows.
Recent ETF data indicated that Bitcoin ETFs wrapped up the week with net outflows, with Friday alone seeing outflows of $54.9 million. Concurrently, BTC struggled to reclaim levels above $70,000, signaling a decline in demand.
Nevertheless, Bitcoin ETFs have surged by 62% since their approval earlier this year. Let’s review how ETF flows have fared thus far –
As of the current moment, Bitcoin ETFs held assets worth over $24.4 billion. This remarkable expansion underscores the escalating demand from institutional investors.
Additionally, the recent withdrawal of funds likely stems from uncertainties surrounding the election period. The aftermath of the elections is anticipated to have a significant impact on market dynamics.
Furthermore, institutional players are responding to the resurgence of global liquidity, hinting at positive prospects for holders. The prevailing low interest rate environment has set the stage for a risk-on sentiment among investors.