Amid the recent period of market consolidation, there has been a considerable surge in stablecoins. Notably, between September 9th and now, the combined market capitalization of USDT and USDC has seen a substantial increase of $1.153 billion, with USDT rising by $410 million and USDC by $743 million.
This surge in stablecoin market cap has coincided with Bitcoin’s impressive rise to $60.5K, marking a significant gain of 12.04% within just one week.
It appears that this influx of capital has played a pivotal role in bolstering Bitcoin’s price surge. However, as the market now retraces into a bearish pullback phase, the question arises: do investors remain confident in the potential for a price recovery?
Expansion of USDT Circulating Supply
Despite Bitcoin experiencing a 2% decline on September 16th compared to the previous day, the circulating supply of USDT surged from $54.14 billion to $54.34 billion.
This increase in liquidity could potentially underpin forthcoming rises in Bitcoin prices, provided that there is a reduced dependence on USDT as a safe haven asset.
Surprisingly, the current trend deviates significantly from the anticipated scenarios.
The recent market tremors have triggered a wave of panic among stakeholders, evidenced by consecutive negative outflows. Investors seemingly redirected their capital into USDT seeking safety as Bitcoin’s price plunged, suggesting a shift in liquidity rather than a direct correlation.
In essence, the surge in USDT supply does not align with a proportional increase in Bitcoin demand, hinting at the influence of other factors.
On September 16th, the Tether treasury initiated the minting of 1 billion USDT tokens, leading to a sudden 0.37% spike in its supply.
While this move could be interpreted as a sign of confidence in an impending price recovery, it might equally signify a response to liquidity requirements or hedging strategies in the market, rather than a straightforwardly bullish sentiment.
Thus, a thorough examination of other dynamic variables is necessary to assess the genuine confidence levels in the market.
The Potential Impact of Stablecoin Outflows on Market Sentiment
An analysis of the current data suggests that a significant portion of Bitcoin holders are currently in profit, which, though bullish, could also indicate a potential market peak. High Net Unrealized Profit/Loss (NUPL) levels might prompt profit-taking activities and consequent corrections.
Conversely, a surge in USDT outflows could reverse the NUPL trajectory, showcasing unrealized losses and a likelihood of selling to break even levels.
The true market stance will likely become more apparent post the FOMC meeting. Should the bulls make resolute decisions, profit holders might retain their gains securely.
However, nearing the $55K price range might trigger an upsurge in USDT outflows, hinting at a forthcoming phase of capitulation among investors.
For historical context, on September 3rd, a substantial $230 million worth of USDT left exchanges on the same day Bitcoin’s value plummeted by nearly 3%, following a 4% surge the day before.
This shift implied that investors were possibly reallocating their funds to safer assets, leading BTC to dip below $54K within just three days. If this pattern persists, Bitcoin might retrace back to similar support levels once more.