What does investors selling Bitcoin and buying $1 billion worth of stablecoins signify?

Currently, over $1 billion is stored in two major stablecoins, USDT and USDC, as investors are waiting for a more opportune time to buy into other cryptocurrencies.

What does it mean when investors sell Bitcoin and buy stablecoins? At least in the short term, this is not a bullish signal. As of March 3, the funds in USDT and USDC on exchanges were only $400 million. Within less than four weeks, the total balance increased rapidly by 150%.

"The balance of stablecoins USDT and USDC on exchanges has exceeded $1 billion. This is an indicator of how much funds are still in stablecoins within exchanges, choosing to wait and watch or place limit orders, and then wait for the best time to buy," said Ankit Chiplunkar, Head of Research at TokenAnalyst, stated.

However, in the long term, having over $1 billion in funds temporarily staying in stablecoins without moving is a good sign for the eventual recovery of the crypto market. After all, being in stablecoins is more optimistic than completely exiting the market. The stablecoin data indicates that investors are prepared to re-enter the market when it stabilizes and may be waiting for Bitcoin prices to drop again before taking action.

Demand for stablecoins, decreasing trading volume indicates lack of buyers

After experiencing one of the most significant drops in 11 years, the price of Bitcoin has nearly doubled from its low of $3,600. This may indicate a market rebound. However, it is still too early to conclude as other data suggests there may not be enough buying power to drive a sustainable rebound.

Specifically, we can observe the trading volumes of futures and spot markets. Futures volume refers to the daily trading volume on futures trading platforms such as OKEx, Huobi, Binance Futures, BitMEX, FTX, and Bybit. These exchanges allow users to trade with leverage or borrowed capital, but this comes with higher risks. Spot volume comes from exchanges handling fiat-to-crypto and stablecoin-to-crypto trading pairs. Binance, Coinbase, Kraken, Bitstamp, and Bitfinex account for 83% of the spot market daily trading volume, which is expected to reach $1.3 billion as of the time of writing, according to estimates.

Since mid-February, trading volumes in both futures and spot markets have remained relatively stagnant. This suggests that over the past two months, regardless of market capitalization, the overall buying demand for crypto assets has not increased. Despite the rise in Bitcoin prices, this data indicates that buyers in the market have not truly increased, thus unable to sustain a long-term rebound in crypto assets.

From a technical analysis perspective, an asset price increase without an accompanying rise in trading volume is considered a weak uptrend or a fakeout, often followed by a larger correction.

Uncertainty surrounding global stock markets and a general lack of demand for high-risk assets may prolong the consolidation period for crypto assets.

Why investors expect a short-term downtrend in the crypto market

Historically, whenever Bitcoin falls, it tends to remain in a downtrend for a period of time. For example, in December 2018, when Bitcoin prices widely fell to $3,150 on major exchanges, it took over 4 months to break out of the $3,000 to $4,000 range.

Bitcoin prices have been on a recent rebound. However, in terms of Bitcoin mining, there may be a continued "delayed supply." This occurs when miners sell more Bitcoin than the amount they mine. This situation arises when Bitcoin prices are significantly below the miners' breakeven price, forcing miners to sell their existing inventory to cover expenses. The recent sharp drop has hurt miners' profitability before the upcoming Bitcoin halving, further raising the threshold for their breakeven. Therefore, the possibility of "delayed supply" could lead to a stable Bitcoin supply in the market, potentially pushing its price lower.

It is currently unclear whether delayed supply will result in significant Bitcoin sell-offs. One view is that facing increased selling pressure from miners, if Bitcoin prices stabilize between $6,000 and $7,000, it would be sufficient to demonstrate market strength and stability.

Bitcoin's rapid rise from $3,600 to $6,500 in a few days has raised concerns among some investors. Historically, if Bitcoin prices remain stable for three to four months, it tends to provide a good trend for a considerable period as it creates a more stable bottom for the asset's rebound. If buyers continue to stay put and keep their funds in stablecoins, Bitcoin prices are likely to drop again.

This article is from our partner LONGHASH

Further Reading

• Cao Yin: How should Maker adjust its monetary and fiscal policies under a liquidity crisis?
• 【Dapp Pocket】DeFi Weekly Report 3/23–3/30

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