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Key Insights:
- Stablecoin supply is vital for Bitcoin’s next bull rally. Since early 2022, U.S. monetary policy has impacted the cryptocurrency.
- Lower interest rates could boost high-risk assets like Bitcoin and tech stocks, with expected rate cuts by September.
- Tether leads the stablecoin market with a $112B supply, critical for predicting Bitcoin’s market movements.
The crypto market closely watches the stablecoin supply as a critical indicator of the next Bitcoin bull run. Analysts suggest that the amount of stablecoins circulating can provide significant insights into crypto market conditions.
Impact of US Monetary Policy
CryptoQuant analysts have noted that Bitcoin’s price has remained stagnant since its March peak. This stagnation is attributed to tight U.S. monetary policy, which has reduced stablecoin supply.
According to their July 3 report,
“Bitcoin’s inability to rally further is fundamentally due to the tightening monetary policy in the U.S. since March 2022.”
The Federal Reserve’s decision to raise interest rates in early 2022 initiated a decline in the overall stablecoin supply. Despite a slight increase in the stablecoin supply in late 2023, interest rates have stayed above 5% for over a year, maintaining pressure on the market.
Analysts believe that Bitcoin has been rising due to an expectation of lower interest rates and more accommodative fiscal policies, which could bring liquidity to the markets.
Role of Stablecoins in Market Dynamics
Analysts argue that an increase in stablecoin liquidity and circulating supply is essential for Bitcoin to enter a bull market. This can be facilitated by a more accommodative U.S. monetary policy. Until such changes occur, Bitcoin is expected to continue trading sideways or experience corrections, suggesting that investors should maintain a long-term perspective.
The correlation between interest rates and investment attractiveness plays a crucial role. Lower interest rates make cashless investments more appealing, increasing the attractiveness of high-risk assets like cryptocurrencies and tech stocks. The Federal Reserve is expected to lower interest rates in September, provided the economic data remains positive.
Current Stablecoin Ecosystem
The market capitalization of stablecoins has steadily increased over the past few months, currently at $161 billion. This figure represents around 7% of the total crypto market, less than half its peak value 2022.
Tether remains the dominant player in the stablecoin market, with a market share of nearly 70% and a current supply of $112 billion, marking an all-time high. Its closest competitor, Circle, holds around 20% of the market with a circulating supply of $32.5 billion. Maker’s DAI is the third-largest stablecoin with a market cap of $5 billion, constituting just over 3% of the market.
Circle CEO Jeremy Allaire has projected that stablecoins could account for 10% of “global economic money” within the next decade. This projection underscores the growing significance of stablecoins in the financial ecosystem and their potential impact on the broader cryptocurrency market.
As the market anticipates potential changes in U.S. monetary policy, platforms like Quantum Income and Tokenhell are becoming increasingly relevant for investors seeking to navigate the volatile crypto landscape. These tools provide advanced strategies and insights, potentially aiding in optimizing investment decisions during market uncertainty.
