The growth of stablecoins, which are cryptocurrencies pegged to the US dollar, played a significant role in the first quarter's crypto bull market but has stalled since the Bitcoin blockchain's mining reward halving on April 20. The combined market value of the top three stablecoins, including tether (USDT), USDC, and DAI, which collectively dominate the stablecoin market with over 90% share, has remained steady between $149 billion and $150 billion for the past three weeks.
Markus Thielen, founder of 10x Research, noted that since the halving, there has been minimal growth in stablecoin inflows, and leverage in bitcoin futures has decreased substantially. This suggests that crypto users are withdrawing or pausing inflows rather than anticipating a post-halving rally.
Thielen also warned of potential corrections in the prices of bitcoin and ether, predicting that bitcoin could drop to $55,000 or lower, while ether could fall to $2,500.
Stablecoins are commonly used by traders to fund cryptocurrency purchases and derivatives trading, so the expansion or contraction of their supplies is seen as an indicator of market sentiment. The recent consolidation of stablecoin market caps after a period of growth could have bearish implications for the overall crypto market, according to 10x Research.
In the four months leading up to the halving, the combined market cap of the three major stablecoins increased by over 23% to nearly $149 billion. During the same period, bitcoin's price surged by over 50% to $65,000, and the total crypto market capitalization grew by 50% to $3.2 trillion.
The slowdown in stablecoin expansion coincides with a noticeable decrease in inflows into US-listed spot exchange-traded funds (ETFs).
China's stimulus and the US CPI could provide assistance
A possible weaker-than-expected U.S. consumer price index (CPI) data on Wednesday is anticipated by some observers to push bitcoin above $65,000.
"Wednesday’s CPI will be key to see if we can break above the $65,000 and make progress back towards the year highs, in line with equities. The lack of leverage suggests the market is under positioned for a move higher and has been forced to chase this bounce this morning," the founders of LondonCryptoClub said.
According to Bloomberg, experts anticipate that the data will reveal a likely 3.4% increase in the cost of living over the year in April, slightly lower than March's 3.5%. The core Consumer Price Index (CPI), excluding volatile food and energy prices, is projected to have risen by 3.6% year-on-year, down from 3.8% in March.
A renewed deceleration in inflation could lead to expectations of Federal Reserve rate cuts this year, encouraging investment in risk assets, including cryptocurrencies. Additionally, China's plans to inject liquidity into the economy could provide further support. Bloomberg reports that the world's second-largest economy intends to issue one trillion yuan of debt through December, marking the fourth such issuance in the past 26 years.
The founders of the LondonCryptoClub commented on Bitcoin's bounce to $63,000, attributing it to China's upcoming liquidity injection resembling a form of quantitative easing (QE) with Chinese characteristics. They noted that China's issuance of RMB 1 trillion ($140 billion) in long-dated bonds to stimulate the economy, along with the People's Bank of China's indication of purchasing these bonds in the secondary market, signals a forthcoming surge of liquidity into the markets.
May 2024, Cryptoniteuae