According to CoinDesk, the combined supply of the top three stablecoins - USDT, USDC, and DAI - has reached a record high of $141.42 billion, the highest since May 2022. This data suggests that capital continues to flow into the cryptocurrency market. Despite a recent slowdown in Bitcoin's steep rally, the increasing supply of stablecoins, often seen as a potential source of funding for token purchases, continues to provide reassurance to Bitcoin bulls.
Bitcoin reached record highs above $73,500 on March 14 but has since struggled to maintain gains above $70,000, largely due to the decreasing likelihood of Federal Reserve rate cuts in June. At the time of reporting, the leading cryptocurrency by market value was trading at $66,300, a 10% drop from its all-time high. However, during the same period, the combined supply of the top three stablecoins, which account for over 90% of the stablecoin market, increased by 2.1% to $141.42 billion, its highest level since May 2022, according to data from TradingView. The cumulative supply has increased by over $20 billion this year.
Reflexivity Research suggests that the continued growth in the supply of stablecoins, a measure of liquidity, is a positive sign for the cryptocurrency market. 'As this [stablecoin supply] continues to trend up, this shows that capital continues to flow into crypto markets,' Reflexivity Research stated in an April 2 newsletter. This could indicate that demand for Bitcoin could remain strong and the broader uptrend may soon resume.
Over the years, stablecoins, led by Tether, have become the primary method for purchasing cryptocurrencies in the spot market and trading derivatives. Since late 2021, traders have increasingly favored crypto futures margined and settled in stablecoins over token-margined ones. Stablecoin-margined futures offer a linear payoff where the value of the collateral remains steady regardless of market volatility, eliminating the need for traders to constantly hedge their collateral.
Other indicators, such as Bitcoin's market value-to-realized value (MVRV) Z-score, also suggest that the path of least resistance is upward. The MVRV Z-score measures the deviation of the market value from the realized value. Historically, a below-zero MVRV Z-score has indicated market bottoms, while a reading above seven has signaled tops. Current data from Glassnode shows the Z-score at 2.87, suggesting that Bitcoin is far from being overbought or near a major market top.
