Original author: Michael Rinko

Original translation: Biteye core contributor Crush

Original source: Biteye

How does the outflow of stablecoins affect the price of cryptocurrencies? Is the market still a pure game for individual investors? This article will give you the answer.

The market value of stablecoins has been declining in the past two years, and the current decline has even returned to the level of the 2018 bear market.

If we perform a regression analysis, we will find that the total market value of stablecoins has a strong correlation with Bitcoin, r= 0.68 , r^ 2 = 0.47 .

(Translator's note: Here r represents the correlation between the market value of stablecoins and the price of Bitcoin, ranging from -1 to 1. -1 means 100% negative correlation, 1 means 100% positive correlation; r squared represents explanatory power, for example, here it means that 47% of the current price of Bitcoin can be explained by the market value of stablecoins, and the rest may be caused by other reasons.)

It has a stronger correlation with Ethereum, r= 0.80, r^ 2 = 0.64. This is likely due to Ethereum’s significant decentralized finance ecosystem.

The stablecoin market value has the strongest correlation with the total locked amount of DeFi, r= 0.80, r^2 = 0.65.

This makes sense because most people enter defi through stablecoins, and more stablecoins means more defi locked-in volume.

Overall, there does not seem to be a clear causal relationship between Bitcoin and stablecoin market caps. We can verify this by performing a correlation analysis at different lags from -10 to 10 days. We find that the highest correlation between Bitcoin and stablecoin market caps is at 0 day lag.

(Translator's note: The lag period here refers to moving the stablecoin market value forward 10 days, 9 days, 8 days, and so on until the data is moved back 10 days, and then analyzing the correlation between each day's value and the Bitcoin price of the day, calculating the r value, to check whether there is a certain degree of temporal relationship or causal relationship between the two.)

If we expand the growth rate to 180 days, we can see that in the last cycle, the market value of stablecoins led the rise in Bitcoin, but in the decline, Bitcoin was ahead of stablecoins.

However, we should not place too much trust in this observed chronological relationship because we only have a market cycle basis to establish this relationship.

Here is a graph of the 1-year growth rate:

To sum up, @Pentosh 1 is correct. The entire market is still in a PVP game state. Once we see a large influx of stablecoins, this may herald the return of more retail investors and risk-takers.

For those who are interested in stablecoins, you can use Chaineye’s stablecoin dashboard to learn more detailed data.