What does it mean when investors sell Bitcoin and buy 1 billion stablecoins?

Editor's Note: This article comes from LongHash Blockchain Information (ID: Kyle Torpey), author: LongHash Joseph Young.

Currently, more than $1 billion is parked in two major stablecoins, USDT and USDC, as investors wait for a more opportune time to buy other crypto assets.

What does it mean for investors to sell Bitcoin and buy stablecoins? At least in the short term, this is not a bullish signal. As of March 3, there was only $400 million in USDT and USDC on exchanges. In less than four weeks, the total balance has quickly increased by 150%.

“The balance of stablecoins USDT and USDC on exchanges has exceeded $1 billion. This is an indicator of how much money is on the sidelines or placing limit orders on exchanges, waiting for the best time to buy,” said Ankit Chiplunkar, head of research at TokenAnalyst.

However, in the long run, the fact that more than $1 billion of funds have chosen to stay in stablecoins for the time being is a good sign for the eventual revival of the crypto market. After all, it is always more optimistic to keep money in stablecoins than to exit the market completely. Stablecoin data shows that investors are ready to invest again when the crypto market stabilizes, and may be waiting for the price of Bitcoin to fall again before taking action.

Demand for stablecoins, falling volumes suggest lack of buyers

After one of its most dramatic declines in 11 years, the price of Bitcoin has nearly doubled from a low of $3,600. This could indicate that the market is rebounding. But it is too early to tell, as other data suggests there may not be enough buying power to drive a sustainable rebound.

Specifically, we can look at futures and spot volumes. Futures volume refers to the daily volume of 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 carries a higher risk. Spot volume comes from exchanges that primarily handle fiat-crypto and stablecoin-crypto trading pairs. Binance, Coinbase, Kraken, Bitstamp, and Bitfinex account for 83% of the daily spot market volume, and as of the time of writing, these exchanges have an estimated total daily trading volume of $1.3 billion.

Trading volume on futures and spot exchanges has been relatively stagnant since mid-February. This suggests that overall buying demand for crypto assets, regardless of market capitalization, has not increased over the past two months. Despite the rise in Bitcoin prices, this data suggests that there has not been a real increase in buyers in the market, making a long-term rebound in crypto assets impossible.

In technical analysis, a rise in asset prices that is not backed up by rising trading volumes is considered a weak rally or a false move, which is often followed by a larger correction.

Uncertainty surrounding global stock markets and a general lack of demand for riskier assets could lead to a prolonged consolidation period for crypto assets.

Why investors expect crypto markets to head lower in the short term

From a historical perspective, whenever Bitcoin falls, it tends to stay in that downward trend for a period of time. For example, in December 2018, when the Bitcoin price fell to $3,150 on major exchanges, it took more than four months to completely break out of the $3,000 to $4,000 range.

The price of Bitcoin has been rebounding recently. But in the case of Bitcoin mining, there may be a persistent "delayed supply". This happens when miners sell more Bitcoin than they mine. When the price of Bitcoin is significantly below the break-even price for miners, miners are forced to sell their existing stock to cover expenses. The recent plunge hurt miners' profitability before the difficulty adjustment, and the upcoming Bitcoin halving will push their break-even threshold even higher. Therefore, there is a good chance that a "delayed supply" situation will lead to a steady supply of Bitcoin on the market, which could drive down its price.

It is not clear whether the delayed supply will lead to a huge sell-off of Bitcoin. One view is that if the price of Bitcoin stabilizes between $6,000 and $7,000 in the face of increased selling by miners, it will be enough to show the strength and stability of the market.

Bitcoin's rapid rise from $3,600 to $6,500 in a matter of days has some investors worried. Historically, if the price of Bitcoin remains stable over a three- to four-month period, it has given a good trend over a long period of time, as it creates a more stable bottom for the asset to rebound from. If buyers remain on the sidelines and keep their funds in stablecoins, the price of Bitcoin could easily fall again.

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