Money is flowing into the crypto market through stablecoins, marking the first positive supply growth in over a year.
According to blockchain analytics firm Glassnode, the 90-day net change in the supply of the top four stablecoins, Tether ( USDT), USD Coin ( USDC), Binance USD (BUSD), and Dai (DAI), has turned noticeably positive, marking first such instance since the collapse of Terra in mid-May 2022.
Stablecoins have been widely used to fund cryptocurrency purchases since 2020.
An increase in their supply is seen as a potential buying pressure or a reserve of funds that investors can deploy to purchase cryptocurrencies or use as a margin in derivatives trading.
“This week, the 90-day change in aggregated stablecoin supplies flipped positive for the first time in 1.5 years,” Reflexivity Research stated in an email to its subscribers on November 14.
“This signals increased liquidity on-chain expressed through stablecoins and can be perceived as a sign of capital inflows.”
Stablecoin Net Inflow Turns Positive as BTC Price Doubles in 2023
The positive net change in the supply of major stablecoins comes at a time when the price of Bitcoin (BTC) has doubled to over $35,000 this year, largely driven by expectations of US regulators approving a Bitcoin exchange-traded fund (ETF).
The positive supply growth of stablecoins indicates that there is additional liquidity available for investors to enter the market.
The indicator for stablecoin supply growth turned negative in the first half of May 2022 when Terra’s LUNA token, designed to stabilize the blockchain’s algorithmic stablecoin UST, experienced a crash from $80 to just a few cents.
Following the incident, the market saw liquidity leaving as bankruptcies of various funds, crypto lenders, and the FTX exchange eroded investor confidence.
The recent positive growth in stablecoin supply suggests a renewed confidence and interest in the crypto market.
Stablecoins Continue to be the Backbone of Crypto Ecosystem
Stablecoins remain key to the day-to-day operations of the cryptocurrency industry, acting as a bridge between traditional finance and cryptocurrencies.
“Stablecoins have become the foundation of the cryptocurrency market,” William Quigley, one of the co-founders of Tether, told Cryptonews.
“Stablecoins are the core ingredient in virtually all DeFi applications. Without stablecoins, overall trading volume and liquidity in the crypto market would likely drop 75%.”
Tether, with a market cap exceeding $80 billion, is the most traded cryptocurrency on earth and alone accounts for more than half of all cryptocurrency trading volume.
Within the top 100 traded cryptocurrencies, stablecoins are the most popular and highest-volume trading pair as they provide a stable medium of exchange, making it easier for traders to execute arbitrage opportunities.
In 2022, stablecoins executed $7.4 trillion worth of transactions, up from $6 trillion in 2021, according to data from CoinMetrics.
The stablecoin market is currently dominated by Tether, by far the largest and most liquid of the dollar-pegged tokens, followed by Circle’s USDC.
Back in August, PayPal also announced that it is rolling out its PYUSD stablecoin soon.
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