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Next bitcoin price rally brewing due to stablecoin inflows on exchanges

In the cryptocurrency market, many traders exchange crypto assets like Bitcoin for stablecoins when they are unsure of the upside potential, rather than taking them out of the market altogether and exchanging them back into fiat currencies like the euro or U.S. dollar. On January 13th, the price of Bitcoin fell as low as $32,500 after nearly $1 billion worth of futures contracts were liquidated.

Valerie Harrison

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On-chain data shows that stablecoin inflows to exchanges increased just as the price of Bitcoin rose back above $38,000. Will the new buying power continue Bitcoin’s upward trend?

The price of Bitcoin seems to have completed its correction and it is currently struggling to regain the $38,000 mark. What’s more, this could become the fifth consecutive green candle on a weekly basis, and that’s despite the 28% correction from earlier this week.

The fact that stablecoin deposits are pouring onto crypto exchanges in the meantime, according to CryptoQuant data, reinforces the suspicion that the uptrend could continue from this level. This influx of new purchasing power could act as a short-term catalyst for the price of Bitcoin. It suggests that capital that has been pushed aside is moving back into Bitcoin (BTC).

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Why stablecoins are an indicator of the bitcoin price

In the cryptocurrency market, many traders exchange crypto assets like Bitcoin for stablecoins when they are unsure of the upside potential, rather than taking them out of the market altogether and exchanging them back into fiat currencies like the euro or U.S. dollar.

Stablecoins, such as Tether (USDT), are pegged to the value of the U.S. dollar and are tradable through exchanges.

Most exchanges require a complicated Know Your Customer (KYC) verification process for bank transfers, and cash deposits on exchanges can take a long time. So if a wealthy investor wants to buy and sell millions of dollars worth of Bitcoin (BTC), stablecoins are a much more convenient and efficient option.

The high demand from traders for stablecoins has caused Tether’s valuation to soar in recent months. Last month, Tether’s market capitalization surpassed $20 billion. A month later, that figure is already over $24 billion, indicating a surge of capital lying on the side within the cryptocurrency market.

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Investors bought the BTC dip

Meanwhile, stablecoin deposits on exchanges have increased significantly in the last 24 hours. CryptoQuant tracks exchanges’ wallets and monitors stablecoin deposits and outflows.

At major exchanges, stablecoin deposits rose significantly on January 13, just as the bitcoin price began to recover.

On January 13th, the price of Bitcoin fell as low as $32,500 after nearly $1 billion worth of futures contracts were liquidated.

Investors actively bought the dip, as evidenced by the rise in stablecoin deposits and the rising open interest of the bitcoin futures market. As a result, the Bitcoin price experienced a quick turnaround, rising more than 11% overnight.

What’s next for the bitcoin price?

Alex Saunders, a cryptocurrency analyst, tweeted that stablecoins are “flooding the exchanges,” which is often an indication of an uptrend.

Prior to the rally, Michael van de Poppe, a full-time trader at the Amsterdam Stock Exchange, said an all-time high for the bitcoin price is likely if it surpasses $38,000 again and holds above that level.

Overnight, the Bitcoin price broke through the $38,000 resistance area. So in the short term, BTC is on track to retest its record high. Van de Poppe wrote in this regard:

Bitcoin has not changed much. It has converted the $33,000 level into support and is therefore eager to test the $37,000-38,000 level. This needs to convert as well. If it does, we will be eager for new all-time highs. If not, further consolidation is likely.

The Bitcoin price rally also coincides with the opening of Grayscale’s products on January 13. If the price of Bitcoin continues to rise, this could lead to more institutional and accredited investors taking exposure to BTC through the Grayscale Bitcoin Trust (GBTC).

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There is also a strong argument that the reopening of GBTC has provided the impetus for the rally. This would mean that the uptrend is being led by institutions, not retail investors.

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(Featured image by mohamed_hassan via Pixabay)

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Valerie Harrison is a mom of two who likes reporting about the world of finance. She learned about the value of investing at a young age upon taking over her family's textile business when she was just a teenager. Valerie's passion for writing can be traced back to working with an editorial team at her corporate job, where she spent significant time working on market analysis and stock market predictions. Her portfolio includes real estate funds, government bonds, and equities in emerging markets such as cannabis, artificial intelligence, and cryptocurrencies.