The ratio of stablecoins held on the majority of crypto exchanges appears to be on the rise, providing a positive outlook for long-term investors. This trend suggests potential increased buying volume, as many traders and investors hold stablecoins in preparation to purchase at the opportune moment.
However, reflecting on Bitcoin’s history, this scenario may not necessarily be favourable as it carries risks of negative sentiment.
Increasing Stablecoins on Exchanges
According to data from DefiLlama, the current amount of stablecoins on exchanges has significantly risen, reaching its highest level since October 2022.
Data indicates that over $150 billion worth of stablecoins are currently stored across crypto exchanges. This finding is further corroborated by CryptoQuant, showing a drastic increase in the stablecoin-to-exchange ratio.
This ratio provides a calculation of the amount of stablecoins on exchanges compared to the total stablecoins in the crypto market.
A higher ratio signifies more stablecoins on exchanges, indicating a positive condition. This positivity arises from the narrative that an increased storage of stablecoins on exchanges signifies many investors and traders are preparing to buy, anticipating an imminent opportunity.
This narrative aligns with the fact that the Bitcoin Halving is approaching. Historically, after halving events, the prices of most cryptocurrencies tend to rise in the long term, led by Bitcoin.
The Bitcoin Halving is predicted to occur in approximately 20 days, between April 22, 2024, and April 24, 2024. Therefore, the increased stablecoins may indicate traders and investors depositing funds in readiness to purchase.
Historical Data Suggests Negative Signals
This condition has contributed to the narrative driving most crypto assets back towards the $70,000 range. However, there is a possibility that this positive sentiment may not endure long due to the potential for a correction, evidenced by previous Bitcoin movements.
According to CryptoRank data, a similar negative trend occurred when the stablecoin-to-exchange ratio was at the same level as now, at the end of 2021, specifically in November 2021.
CryptoRank data from 2021 shows that in November 2021, the amount of stablecoins on exchanges was relatively similar to the current condition.
It’s notable that during that time, most crypto prices had just finished a significant uptrend and had set new all-time highs due to a bull run. The current situation mirrors this, with most crypto prices having recently surged alongside Bitcoin reaching new highs.
After stablecoins on exchanges reached $150 billion in 2021, Bitcoin’s price started to decline, initiating a significant correction, followed by negative sentiment in 2022 that further pushed Bitcoin down.
This similar pattern serves as a warning that while theoretically positive, the increase in stablecoins on exchanges could also indicate an impending correction. After reaching $150 billion, Bitcoin corrected by over 40%.
This wasn’t necessarily the end of the bull market cycle at that time, as Bitcoin experienced a recovery of about 35% before further correcting in mid-2022 by over 60% due to news about the downfall of major players like FTX and Terra.
Therefore, approaching the halving, investors should remain cautious as a short-term correction is possible, especially considering the typical post-halving correction patterns.
Nonetheless, given crypto’s long-term potential, particularly with the predicted bull run yet to occur, investors and traders can leverage corrections to buy and profit in the long run during the bull market.
Always maintain risk management and a trading or investment plan tailored to personal analysis for appropriate buying and selling times. Trade at your own risks.
