On-chain data shows the stablecoin supply long-term and short-term moving averages are close to a death cross. Here’s what it means for Bitcoin.
Stablecoin Circulating Supply Moving Averages Close In On Death Cross
As pointed out by an analyst in a CryptoQuant post, if the stablecoin supply doesn’t increase, a bear market could return for Bitcoin. The “stablecoin circulating supply” is an indicator that measures the total amount of stablecoin tokens that are currently in circulation.
Generally, the main reason why investors use stables is for escaping the volatility associated with most of the assets in the cryptocurrency market. Such holders may keep their stablecoins ready with them to convert into volatile coins whenever they feel that prices are right to jump back in.
When these investors do swap their stables back for coins like Bitcoin, they provide buying pressure to them and hence give a bullish boost to their prices. Because of this reason, the stablecoin circulating supply may be looked at as a store of buying pressure that can be deployed into any of the assets in the market at any point.
Now, here is a chart that shows the trend in the stablecoin circulating supply 21-day and 100-day moving averages (MAs), as well as in the Bitcoin price, over the past year:
The values of the two metrics seem to be approaching each other in recent days | Source: CryptoQuant
The year 2020 saw some sharp growth in the stablecoin circulating supply, which, according to the quant, led to the Bitcoin bull run observed in 2021. This trend makes sense as the stablecoin supply rising shows that more capital is entering the cryptocurrency market.
From the chart, it’s visible that this increase was taking place until the February of last year, following which the indicator reversed its direction and started decreasing instead.
This decline in the metric led to the 21-day MA crossing below the 100-day MA. Interestingly, this crossover seems to have coincided with the bear market kicking off for Bitcoin and the wider cryptocurrency sector, which means that this may have acted as a death cross for the market.
The short-term MA stayed below the long-term one throughout the bear, but recently, just as the current rally kicked off, a reverse cross took place in which the 21-day finally rose above the 100-day.
This boost in the stablecoin circulating supply might have been what has provided the fuel for the latest move in the Bitcoin price. In the last few days, however, the indicator seems to have once again been dropping off, as can be seen in the graph.
The 21-day MA is now once again near the 100-day MA and is at risk of forming another death cross. “If the circulating supply of stablecoins does not increase further, I think the crypto market will enter a bear market again,” cautions the analyst.
At the time of writing, Bitcoin is trading around $23,000, up 2% in the last week.
Looks like BTC is consolidating | Source: BTCUSD On TradingView
Featured image from Mark Basarab on Unsplash.com, charts from TradingView.com, CryptoQuant.com