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This Key Metric Suggests the Crypto Market’s Downturn Will Be Shortlived

Avatar Nick Chong 2 months ago

If you’ve been on Crypto Twitter at all over the past few months, you’ve likely noticed multiple tweets like the one seen below; stablecoin companies, from Tether to Circle and Paxos, are issuing tens of millions of dollars worth of these digital assets day after day.

In fact, according to data from blockchain analytics company Coin Metrics, the value of all U.S. dollar stablecoins (USDT, Binance USD, USD Coin, etc.) is on the verge of passing $8 billion — a metric up by 20% in the past month in itself.

Many believe that this trend suggests the crypto market will perform well moving forward.

Why It’s Big For Crypto

As to why this is bullish, Charles Edwards, a digital asset manager, noted earlier this year that “major changes in Tether’s market capitalization have led Bitcoin’s price over the last 1.5 years.”

For instance, prior to the nearly 50% crash in November 2018 that saw BTC plunge from $6,000 to $3,150 and the rest of the crypto market fall even further, the amount of USDT circulating fell by hundreds of millions; also, prior to the majority of 2019’s 330% rally was the printing of hundreds of millions worth of the coins.

The millions of dollars worth of new stablecoins printed over the past few days would suggest that if this historical trend holds true, crypto assets are about to see some strong upside and may be bottoming.

Fundamentally, this makes sense; although there are few details as to how one can deposit U.S. dollars and receive USDT in return, the introduction of fiat into the space through stablecoins should eventually act as a catalyst for Bitcoin’s growth when USDT holders sell their coins for BTC or other crypto assets.

Su Zhu, CEO of Three Arrows Capital, summed it up nicely in 2019, when he wrote that with so much money sitting on the sidelines, especially in stablecoins, BTC could appreciate rapidly:

Theres an estimated $2B in cash sitting at crypto funds/holdcos. Theres another $2B+ sitting in stablecoins, and another $2B sitting at exchanges/silvergate/signature. This is $6B fiat already onboarded to crypto to buy your bags. Imagine thinking we need new money to hit $10k.

Indeed, due to the existence of a fiat multiplier/amplifier ($1 entering the crypto space likely means more than $1 of market cap growth due to liquidity), the billions sitting on the sidelines could greatly increase the value of Bitcoin in the future.

The macro backdrop is obviously different now than when Su Zhu made his comment, though historical precedent suggests that the coming months could be rather bullish for the market as it is clear there is money on the sidelines seemingly waiting to enter the space.

Featured Image from Shutterstock
Nick Chong

Since 2013, Nick has shown interest in Bitcoin and cryptocurrencies. He has since become involved in the industry as a full-time content creator, working for NewsBTC, Bitcoinist, LongHash, among other outlets. Aside from covering...

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