Stablecoin Expansion Stalls Ahead of U.S. Inflation Data

As a seasoned crypto investor with several years of experience under my belt, I’ve seen firsthand how crucial stablecoins have been in fueling the growth of the crypto market. However, the recent stalling expansion of USDT, USDC, and DAI since the Bitcoin halving in late April has left me concerned. The combined market value of these top three stablecoins has been hovering around $149 billion for the past few weeks with minimal growth, indicating a lack of inflows into the crypto market.

As an analyst, I’ve observed that the growth of stablecoins, specifically dollar-pegged cryptocurrencies, significantly contributed to the crypto market surge during the first quarter. However, following the Bitcoin blockchain’s implementation of the mining reward halving on April 20, this expansion has slowed down.

The total worth of the top three leading stablecoins – Tether (USDT), US Dollar Coin (USDC), and DAI (DAI) – which collectively control over 90% of the stablecoin market, has been oscillating between $149 billion and $150 billion for the past three weeks.

After a series of upward trends over the past few weeks, the consolidation reported by 10x Research could potentially signal bearish signs for the market.

As a researcher at 10x Research, I’ve observed some intriguing trends in the crypto market since the latest halving event. Contrary to the optimistic predictions of a post-halving rally, stablecoin inflows into cryptocurrency exchanges have almost stagnated, with minimal growth recorded. Moreover, bitcoin futures leverage has witnessed significant reduction, indicating a more cautious approach among traders. These developments suggest that crypto users are adopting a wait-and-see attitude rather than actively increasing their investments.

As a crypto investor, I’ve noticed that traders frequently utilize stablecoins to finance their cryptocurrency acquisitions and derivatives trading activities. Consequently, any growth in the circulation of these stablecoins is taken as a sign of heightened market participation, which is considered a positive development for the crypto market, implying increased demand and potential price appreciation. Alternatively, a decline in the supply of stablecoins may indicate reduced market activity, potentially leading to decreased demand and lower prices.

As an analyst, I’ve observed a significant growth in the combined market capitalization of the top three stablecoins over the past four months, which saw an increase of more than 23%, bringing their total value to almost $149 billion. Simultaneously, the price of bitcoin, the market leader, surged by over 50% during this period, reaching a new peak of approximately $65,000. The overall crypto market capitalization also experienced a robust growth, increasing by around 50% to a staggering $3.2 trillion.

The halt in the growth of stablecoins is mirrored by a significant decrease in investments flowing into U.S.-based spot ETFs.

As an analyst, I’ve noticed that according to Coinglass’s data, the inflows into Bitcoin ETFs have significantly decreased in the weeks leading up to and following the latest halving event. Consequently, this reduction in investment has dampened the momentum of the bitcoin bull market. Since then, the price of bitcoin has been relatively stagnant, trading mostly between $60,000 and $65,000.

U.S. CPI and China stimulus may offer support

As a crypto investor, I’m keeping a close eye on the upcoming U.S. consumer price index (CPI) release on Wednesday. Some analysts believe that if the CPI comes in lower than expected, Bitcoin could surge past the $65,000 mark.

On Wednesdays, the Consumer Price Index (CPI) reading will be crucial in determining if the cryptocurrency market can surpass the $65,000 mark and resume its advance toward the yearly peaks, as suggested by equity trends. The absence of significant leverage indicates that investors are underprepared for such a rise and have been compelled to pursue this morning’s rebound.

Based on Bloomberg’s report, it is anticipated that the cost of living will have risen by approximately 3.4% in April compared to the same period last year. This represents a slight decrease from the 3.5% increase observed in March. The core Consumer Price Index (CPI), which excludes the fluctuating prices of food and energy, registered a 3.6% year-on-year increase in April, marking a decline from the previous month’s 3.8% growth.

If inflation slows down once more, it’s expected that the Federal Reserve will consider reducing interest rates in 2023. This possibility could lead investors to pour more money into riskier assets such as cryptocurrencies.

China intends to infuse one trillion yuan into the economy by selling government bonds, as reported by Bloomberg. This marks the fourth time in the past 26 years that China has undertaken such a large-scale bond sale.

The founders of the LondonCryptoClub propose that Bitcoin’s price surge to $63,000 this morning might be due to China’s imminent release of a large amount of liquidity into the market, similar to quantitative easing but unique to China.

This morning, China initiated the sale of 1 trillion RMB (approximately $140 billion) worth of long-term bonds to boost its economy. The People’s Bank of China has signaled, under Xi’s instruction, that they will buy these bonds in the secondary market. Preparing to infuse a substantial amount of liquidity into financial markets, China is about to make a significant move.