Stablecoin Growth Is More Important Cue for Crypto Bull Market Than Bitcoin ETF Inflows: Analyst

Monitoring the growth rate of stablecoins might provide a valuable insight into cryptocurrency market demand, according to 10x Research’s latest analysis released on Monday. The significant increase in stablecoin supply indicates that prices are likely to surge even more.

Markus Thielen, founder of 10x Research, recommends focusing less on bitcoin ETF transactions in his report. Instead, he highlights stablecoin providers as the key players responsible for the current market uptrend.

Stablecoins represent a crucial link between traditional currencies and the digital asset sphere, offering a liquidity source for transactions. These digital assets maintain a consistent value, typically linked to one US dollar. The report from 10x reveals that adjustments in stablecoin supply serve as valuable indicators of market conditions, as investors convert fiat funds into stablecoins by depositing the former (minting).

Over the past month, the total amount of Tether’s USDT and Circle’s USDC, the top two stablecoins, grew by almost $10 billion collectively, according to 10x Research. Furthermore, the supply of DAI from MakerDAO and FDUSD from First Digital, the third and fourth largest stablecoins respectively, increased by between 5% and 10%, as indicated by CoinGecko data.

During this bull market, USDT saw an increase of approximately $2.4 billion over the past week – one of the most significant 7-day growths on record. (Or) The weekly surge in USDT’s value amounted to a notable $2.4 billion increase during the current bull market.

“Fiat money is being moved into crypto at an accelerated pace,” Thielen said.

Read more: Stablecoin Expansion Continues as Bitcoin Rally Appears to Stall

Over the past month, there have been approximately $5 billion in new investments flowing into Bitcoin ETFs based in the United States.

Thielen stated that the production of stablecoins is nearly doubled and it could represent a different type of investment compared to ETFs, which may only hold long positions.

Elevated futures funding rates may have attracted clever market players to buy ETFs, potentially leading to an influx of investments in these funds. This phenomenon is known as a carry trade.

The gap between what traders pay for futures contracts versus the current market price, called funding rates, has reached record levels. Long positions, where traders bet on an increase in prices, result in payments to those holding short positions, who profit from price decreases. This situation creates a carry trade opportunity, which allows experienced investors to buy Bitcoin or spot-based ETF shares and sell an equal amount of Bitcoin futures. By maintaining a neutral position, they can securely earn the difference between the two prices as a yield.

Significantly, hedge funds reached an all-time high in holding short positions for Bitcoin futures on the Chicago Mercantile Exchange. This trend might be attributed to the significant demand for the carry trade, as mentioned in a report released last week.