Bitcoin has seen a lackluster performance since its peak in March, with analysts from CryptoQuant attributing this stagnation to the tight monetary policy in the United States. The diminished stablecoin supply, a direct result of the Federal Reserve’s decision to raise interest rates starting in early 2022, has hindered Bitcoin’s ability to rally further. Despite a brief climb in stablecoin supply in late 2023, interest rates have remained high at over 5% for more than a year. This has had a significant impact on the cryptocurrency market, particularly for Bitcoin.
The analysts at CryptoQuant point out that Bitcoin has been on the rise due to the anticipation of lower interest rates and more accommodative fiscal policies that could inject liquidity into the markets. A decrease in stablecoin liquidity and an increase in circulating supply, prompted by a shift towards a more accommodative monetary policy in the U.S., are deemed necessary for Bitcoin to enter a bull market. Investors are advised to maintain a long-term perspective as Bitcoin may continue to trade sideways or correct until these conditions are met.
Stablecoin market capitalization has been steadily rising over the past few months, currently standing at $161 billion, which represents approximately 7% of the total cryptocurrency market. However, this is significantly lower than the peak reached in 2022. Tether remains the dominant player in the stablecoin market, holding a market share of nearly 70% with an all-time high supply of $112 billion. Circle comes in second with a market share of around 20% and a circulating supply of $32.5 billion. Maker’s DAI is the third largest stablecoin with a market cap of $5 billion and a share of just over 3%.
The Future Outlook for Stablecoins
Circle CEO Jeremy Allaire has projected that stablecoins could represent 10% of the “global economic money” in the next decade. As the Federal Reserve is expected to lower interest rates in September, contingent on positive economic data, the landscape for stablecoins and cryptocurrencies, in general, could see significant shifts. With the potential for more liquidity in the markets and a decrease in the attractiveness of cash as an investment, high-risk assets like cryptocurrencies and tech stocks may become more appealing. Investors should keep a watchful eye on developments in U.S. monetary policy and how they may impact the performance of Bitcoin and the broader cryptocurrency market.
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