Bitcoin’s price has been experiencing stagnation since its peak in March, and according to analysts at CryptoQuant, this is largely attributed to the tight U.S. monetary policy. The analysts reported that the tightening monetary policy in the U.S. since March 2022 has led to a reduction in stablecoin supply, which has had a direct impact on Bitcoin’s ability to rally further.
The overall stablecoin supply started to decline in early 2022 when the Federal Reserve began raising interest rates. While there was a slight increase in stablecoin supply in late 2023, interest rates have remained high, hovering over 5% for over a year. This has caused investors to shift towards high-risk assets such as cryptocurrency and tech stocks, as cash becomes less attractive as an investment option.
Market analysts have noted that Bitcoin’s rise is partly fueled by expectations of lower interest rates and more accommodative fiscal policies. They emphasized the importance of an increase in stablecoin liquidity through a more accommodative monetary policy in the U.S. for Bitcoin to enter a bull market. Until then, Bitcoin is likely to trade sideways or correct, suggesting that investors should maintain a long-term perspective.
Stablecoin market capitalization has been on a steady rise over the past few months, currently standing at $161 billion, representing approximately 7% of the total crypto market. Tether remains the dominant player in the market, accounting for almost 70% of the market share with a supply reaching an all-time high of $112 billion. Circle follows as the second-largest stablecoin with a market share of around 20% and a circulating supply of $32.5 billion. Maker’s DAI holds the third position with a market cap of $5 billion and a share of just over 3%.
Looking ahead, Circle CEO Jeremy Allaire predicts that stablecoins could potentially represent 10% of “global economic money” within the next decade. This projection underscores the growing significance of stablecoins in the financial landscape and their potential to reshape the traditional monetary system in the coming years. As the Federal Reserve continues to navigate its monetary policy, the crypto market, including Bitcoin, will likely be influenced by the dynamics of stablecoin supply and market trends.
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