The Bitcoin price is surging and it is remaining relatively stable above $15,000. But when it first exceeded $12,000, whales—or high-net-worth investors—began depositing large amounts of BTC.
Consequently, the dominant cryptocurrency was at risk of a short-term pullback until stablecoin inflows started increasing in early October.
In the cryptocurrency market, when investors cash out, they typically sell their Bitcoin holdings to stablecoins like Tether. Since stablecoins reflect the value of fiat currencies, like the dollar, it is more convenient to store capital in stablecoins rather than cashing out to fiat currencies.
As such, most of the sidelined capital in the Bitcoin market is kept in Tether. Hence, when stablecoin inflows to exchanges increase, it typically indicates growing buyer demand.
The price of Bitcoin avoided a sharp fall in mid-October due to a spike in stablecoin deposits.
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Stablecoin Inflows And New Buyer Demand Came At A Crucial Time
In mid-October, stablecoin inflows into Bitcoin exchanges spiked as the price of BTC was hovering under $12,000. At the time, BTC was at risk of seeing stagnant momentum, possibly a pullback.
Deposits to exchanges from whales started to increase, which meant the selling pressure on BTC could spike. But, the mass inflow of stablecoin deposits offset growing sell-side pressure, leading Bitcoin to rally.
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The daily price chart of Bitcoin with short-term moving averages.
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In an exclusive interview, CryptoQuant CEO Ki Young Ju explained that stablecoin deposits added buying pressure in the early stages of BTC’s rally.
“Investors deposit stablecoins on exchanges from their personal wallets to buy crypto. So we can consider the number of deposit transactions by users as a potential buying pressure,” said Ju.
Ju further explained that the inflow of stablecoins in the early stages of the ongoing rally was critical.
“Historically, if the number of deposits increases, the price is likely to rise, and this time again, the price skyrocketed right after many people depositing stablecoins,” he added.
Where Does Bitcoin Go From Here?
Bitcoin is currently in an awkward position where it is showing technical strength but there are several concerning trends.
The price of Bitcoin stabilizing above $18,000 is a sign of strong momentum. It means that the selling pressure to take BTC below $18,000 is lackluster.
But, the biggest roadblock Bitcoin faces is the futures funding rate. The BTC futures funding rate across major exchanges are well above the average rate, which is 0.01%.
On Binance Futures and Bybit, respectively, the funding rate for BTC/USD and BTC/USDT is 0.15% and 0.074%. This shows that the rally is immensely overheated and overcrowded.
The funding rate turns positive when there the market is overwhelmingly dominated by buyers. If the funding rate stays above 0%, then buyers or long contract holders have to pay short holders or sellers a portion of their position as fees every eight hours.
This mechanism is used by exchanges to achieve balance in the market. Considering that the funding rate suggests the majority of the market is buying, the likelihood of a take-profit correction or a long squeeze remains high.
On top of this, over the weekend, whales started selling BTC on Coinbase, according to CryptoQuant’s on-chain data. If BTC stays stagnant due to the sell-off from whales, and the funding rates continue to increase, the confluence of the two factors could raise the chances of a pullback in the near term.
Source: Forbes – Money
