The Key to Reigniting Bitcoin’s Bull Market: Analyst Insights

To drive further growth in Bitcoin, increasing stablecoin liquidity is crucial, according to CryptoQuant.

Bitcoin has been trading sideways in recent months, with traders eagerly awaiting signals to re-enter the market and regain the bullish momentum seen earlier this year.

In a memo released on Wednesday, a CryptoQuant analyst highlighted stablecoin liquidity as a key indicator to watch.

Stablecoins: The Catalyst for Bitcoin’s Surge

“For Bitcoin to rally significantly, we need to see a rise in stablecoin liquidity and circulating supply,” wrote analyst Mac.D for CryptoQuant.

The analyst pointed out that Bitcoin has struggled to surpass the $73,700 mark since mid-March 2024, attributing this to the tight monetary policies in the United States over the past two years.

Global interest rate hikes have squeezed liquidity across the economy, affecting both stablecoin liquidity and the total circulating supply of stablecoins.

Stablecoins, which are crypto tokens pegged to fiat currencies, are used by exchanges as dollar equivalents in the crypto trading economy. Traders often hold them in anticipation of buying Bitcoin.

For example, Tether (USDT), the most popular stablecoin pegged to the US dollar, saw its market cap drop from $83 billion in April 2022 to $65 billion in November 2022. However, it rebounded to over $82 billion in Q2 2023 and has steadily climbed to over $112 billion in the past three quarters, mirroring Bitcoin’s price movements. Despite this, total stablecoin liquidity has remained flat during Q2 2024, as has Bitcoin’s price.

Liquidity Conditions and Bitcoin’s Price

“The rise in Bitcoin’s price over the past year is primarily due to the expectation of lower interest rates and ongoing fiscal policies that have injected liquidity into the market,” the analyst explained.

In a recent essay, BitMEX co-founder Arthur Hayes argued that continued fiscal spending by the U.S. government would persist, which would likely drive up the prices of assets like Bitcoin.

However, analyst Mac.D believes that for the next significant market uptrend, a more accommodative monetary policy in the United States is also necessary. Currently, markets predict that the Federal Reserve might only start cutting interest rates in September.

“Until we see these signals, Bitcoin is likely to trade sideways or correct further, and investors would be wise to take a long-term view of the market,” Mac.D concluded.