Is the Crypto Market’s Foundation Shaky? Stablecoin Supply Decline Could Threaten Bitcoin’s Rally

In a recent report by CryptoQuant, a cryptocurrency data analytics platform, the current coin market has been likened to a “sandcastle built on futures”. The report notes that since the beginning of 2023, Bitcoin has nearly doubled in price, an impressive feat given the decrease in the total supply of stablecoins.

According to CryptoQuant, the rise in Bitcoin’s price has been largely driven by active in-exchange trading. The percentage of trading in exchanges, also known as “fund flow”, has been at its highest level in the past two years. This suggests that whales, or large institutional investors, are driving up the price using futures rather than spot trading.

Source: CryptoQuant

However, the report also highlights a concerning trend. Fund flow levels have been falling since April, indicating that the continuation of the rally will depend on the increase of stablecoins in spot trading, rather than futures from leverage. This suggests that the current market is vulnerable to a price correction if stablecoin supply remains low.

The rise in Bitcoin’s price has been a remarkable performance, particularly given the decrease in stablecoin supply. Stablecoins are a type of cryptocurrency that are pegged to a stable asset, such as the US dollar. They are often used as a trading pair for other cryptocurrencies, as they offer a more stable value compared to other volatile cryptocurrencies.

The decrease in stablecoin supply means there is less potential demand to buy Bitcoin, making its rise in price even more impressive. However, the reliance on futures rather than spot trading is a concern, as it suggests that the market may not be sustainable in the long run.

In conclusion, while the current coin market has seen impressive gains in the price of Bitcoin, it may be built on a shaky foundation. The decline in stablecoin supply and the reliance on futures rather than spot trading are both concerning trends that could lead to a price correction in the future. As always, investors should exercise caution when investing in cryptocurrencies, as the market can be volatile and unpredictable.

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