Bitcoin’s price has been stagnant since its peak in March, with analysts attributing this to tight United States monetary policy and reduced stablecoin supply. The Federal Reserve began raising interest rates in early 2022, leading to a decrease in stablecoin supply. In order for Bitcoin to rally, there needs to be an increase in stablecoin liquidity and circulating supply. The US monetary policy impact has kept rates high for over a year, but the expectation of lower interest rates and fiscal policy bringing liquidity to the markets is causing BTC to rise. An increase in stablecoin liquidity and circulating supply through more accommodative monetary policy in the US is seen as necessary for Bitcoin to enter a bull market.
Stablecoin ecosystem outlook shows that stablecoin market capitalization has been steadily increasing over the past few months, currently standing at $161 billion, which is around 7% of the total crypto market. Despite stability in the market, stablecoin market capitalization is less than half of what it was at its peak in 2022. Tether remains the dominant player with a market share of almost 70%, and its USDT supply is at an all-time high of $112 billion. Circle, the second-largest stablecoin, has a market share of around 20% with a circulating supply of $32.5 billion. Maker’s DAI is the third largest stablecoin with a $5 billion market cap and a share of just over 3%. Circle’s CEO predicts an increase in stablecoin usage, with stablecoins potentially accounting for 10% of global economic money in the next decade.
Bitcoin has been fluctuating between the high $50K level and the low $70K level for the past four months. Lower interest rates make cash less attractive as an investment, leading investors towards high-risk assets such as crypto or tech stocks. The Fed is expected to lower interest rates in September, as long as economic data remains positive. Stablecoin supply started climbing again in late 2023, but the high interest rates have kept stablecoin supply and liquidity restricted. The expectation of lower interest rates and fiscal policy providing liquidity to the markets is driving the current rise in BTC.
Analysts highlight that Bitcoin’s inability to rally further is fundamentally due to the tightening monetary policy in the US since March 2022. Until there is an increase in stablecoin liquidity and circulating supply through more accommodative monetary policy in the US, Bitcoin may continue to trade sideways or correct, emphasizing the need for investors to adopt a long-term perspective. An increase in stablecoin liquidity is seen as necessary for Bitcoin to enter a bullish trend. The stablecoin market is expected to continue growing, with Tether maintaining its dominant position and stablecoins potentially accounting for a larger share of global economic money in the future.
In conclusion, the stagnant price of Bitcoin since its peak in March has been attributed to tight US monetary policy and reduced stablecoin supply. The increase in stablecoin liquidity and circulating supply is seen as essential for Bitcoin to rally. The stablecoin ecosystem is expanding steadily, with Tether leading the market and stablecoins potentially accounting for a larger share of global economic money in the future. The US monetary policy impact has kept rates high, but expectations of lower interest rates and fiscal policy bringing liquidity to the markets are driving the current rise in BTC. An increase in stablecoin liquidity through more accommodative monetary policy in the US is crucial for Bitcoin to enter a bullish trend.
