One of the key indicators pointing to an optimistic short-term trend for bitcoin is the growth of stablecoin deposits on exchanges.
While high funding rates and market congestion are forcing the price back down, the entry of restricted capital into the cryptocurrency market could further boost bitcoin’s momentum.
Why Bitcoin Declined After the $60K Breakout
When bitcoin goes into a price discovery and breaks a new record, interest in the market naturally increases.
There is a lot of liquidity in the market today, making this the perfect time for whales and high-income investors to profit from their positions.
Putting money into bitcoins. Source: Bybt.com.
Filbfilb, a trader and technical analyst under a pseudonym, noted that before the drop, high funding rates were observed on futures markets and bitcoin deposits on exchanges.
The bitcoin futures market uses a mechanism called funding to incentivize traders based on market equilibrium.
For example, if there are more buyers or holders of long contracts in the bitcoin futures market, sellers of short positions have an incentive to sell or go short. When this happens, the funding rate rises, making bitcoin long expensive for traders.
Before the fall, the funding rate for BTC futures was between 0.05% and 0.1%, or five to ten times the standard funding rate of 0.01%. Philbfilb explained:
Temporary bitcoin sale after high funding, large net inflow of BTC and weekend pump. I think people thought it was different this time.
The high inflow of bitcoin on exchanges likely fueled the decline, as whales often dump BTC on exchanges when they plan to sell.
So, the combination of whale market selling pressure and a high forward funding rate is the likely reason for today’s decline.
How stablecoin’s influx could further fuel the BTCrally
But despite the pause in the rally, Stubcoin inflows to exchanges are increasing again, according to the latest data from CryptoQuant.
In the cryptocurrency market, traders often hedge their holdings against stables like Tether (USDT) and USDC, rather than monetizing them through withdrawals from bank accounts.
Exchanges typically have a turnaround time of three to seven days for cash deposits, and when traders want to get back into the cryptocurrency market, it becomes tedious to transfer money from their bank accounts to the exchange.
Exchange Reserve BiTC (blue), Stablecoin inflows (green) vs. BTC price (yellow). Source: CryptoQuant
So when stable currencies start to reappear in equity markets – as seen in the green peaks in the chart above – it suggests that withdrawn capital wants to get back into bitcoin.
Ki Yong Ju, CEO of CryptoQuant, wrote:
Many tombstones were traded on the exchanges. 100-287 stablkoyn deposits in each ETH(15 sec) block. I think we will see more $BTC or $ETH pumps in the near future.
Throughout the week, the only thing missing from the bitcoin rally was an influx of Stablcoin.
If bitcoins consolidate without a noticeable increase in stablecoin inflows, it increases the likelihood of an unsustainable uptrend and a short-term correction.
If the trend of pushing capital back into the cryptocurrency market continues, there is a good chance that this will further boost bitcoin’s momentum and lead to a broader rally.
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