Bitcoin’s price has shown stagnation since its peak in March, with analysts attributing this trend to the tight U.S. monetary policy. The tightening of the policy, which began in March 2022, has led to a reduction in stablecoin supply. This decline in supply has had a direct impact on Bitcoin’s ability to rally further in the market.
The overall stablecoin supply started to decline when the Federal Reserve initiated interest rate hikes in early 2022. Although the supply started climbing again in late 2023, interest rates have remained high at over 5% for more than a year. The expectation of lower interest rates and increased liquidity due to fiscal policy changes have been driving factors behind Bitcoin’s recent rise.
Analysts emphasize the importance of an increase in stablecoin liquidity and circulating supply through a more accommodative monetary policy in the U.S. for Bitcoin to enter a bullish phase. Until then, Bitcoin may continue to trade sideways or experience corrections, recommending investors to have a long-term perspective on their holdings.
The market capitalization of stablecoins has been on a steady increase over the past few months, currently standing at $161 billion. This represents approximately 7% of the total crypto market, which is significantly lower than its peak in 2022. Tether remains the dominant player in the market with a market share of nearly 70%, boasting an all-time high supply of $112 billion. Circle follows with a market share of around 20% and a circulating supply of $32.5 billion, while Maker’s DAI holds a market cap of $5 billion with a share just over 3%.
Looking ahead, there is speculation that stablecoins could potentially account for 10% of “global economic money” within the next decade, as predicted by Circle CEO Jeremy Allaire. The expectation of lower interest rates by the Fed in September, provided economic data remains positive, could potentially shift the market dynamics and impact the future growth of Bitcoin and other cryptocurrencies. For now, investors are advised to remain cautious and adopt a patient approach given the current market conditions.