How Stablecoin Exchange Flows Could Signal The Next Bull Market: Analysis

When stablecoins are sent to exchanges in large quantities, it is usually a signal that institutions are preparing to buy. It has not happened yet, as stablecoins such as USDC have been leaving exchanges as the bear market deepens.

On Oct. 8, CryptoQuant CEO Ki Young Ju observed that 94% of the USDC supply is off exchanges, and a large portion of it is held by traditional finance institutions.

“The next Bitcoin parabolic bull run might begin when massive USDC flows into exchanges,” he noted.

The next #Bitcoin parabolic bull run might begin when massive $USDC flows into exchanges.

For now, 94% of the USDC supply is outside exchanges, some of which are owned by TradFis like BlackRock, Fidelity, Goldman Sachs, etc.

They’ll move when they get orders from their clients. pic.twitter.com/Bqenvgugw1

— Ki Young Ju (@ki_young_ju) October 7, 2022

Waiting for Stablecoin Regs

Other crypto-native stablecoins appear to be flowing into exchanges, and the amount stored on them is a little higher.

Tether has around 25% of the supply sitting on trading platforms, according to CryptoQuant. For Binance USD, the number is a much higher 70%, and this is probably due to the yield opportunities that Binance offers for its native stablecoin.

Regulatory pressure is mounting in the United States as the Biden administration has been pushing Congress and urging policymakers to stop dragging their feet with crypto regulations. One of the first things to come under the regulatory spotlight when a framework is finally agreed on is stablecoins. Treasury secretary Janet Yellen has targeted them as a top priority for any new legislation.

A regulated stablecoin market with issuers proving their backing through audits could be a green light for institutions that have been waiting on the sidelines so far. This could cause the inflow of stablecoins to exchanges that signals the next bull market.

However, nothing is likely to happen this year in terms of U.S. regulations, so the crypto winter is likely to continue into 2023 before any thaw starts to take place.

Supplies in Decline

Stablecoins currently account for $149.7 billion in total market capitalization, which represents around 15% of the entire crypto market cap. There is currently around $40 billion in daily stablecoin trading volume.

Tether’s USDT remains the market leader, with 68.3 billion tokens in circulation, giving it a market share of 45.6%. Circle’s USDC is second with 46 billion tokens and a share of 31%, according to CoinGecko.

Both Tether and Circle’s supplies have been shrinking during the bear market, with USDT declining by 18% and USDC also losing 18% since their respective peaks. However, Tether’s has started to slowly increase again over the past couple of months, whereas Circle’s is still in decline.