On-chain data shows that USDC exchange reserves have risen sharply recently, which could help push Bitcoin back higher after the recent drop.
USDC exchange reserve is seeing a sharp rise over the past few days
As one analyst pointed out in a CryptoQuant post, the large amount of USD coins that has recently poured into exchanges could be used to fuel Bitcoin.
The “currency reserve” is an indicator that measures the total amount of USDC currently in the wallets of all centralized exchanges.
Because stablecoins are pegged to fiat (which is USD in USDC’s case), their value is as constant as fiat currency itself. For this reason, investors often seek protection by using coins like Bitcoin during times when they face volatility that are generally associated with much of the crypto market into stablecoins.
Once these investors feel prices are right to dive back into the volatile markets, they trade their stables for crypto they want to buy into.
A particularly large number of purchases from such holders can therefore help to drive up the prices of major cryptos such as Bitcoin.
Now here is a chart showing the development of the USDC foreign exchange reserve over the last few months:
The value of the metric seems to have skyrocketed over the past few days | Source: CryptoQuant
As you can see in the chart above, the USDC FX reserve has typically peaked when BTC price has slid down over the past few months.
After this high, the reserve started declining while the value of Bitcoin either moved sideways or recorded an increase. This makes sense as a declining reserve of the stablecoin implies that investors are now switching to volatile coins.
Recently, the value of the reserve has risen sharply. Also shown on the chart, the “inflow” indicator (which measures the total amount of coins flowing into exchanges) saw a large surge around the same time as this spike.
This implies that most of the recent increase in reserve comes from the USDC, which has been sitting on exchanges for some time.
All of these stablecoins can serve as potential dry powder to add some bullish momentum to Bitcoin after the coin’s price fell below $22,000 today.
However, it should be noted that only the USDC flowing into the spot exchanges can affect the market in this way. A large portion of the recent inflows appears to have gone into derivatives instead, which while also indicative of higher volatility for the market does not explicitly mean that the price will tend to rise. This volatility could cause the price to swing either way.
bitcoin price
At the time of writing, the price of Bitcoin is hovering around $21.4K, down 10% over the past week.
It looks like the value of the crypto has dropped in the last few days | Source: BTCUSD on TradingView Featured image by Kanchanara on Unsplash.com, charts by TradingView.com, CryptoQuant.com
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