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A stablecoin boom could signal bullish Bitcoin sentiment in advance of its May halving, experts say.
In brief
Anticipation of Bitcoin’s halving could be driving the issuance of stablecoins.
A record $3 billion of stablecoins were deposited on exchanges this year.
Stablecoins are increasingly being used to enable Asian trade finance.
A stablecoin boom that’s propelled their total market cap past $9.5 billion this year could signal bullish Bitcoin sentiment ahead of its imminent halving, experts told Decrypt.
According to crypto data-tracker DAppTotal, the total market cap for stablecoins topped $9.5 billion last month, with Tether (USDT), the oldest, largest, and most widely adopted stablecoin, minting over a billion dollars in April alone.
Investors “hoard” stablecoins pre-halving
Ganesh Natraj, an assistant professor of finance at Warwick Business School in the UK, told Decrypt that anticipation of Bitcoin’s halving could be driving the issuance of stablecoins.
Natraj, who recently published a paper covering stablecoins’ impact on broader crypto markets with UC Berkeley professor Richard Lyons, said that USDT issuance could be driven by “speculation on Bitcoin’s price later this year, and given the halving is due in about a month's time, investors may hoard Tether for that reason.”
“Given the halving is due in about a month's time, investors may hoard Tether for that reason.”
Some traders, certainly, are banking on the price of Bitcoin rising post-halving. “If the new supply of Bitcoin is cut in half, all else being equal, the price should rise,” wrote Dan Morehead, the chief executive of blockchain investment firm Pantera Capital, in his April letter to investors. Morehead notes that between the Federal Reserve’s efforts to contain the coronavirus-induced financial crisis through “unlimited” quantitative easing, and cash literally becoming a vector for the spread of disease, “there’s more than a 50-50 chance Bitcoin goes up – and goes up big.”
Beyond the roughly $2.7 billion in new Tether minted in 2020, blockchain financial-compliance firm Chainalysis found a 250% increase in the amount of USDT moved on-chain, or between crypto wallets, over the last 12 months ending in March.
Much of this growth is due to transactions settled on the Ethereum (ETH) blockchain, which accounted for 90% of all USDT settlements in March. In fact, value transferred on ETH reached parity with BTC for the first time ever in April, according to Messari.
Rising dollar demand on ETH, global foreign exchange, and capital markets in general, is mirrored by growing demand for BTC.
Lending weight to the suggestion that traders are loading up stablecoins on exchanges in preparation to buy Bitcoin, $3 billion of stablecoins were deposited on exchanges this year—a record for stablecoin reserves, according to crypto-analytics firm Messari.
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