USDC Exchange Reserve Spikes – Could This Help Push Bitcoin Back Up?
On-chain data shows that USDC exchange reserves rose sharply recently, which could help push Bitcoin back up after the recent drop.
USDC Exchange Reserve observes sharp rise in recent days
As pointed out by an analyst in a CryptoQuant post, the large amount of USD coins that poured into the exchanges recently could be deployed to act as fuel for Bitcoin.
The “exchange reserve” is an indicator that measures the total amount of USDC currently sitting in wallets on all centralized exchanges.
Since stablecoins are pegged to fiat (which in the case of USDC is USD), their value is as constant as the fiat currency itself. Because of this, investors often seek shelter by moving coins like Bitcoin to stablecoins during periods when they want to avoid the volatility generally associated with large parts of the crypto market.
When these investors feel the prices are right to dive back into the volatile markets, they trade their stables for whatever crypto they want to buy into.
A particularly large amount of purchases from such holders can therefore help to drive forward the prices of the major cryptos such as Bitcoin.
Now, here is a chart showing the trend of the USDC foreign exchange reserve over the last few months:
The value of the metric seems to have jumped up in recent days | Source: CryptoQuant
As you can see in the graph above, the USDC currency reserve has typically peaked when the BTC price has fallen in recent months.
After this peak, the reserve has started to decline, while the value of Bitcoin has either moved sideways or observed an increase. This makes sense as a dwindling reserve of the stablecoin means that investors are now shifting to volatile coins.
Most recently, the value of the reserve has seen a very sharp increase. The “Inflow” indicator (which measures the total amount of coins moving into exchanges) also shown in the chart recorded a large increase around the same time as this increase.
This means that most of the recent increase in the reserve has come from USDC, which has been off the exchanges for some time.
All of these stable coins could act as potential dry powder to fuel some upward momentum for Bitcoin after the coin’s price has dipped below $22ki today.
One thing to note, however, is that only USDC flowing into spot exchanges can affect the market in this way. Much of the recent inflows appear to have gone into derivatives instead, which, while also indicative of higher volatility for the market, does not specifically mean that the price will tend to go higher. This volatility can cause the price to swing in either direction.
Bitcoin price
At the time of writing, Bitcoin’s price is hovering around $21.4k, down 10% in the last week.
Looks like the value of the crypto has gone down during the last few days | Source: BTCUSD on TradingView
Featured image from Kanchanara on Unsplash.com, charts from TradingView.com, CryptoQuant.com
