- USDT’s monthly market cap turned positive after contracting by -2% while USDC surged by 20%
- Growing liquidity impulse usually sparks a rally
Stablecoin market cap growth, alongside Bitcoin’s price, can offer us some insights into potential liquidity effects on the broader cryptocurrency market. For example – USDT recently saw a slight fall in market cap by 2% over 30 days, only to rebound into positive territory just before the month’s end.
Additionally, USDC saw a significant surge of 20%, marking its fastest growth rate in a year.
The correlation between stablecoin market cap expansion and Bitcoin suggested that greater liquidity from stablecoins could be priming the market for an uptrend on the charts.
Source: CryptoQuant
Historically, as stablecoin market caps expand, they inject liquidity that often precedes rallies in more volatile assets like Bitcoin. In fact, DAI and other stablecoins have also reflected similar patterns and the growing liquidity could fuel potential price surges.
If this stablecoin momentum continues, we may see further hikes across the broader crypto markets.
Bitcoin’s margin lending ratio
Further analysis seemed to reveal that as BTC began to dip, traders noticeably borrowed more USDT, presumably to buy Bitcoin in anticipation of a rebound. This shift marked an uptick in margin lending ratios.
However, instead of recovering, Bitcoin continued to decline with these over-leveraged positions. These traders found themselves underwater as the anticipated price hike failed to materialize.
This over-extension triggered a wave of deleveraging. In fact, traders were forced to sell off their Bitcoin to cover their positions, further driving down the price.
Source: Hyblock Capital
Interestingly, this sell-off and subsequent deleveraging appear to have set the stage for a reversal. After the deleveraging, liquidity in the market rose, leading to a stabilization and then an uptrend in Bitcoin’s value towards the end of January.
This pattern underlined that a hike in borrowing can lead to sharp downturns, which subsequently may offer buying opportunities as the market corrects itself.
Bitcoin ETFs’ demand
Finally, in addition to stablecoins’ liquidity, U.S Bitcoin ETFs also rose and amassed a substantial 1,163,377 BTC—Representing 5.87% of Bitcoin’s total circulating supply.
This holding trend highlighted that the aggregated Bitcoin amount in ETFs remains robustly above the monthly average, despite minor outflows. These outflows seemed to correlate with Bitcoin’s price spikes above $100,000, hinting at profit-taking events.
Taken together, this trend indicated growing investor confidence and a steady demand for BTC.
Source: CryptoQuant
This dynamic of accumulation and occasional outflows follows Bitcoin’s price trends closely. As seen in the latter part of 2024 into early 2025, after hitting historic highs, some investors may liquidate holdings to realize gains, leading to slight decreases in the held amount.
However, the trend of growth in ETF holdings pointed to healthy demand. And, this could be a catalyst for further price surges as more investors gain exposure to Bitcoin through ETFs.
