Bitcoin’s Stagnation Linked to U.S. Monetary Policy and Stablecoin Liquidity

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Bitcoin’s price has stalled since its March zenith, largely due to stringent U.S. monetary policies, per insights from CryptoQuant analysts.
These analysts note that the Federal Reserve’s interest rate hikes, initiated in early 2022, have contracted the stablecoin supply.
“The crux of Bitcoin’s stagnant rally lies in the tightened U.S. monetary policy since March 2022,” observed the CryptoQuant report on July 3.

Explore how U.S. monetary policy is influencing Bitcoin’s stagnancy and the necessity of increased stablecoin liquidity for potential rallies.

Impact of U.S. Monetary Policy on Bitcoin

Since early 2022, the U.S. Federal Reserve has consistently raised interest rates, leading to reduced stablecoin supply. This tightening monetary policy has been a key factor in Bitcoin’s inability to hit new highs post-March 2022, according to a report by CryptoQuant.

Stablecoin Liquidity as a Prerequisite for Bitcoin Rallies

The report emphasizes that an uptick in stablecoin liquidity and circulating supply is crucial for Bitcoin to experience a sustained rally. The Federal Reserve’s high-interest rates, which have hovered above 5% for over a year, have hindered this growth despite a brief climb in stablecoin supply in late 2023.

Analysts assert that a more accommodative fiscal policy in the U.S., including potential interest rate cuts expected in September, could invigorate the crypto market. Lower interest rates decrease the attractiveness of cash investments, making high-risk assets like cryptocurrencies more appealing.

Recent Trends and Projections for Stablecoins

The capitalization of the stablecoin market has seen a gradual rise over recent months, currently valued at $161 billion—accounting for approximately 7% of the total crypto market. This figure, however, is still less than half of its peak in 2022. Tether (USDT) continues to dominate the market, boasting a 70% share and an all-time high supply of $112 billion.

Market Dynamics and Future Outlook

The second leading stablecoin, Circle’s USDC, holds about 20% market share with a circulating supply of $32.5 billion, followed by Maker’s DAI at 3% with $5 billion market cap. Predictions by Circle CEO Jeremy Allaire suggest that stablecoins could constitute 10% of the “global economic money” within the next decade.

Conclusion

In summary, Bitcoin’s future rallies appear contingent upon an increase in stablecoin liquidity, which, in turn, depends on more favorable U.S. monetary policies. As the Federal Reserve is anticipated to lower interest rates this September, the crypto market could see heightened activity. Investors are encouraged to adopt a long-term perspective as these dynamics play out.