Stablecoin Issuance Could Fuel Bitcoin’s Next Rally: Researchers

Key Takeaways:

• $2.8 billion in stablecoins issued last week signals new institutional investment in crypto.
• Researchers believe ongoing stablecoin issuance may boost Bitcoin prices
• Economic indicators like the ISM Manufacturing Index raise concerns about U.S. economic strength.

Recent analysis from 10x Research highlights the potential impact of stablecoin issuance on Bitcoin's price. However, a similar analysis also warns of broader economic concerns that could affect the cryptocurrency market. 

10x Research Clamours Stablecoin Issuance is a Catalyst for Bitcoin Rally

Markus Thielen, head researcher at 10x Research, pointed out on August 14 that stablecoin providers Tether and Circle issued a combined $2.8 billion in stablecoins last week. Thielen interprets this as a sign that institutional investors are injecting new capital into the crypto market.

The researcher emphasized the potential impact of continued stablecoin issuance on Bitcoin's price: “If this trend of issuance (not just minting) continues, Bitcoin could see further gains.”

Bitcoin has been trading between $58,000 and $62,000 since August 9, following a recovery from a $49,000 dip. 

However, according to Thielen, a break above the key $60,000-$61,000 resistance zone will require more than just favorable economic indicators like a lower Consumer Price Index (CPI).

“A strong stablecoin inflow is essential to make the breakout sustainable, especially since other factors have had less impact on Bitcoin's rally this year,” Thielen stated.

Similarly, recent activities in the stablecoin market support Thielen's observations. 

Tether minted $1 billion in USDT on August 13, although CEO Paulo Ardoino clarified this was for inventory building rather than immediate issuance. 

Related: Ripple CEO Unvails XRP Ledger Stablecoin “Real USD”

PSA: 1B USDt inventory replenish on Ethereum Network. Note this is an authorized but not issued transaction, meaning that this amount will be used as inventory for next period issuance requests and chain swaps.

— Paolo Ardoino 🤖🍐 (@paoloardoino) August 13, 2024

This move contributed to Tether's market capitalization increasing by about $1 billion over the past week, reaching a record $115.6 billion. Meanwhile, Circle's USDC market capitalization has grown by 4.5% since early August, now standing at $34.5 billion in circulation.

Thielen argues that, given Circle's ties with regulated counterparties, the new inflows likely originated from US entities taking advantage of the price dip.

Economic Concerns and Potential Impact on Crypto

While stablecoin issuance presents a positive outlook, a previous report by 10x Research also highlighted growing concerns about the US economic strength, which could have far-reaching implications for the crypto market. 

The ISM Manufacturing Index, a key economic health indicator, has seen a substantial downturn. 

BREAKING: ISM Manufacturing Index hit 46.8 vs 48.4 expectations, signaling deeper contraction than expected!

Markets are spooked by signs of economic weakness and rising recession fears. #NASDAQ is down 100 PTS in early hours trading!
🤯 pic.twitter.com/97YhNMEPWV

— PX (@PaneahX) August 1, 2024

The report suggests that Bitcoin's price could slump (and stay) below $50,000, potentially impacting other cryptocurrencies.

The historical correlation between the ISM Index and Bitcoin indicates a potentially unfavorable forecast for the crypto market.

Thielen cautioned: “The market structure, including fiat-to-crypto on-ramps, has been weak for months […] it's unlikely that significant players will invest amid high volatility and unpredictable prices. Many still need to exit positions and deleverage their portfolios.”

The report also noted potential implications for the stock market, suggesting the S&P 500 might need to align with the ‘real' economy, potentially leading to a 20% stock decline.

Related: What would happen to Bitcoin if the stock market crashed?