Could this metric be propping up BTC's recovery?

Every once in a while, I like to revisit the curious relationship between the on-chain activity of crypto’s most popular stablecoins and Bitcoin’s own price performance.

On several occasions in 2020, I’ve pointed out that the sudden inflow of stablecoins to known exchange wallets seem to coincide with short-term bounce backs for the top coin.

The theory is pretty simple - major stablecoin inflows to exchanges as BTC is pulling back could signal a propensity of market investors to ‘buy the dip’ and exchange assets like Tether or DAI for more volatile cryptocurrencies, jumpstarting price recovery. This seems to ring true especially if these exchange inflows are accompanied by big stablecoin transfers and the decreasing balance of large stablecoin addresses (potential whale buys).

I wrote about this 'phenomenon' here, here and here.

So with Bitcoin’s ridiculous PA to start the year, I thought I’d check in on the above proposition, and see if there are any noteworthy patterns already taking shape. And whaddaya know..

While BTC has been acting pretty erratic for the past month, there have really been three major (and several mini) price dips to consider:

  • January 4th-5th dip
  • January 11th-13th dip
  • January 21st-22nd dip

So what’s been the exchange-bound activity of top stablecoins like Tether, USDC, TUSD and DAI during these BTC pullbacks?

Let’s start with the top dog. Since the start of the year, the amount of ERC-20 Tether moving to known exchange wallets has spiked on three separate occasions. Here they are plotted against the price of Bitcoin for the past month:

ERC-20 USDT exchange inflow vs BTC price, past month (Source: Sanbase)

As you can see, Tether’s exchange inflow has heated up around each of Bitcoin’s January corrections, suggesting potential dip-buying efforts by market speculators:

  • Between January 4th-5th, more than 2bn USDT has entered exchange wallets
  • Between January 11th-13th, more than 3.6bn USDT has entered exchange wallets
  • Between January 21st-22nd, more than 2.4bm USDT has entered exchange wallets

Barring these, there have also been several isolated spikes in Tether’s exchange inflow around local BTC bottoms, like the ones observed on January 15th and January 20th, respectively:

ERC-20 USDT exchange inflow vs BTC price, past month (Source: Sanbase)

This behavior is in no way limited to Tether, either. A similar pattern can be seen on USDC’s exchange inflow, which has also recorded a string of upticks around Bitcoin’s recent pullbacks:

USDC exchange inflow vs BTC price, past month (Source: Sanbase)

TrustToken’s TUSD has also logged in multiple exchange inflow spikes around BTC bottoms, with a 2-month high 65m TUSD moved on January 20th:

TUSD exchange inflow vs BTC price, past month (Source: Sanbase)

And finally, while DAI is paired with ETH just as often, notable spikes in its exchange inflow have been recorded during all three significant BTC pullbacks so far in 2021:

DAI exchange inflow vs BTC price, past month (Source: Sanbase)

In a word, some of the top stablecoins have exhibited a surge in exchange-bound activity around many recent Bitcoin corrections, possibly suggesting a surge in buy-side pressure around local dips.

Assuming the above is true, it’s also important where this potential buy-side pressure might be coming from. In other words, is this a retail-driven frenzy or smart whale accumulation?

We can gain some insight on this from the median transfer value of top stablecoins throughout January and, in particular, around Bitcoin’s pullbacks. This metric is not yet available on Sanbase - let me know in the comments if you’d like to see it added.

Below is the median transfer value of Tether in the past 30 days, plotted against the price of Bitcoin:

ERC-20 USDT median transfer vs BTC price, past month (Source: Santiment)

As you can see, there have been several pronounced spikes in the median transfer value of ERC-20 Tether, coinciding with Bitcoin’s local price bottoms.

From an average of ~1000 USDT, the median transfer value surged up to 8000 USDT on January 11th, 7100 USDT on January 15th and 8700 USDT on January 21st, all earmarking short-term bounce backs for the top coin.

A similar pattern unveils on the USDC chart, this time also including a spike in the median transfer value during the Jan. 4th pullback:

USDC median transfer vs BTC price, past month (Source: Santiment)

And finally, DAI has also seen a considerable uptick in its median transfer value around the three above-mentioned Bitcoin corrections so far this year:

DAI median transfer vs BTC price, past month (Source: Santiment)

Pairing this with exchange inflow data could suggest that the (potential) spikes in buy-side pressure were in fact spearheaded by large stablecoin holders rather than retail-sized investors.

With all this said, everything above should be taken with a clear grain of salt. While a spike in stablecoin’s exchange inflow could suggest Bitcoin-related buy pressure, it might also have alternative explanations, like, for instance, newly-found arbitrage opportunities.

Furthermore, it’s impossible to know for sure whether the stablecoins entering exchanges were used to purchase BTC, altcoins, or were, say, used for staking activities that some exchanges now offer.

Still, a move is a move, and I’ll continue to keep an eye on the dynamic between top stablecoins’ exchange data and Bitcoin’s short-term PA. Something tells me this isn’t the final word I’ve said on the topic.

Stay safe out there!

Thanks for reading!

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