Is a new rally brewing as Bitcoin reclaims $38K and stablecoins ‘flooding’ exchanges?

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Bitcoin (BTC) price extended its recovery on Jan. 14, reclaiming the $ 38,000 level. In addition, the weekly candle has now turned green for the fifth time in a row, despite having fallen 28% earlier this week.

BTC / USD Weekly Candle Chart (Bitstamp). Source: trade view

According to data from CryptoQuant, stable coin deposits are now flooding into the exchange of cryptocurrencies. This inflow could act as a short-term catalyst for Bitcoin as it suggests that the side capital is flowing back into BTC.

Stable coins flow on exchanges. Source: CryptoQuant

Why do stable coins indicate strong buyer demand for Bitcoin?

In the cryptocurrency market, many merchants sell crypto assets like Bitcoin in stablecoins rather than cash.

Stable coins such as Tether (USDT) are linked to the value of the US dollar and can be traded on exchanges.

Most exchanges require a complicated Know Your Customer (KYC) verification process for bank transfers, and cash deposits into exchanges can take a long time.

When a whale or high net worth investor wants to buy and sell millions of dollars worth of bitcoin, stablecoins can be far more convenient than cash.

The high demand from traders for stable coins has caused the valuation of Tether to rise in recent months. Last month, Tether’s market cap was over $ 20 billion. A month later, that number is already over $ 24 billion, indicating a surge in side capital in the cryptocurrency market.

Dry powder moves to exchange

Meanwhile, stable coin deposits in exchanges have increased significantly in the past 24 hours. CryptoQuant tracks the wallets of exchanges and observes stable deposits and outflows of coins.

Stablecoin Reserve of the exchanges. Source: CryptoQuant

On the major stock exchanges, stable Bitcoin deposits rose noticeably on January 13, when the price of Bitcoin began to recover.

On January 13, Bitcoin fell to $ 32,500 after liquidating nearly $ 1 billion in futures contracts.

Investors actively bought the dip, as evidenced by the surge in stable Bitcoin deposits and increasing open interest in the Bitcoin futures market. As a result, Bitcoin quickly reversed its trend, rising more than 10% overnight.

Bitcoin futures open interest. Source: Bybt.com

What’s next?

Alex Saunders, a cryptocurrency analyst, said that stablecoins are “flooding exchanges,” which often indicates an upward trend.

Prior to the rebound, Michael van de Poppe, a full-time trader on the Amsterdam Stock Exchange, said that an all-time high for Bitcoin is likely if it topped $ 38,000 again.

Overnight, the price of Bitcoin pierced the $ 38,000 resistance area that Van de Poppe pinpointed. In the short term, BTC is therefore on the right track to retest its record high. He said:

“Bitcoin hasn’t changed much. It flipped the $ 33,000 level for support, and therefore aims to test the $ 37,000 to $ 38,000 level. You have to turn that around. If so, we will look forward to new all-time highs. If not, further consolidation is likely. “

Bitcoin’s rally also coincides with the opening of Grayscale products on January 13th. If the value of Bitcoin continues to rise, it could attract more institutional and accredited investors to get exposure to BTC through the Grayscale Bitcoin Trust (GBTC).

There’s also a strong argument that GBTC’s reopening initially set the rally going, meaning the uptrend is being led by institutions rather than retail investors.