According to the latest on-chain data, liquidity in cryptocurrency markets has reached an all-time high. Here is the impact of rising liquidity on Bitcoin’s price and its future trajectory.

Stablecoin market capitalization reaches novel highs – impact on Bitcoin price

In its latest CryptoQuant report revealed that liquidity in the cryptocurrency market reached record levels in behind schedule September, sparking talks about a resumption of the Bitcoin bull market. According to the on-chain analytics firm, cryptocurrency market liquidity is measured by the stablecoin’s value and market capitalization, which currently stands at around $169 billion.

Data from CryptoQuant shows that the total market capitalization of major US dollar-backed stablecoins has increased significantly in 2024, increasing by 31% (equivalent to $40 billion) year-to-date. However, most of the growth was driven by the two largest stablecoins, USDT Tether and USDC Circle.

Source: CryptoQuant

It’s no surprise that USDT and USDC continue to dominate the stablecoin industry, with market shares of 71% and 21%, respectively. According to CryptoQuant data, USDT market capitalization has increased by 30% in 2024 (approximately $28 billion), while USDC market capitalization has increased by 44% (equivalent to $11 billion) year-to-date.

Another forceful sign of increasing market liquidity is record-high stablecoin balances on centralized exchanges. In particular, this growth is driven by USDT (ERC20 in Ethereum), whose balances on exchanges reached a record high of 22.7 billion in October. This reflects an augment of 54% (approximately $8 billion) so far in 2024.

Historically, rising stablecoin balances on exchanges are positively associated with higher prices in the cryptocurrency market, in particular the price of Bitcoin. This is because larger stablecoin shops can signal greater purchasing power to investors as they can quickly exchange stablecoins for other cryptocurrencies on exchanges (known for offering such trading services).

Larger stablecoin balances on exchanges may also signal investors’ willingness to accumulate crypto assets. Ultimately, this buying pressure usually causes asset prices to rise, especially since investors often make purchases expecting prices to rise.

With increasing liquidity in the market, investors have begun to wonder whether Bitcoin’s rally will resume soon. It is worth noting that the total amount of USDT (ERC20) on exchanges has increased 146% from $9.2 billion to $22.7 billion since January 2023, when the current cycle officially began.

However, investors may want to lower expectations given that USDT balances have increased by 20% since August 2024, while the price of Bitcoin remains relatively placid.

Bitcoin price at a glance

At the time of writing, Bitcoin is trading at around $62,750, reflecting an almost 3% gain over the past day.

The price of BTC on the daily timeframe | Source: BTCUSDT chart on TradingView

Featured image from iStock, chart from TradingView