in Crypto News
Recent market data indicates a $25 billion dollar build-up of cash parked on the sidelines of crypto in stablecoins.
Whilst there’s always a need for an abundance of caution amid a very challenging macroeconomic backdrop, there are indications that this market will spark into life once again.
Reason for optimism
In its weekly newsletter, crypto data intelligence company Glassnode outlines that leading cryptocurrency Bitcoin has locked in one of its worst monthly price performances in history. It cites what it terms as “the end of Bitcoin tourism” as the reason for the drawdown.
Glassnode’s analysis of on-chain data leads it to believe that the purely speculative interest has been purged from the market, leaving the high conviction “HODLers of last resort “ as the last ones standing.
The good news is that although clearly some money has left the market, it’s not as bad as many had envisaged. Much of it hasn’t really left the crypto ecosystem - it’s sitting on the sidelines in stablecoins.
As crypto analyst Murad Mahmudov recently stated: “stables overbought, crypto oversold”. However, Mahmudov does provide the disclaimer that we are in a different monetary regime.
In its 13 year existence, this is the first time that Bitcoin has faced a macro economic climate where the Federal Reserve is engaged in a sustained policy of quantitative tightening whilst the US economy is teetering on the edge of recession.
Jeff Dorman, CIO at digital assets investment management firm, Arca, takes a similar view. In a recent market review, Dorman said that there is a ton of cash in the market, with stablecoins right now accounting for 20% of all the value in digital assets.
That means that stablecoins as a percentage of digital asset market capitalization are at an all time high. On this basis, his belief is that the bounce will be strong when it comes: “When the buying starts, there is a small window to jump through”.
His view is that the forced selling brought on by the liquidity crisis among leveraged traders and crypto lenders will stop “sooner than you think”. “This market is not dying any more than FAANG stocks have died historically”, he said.
Waiting for the bottom
Investors are not retreating into dollars. It’s a reasonable assumption to consider that they’re staying in stablecoins because their interest in the digital assets market has not diminished.
Research published by Digital Asset Investment Management (DAIM) on Friday points to the existence of stablecoin ‘dry powder’. “The amount of money sitting on the digital sideline has never been greater and points to an abundance of patient investors ready to pounce on discounted digital assets”, the report states.
As Ki Young Ju, CEO of Korea-based crypto market analytics firm, CryptoQuant, put it, “everyone is talking about bearish things, but most of them haven’t left the crypto market. They’re just waiting for the bottom.”
“We have $25 billion loaded bullets which can make crypto asset prices go up. The question is when, not how”, Ki added. This bear market may represent a new challenge in terms of the economic backdrop.
Some actors in the crypto space may have been found out when it comes to poor risk management.
Yet despite these things, it may be beneficial to zoom out from the prevailing gloom and acknowledge that the fundamentals that brought crypto to where it is today are very much intact and this market is far from dead.
While many CeFi apps have faced a liquidity crisis, DeFi apps and self-custodial solutions like Exodus have largely weathered the storm and been shown to be as resistant as they were built to be.
This content is for informational purposes only and is not investment advice. You should consult a qualified licensed advisor before engaging in any transaction.