Stablecoin Exchange Deposits Remain Low, What Does It Mean For Bitcoin?

July 17, 2023

On-chain data shows the stablecoin exchange deposits have remained low recently. Here’s what this may mean for Bitcoin.

Stablecoin Exchange Deposits Stay Low, While Withdrawals Jump

As pointed out by an analyst in a CryptoQuant post, the fact that the stablecoin exchange withdrawals have spiked while deposits have stayed low may be slightly alarming for BTC.

There are two indicators of relevance here: the “stablecoin exchange withdrawing transactions” and the “stablecoin exchange depositing transactions.” As their names already imply, these metrics track the total number of withdrawals and deposit transfers, respectively, that investors of the ERC-20 stables are making right now.

Generally, investors seek the safety of these fiat-tied tokens whenever they want to escape the volatility associated with the other assets in the sector. Eventually, when these holders think that the prices are right to jump back into the volatile markets, they swap their stables back for their desired cryptocurrency.

These investors usually make use of centralized exchanges for this purpose. So, when the exchange withdrawing transactions are high, it can be a sign that holders are exchanging coins like Bitcoin for stablecoins right now.

On the other hand, the deposits being high can imply these investors are looking to buy volatile assets using their stables. Naturally, in the former case, Bitcoin and others may feel a bearish effect from the selling, while in the latter case, the prices might see a bullish boost.

Now, here is a chart that shows the trend in the stablecoin exchange withdrawing and depositing transactions over the past couple of years:

As displayed in the above graph, the stablecoin exchange depositing transactions metric has been relatively low for a while now. This would suggest that there may not be enough demand for converting stables into other assets right now.

From the graph, it’s visible that the last time the indicator spiked was back in March of this year. Following the deposits back then, Bitcoin observed a sharp rebound in its price as the rally saw a revival. The timing of these inflows might mean that it was the buying from these stablecoin holders that had provided the fuel for the BTC surge.

In the graph, the quant has marked other similar past instances as well. It looks like the BTC price generally observes a rise after stablecoin deposits spike, given that the withdrawals are low at the same time.

Recently, however, only the stablecoin withdrawals have observed a spike, implying that investors are taking these tokens away from exchanges, likely to hold onto them for extended periods in self-custody.

As there aren’t any deposits happening to counteract this, the BTC price has been struggling recently. If the trend continues and more stablecoin withdrawals continue to take place, it’s possible that the cryptocurrency could take a hit in the short term.