Exchange Stablecoin Reserve Hits $27 Billion as Bitcoin Approaches “Fair Value” of $50 Billion
Stablecoins emerged to combat the volatility of conventional cryptocurrencies by pegging their value to that of a (traditional) fiat currency like the US dollar or a physical asset like gold. As long as a stablecoin associates with an asset whose value remains stable, that coin will as well.
That helps explain why cryptocurrency exchanges now have more stablecoins on their books than ever before, in a new sign that investors are waiting to buy Bitcoin (BTC) and altcoins.
Data from on-chain analytics platform CryptoQuant shows that this week total exchange stablecoin reserves have surpassed 27 billion for the first time. CryptoQuant data analyzes a total of 43 derivatives and retail trading platforms.
Exchange users accumulate stablecoins in their accounts
After reaching a previous peak in late December, stablecoin reserves fell in early 2022, as the BTC/USD and altcoin markets fell in tandem to multi-month lows.
In recent weeks, however, the trend has reversed, with exchange users sending more to their accounts than at any time in history through Feb. 9.
Therefore, the liquid capital for potential deployment in cryptocurrencies from exchanges has never been greater.
As for the BTC reserves in the 21 exchanges monitored by the company, the trend is one of the continuous withdrawals, even after the Bitcoin spot price has increased by almost 50% since the third week of January.
On February 9, exchanges had 2.361 million BTC available.
Supply Shock model leaves $5,000 gains open for BTC
A supply shock is an unexpected event that changes the supply of a product or commodity, resulting in a sudden change in price. As demand for BTC persists through recent gains, popular analyst Willy Woo argued that the current fair market value of Bitcoin is $50,000.
Pointing to his Supply Shock Valuation metric, Woo showed that although it had declined in January, it was still above spot price movements even after recent successes.
On Twitter a couple of days ago, Woo stated that “I put it at $50k, would love to see their models, assuming they have any.”
The Supply Shock determines the market price of Bitcoin when supply was at similar levels at a given time.
“In market conditions when the Supply Shock is within recent historical levels, it is possible to model a fundamental price. We simply go back through the previous times the market had a similar Supply Shock and then find the set of prices recently allocated by the market,” Woo explained at a presentation of the tool last year.
Stablecoins have increasingly become popular, as they derive their value from some underlying external asset, like the U.S. dollar or the price of gold. That makes them different from cryptocurrencies like Bitcoin, which is tied to being “mined” by computers.
Investors will continue to use stablecoins as a means to keep money in their digital wallets that is less volatile than Bitcoin, giving them one less reason to need a bank account.
In a recent paper, Katherine Foster and other researchers highlighted that stablecoins have the potential to facilitate secure and convenient transactions without volatility at a lower cost than mobile money held in a wide variety of non-bank wallets.
All of this points to the idea that stablecoins offer advantages and are likely to stay in future days to come.
By Audy Castaneda
