As Bitcoin (BTC) continues to trade in the high $100,000 range following the October 9th cryptocurrency market crash, some bullish signs are starting to emerge. Notably, stablecoin reserves on major cryptocurrency exchanges like Binance are entering all-time high (ATH) territory, suggesting a potential rally for BTC.
Stablecoin Reserves Rise: Will Bitcoin Benefit?
According to a CryptoQuant Quicktake post by contributor PelinayPA, Binance’s stablecoin reserves are approaching ATH levels, indicating that investors are ready to deploy funds to accumulate BTC at or below current levels.
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The CryptoQuant analyst highlighted the rapid decline in the Bitcoin-Stablecoin ratio (ESR). For those who don’t know, ESR measures the proportion of Bitcoin reserves to stablecoin reserves on exchanges like Binance.
The report also provides insights into the market’s potential purchasing power and selling pressure. Past data shows that whenever the ESR drops sharply during market volatility, the price of BTC tends to increase.
Essentially, a declining ESR means that stablecoin reserves are growing relative to BTC reserves on exchanges. This shows an increase in “dry powder” available on exchanges, which can be quickly used to buy more BTC and start another bull rally.
Conversely, when ESR increases, it means that stablecoin reserves decrease while the supply of BTC on exchanges increases. This indicates an increase in short-term selling pressure as traders deposit BTC on exchanges to sell.
Currently, the ESR has fallen to historically low levels, implying that Binance holds relatively large stablecoin reserves compared to BTC reserves. According to PelinayPA, this setting can have two interpretations:
In a positive scenario, the abundance of stablecoins suggests significant latent purchasing power. A possible return of confidence in the markets could trigger a strong wave of buying pressure and mark the beginning of a new bullish phase.
Meanwhile, the negative scenario assumes this liquidity remains dormant, reflecting investor hesitations and a market in standby mode after the recent bloodbath that triggered $19 billion in liquidations.
Will Gold Rotation Help BTC?
Following the cryptocurrency market crash earlier this month, which took BTC from an ATH of over $126,000 down to $102,000, several whales addressed liquidations. Despite the crash, some analysts are confident that the top of BTC has not yet arrived.
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One of the factors that can bring significant benefits to BTC in the short term is the rotation of capital from gold to the digital asset. In a new report, Bitwise expected that capital rotation from gold to BTC could push it to $242,000.
That said, veteran trader Peter Brandt recently expected that BTC could fall by 50% from current price levels. As of this writing, BTC is trading at $108,268, down 0.3% over the past 24 hours.
Featured image from Unsplash, charts from CryptoQuant and TradingView.com