Bitcoin’s price has been stagnant since its peak in March, with many analysts pointing to the impact of tight U.S. monetary policy on the cryptocurrency market. According to CryptoQuant analysts, the tightening of monetary policy in the U.S. since March 2022 has led to a reduction in stablecoin supply, which has directly affected Bitcoin’s ability to rally further.
The overall stablecoin supply started to decline in early 2022 when the Federal Reserve began raising interest rates. Although stablecoin supply started to climb again in late 2023, interest rates have remained high at over 5% for over a year. This has put pressure on Bitcoin’s price, as investors are looking for more attractive investment opportunities.
Bitcoin has been rising on the expectation of lower interest rates and more accommodating fiscal policies that bring liquidity to the markets. However, without an increase in stablecoin liquidity and circulating supply through a more accommodative monetary policy in the U.S., Bitcoin may continue to trade sideways or even correct. Investors are advised to adopt a long-term perspective while waiting for a potential shift in monetary policy.
Stablecoin market capitalization has been steadily increasing over the past few months, currently standing at $161 billion, representing around 7% of the total crypto market. This is still lower than its peak in 2022 when it was double the current value. Tether remains the dominant stablecoin with a market share of almost 70%, and its supply is currently at an all-time high of $112 billion. Circle, the second-largest stablecoin, holds around 20% market share, with a circulating supply of $32.5 billion, followed by Maker’s DAI with a market cap of $5 billion and just over 3% market share.
Circle CEO Jeremy Allaire has predicted that stablecoins could account for 10% of “global economic money” within the next decade. This projection highlights the growing importance of stablecoins in the cryptocurrency market and the potential impact they could have on the global economy.
The impact of U.S. monetary policy on Bitcoin’s price stagnation is significant, with stablecoin supply and interest rates playing a crucial role in shaping the cryptocurrency market. As investors continue to monitor the Federal Reserve’s decisions on interest rates, the future of Bitcoin and stablecoins remains uncertain.