Stablecoin Supply Decline Affects Bitcoin Liquidity

The concept of M2 money supply, commonly used in traditional finance, has a native equivalent in the crypto space – stablecoin supply.

Stablecoins function as deployable dollars in the crypto market, influencing risk-taking and unwinding. When the pool of available stablecoins expands, it becomes easier to finance and unwind trades. Conversely, when the pool shrinks or stabilizes, price movements become sharper and more volatile.

The article explores the relationship between stablecoin supply and market conditions, highlighting key statistics: the total stablecoin market cap is around $307.92 billion, down 1.13% in the past 30 days. This decline in stablecoin supply is affecting Bitcoin liquidity, making price moves sharper and more volatile.

To understand this dynamic, the article introduces a framework for traders to analyze and navigate market conditions. The framework includes three checks: velocity (transfer volume), location (exchange balances), and leverage price (funding and basis). By monitoring these metrics, traders can anticipate potential risks and opportunities in the market.