Bitcoin’s Rally Hinges on Stablecoin Liquidity and U.S. Monetary Policy

Bitcoin has been trading sideways since reaching a new high in March, according to a CryptoQuant analysis. Its performance is closely tied to U.S. monetary policy and stablecoin liquidity. Bitcoin’s inability to break out of its current trading range is largely attributed to the tightening monetary policy in the U.S. since March 2022. The increase in interest rates has led to a decline in the total circulating supply of stablecoins, which are essential for providing liquidity in the cryptocurrency market.

The rise in interest rates has put pressure on Bitcoin by reducing the availability of stablecoins, which are often used to facilitate trading and transactions within the crypto ecosystem. As the supply of these stablecoins decreases, so does the liquidity in the market, making it harder for Bitcoin to gain momentum.

Reasons for Bitcoin’s Recent Rise

Bitcoin has seen price increases over the past year despite the restrictive monetary environment. This rise can be attributed to that despite the restrictive monetary environment, Bitcoin has seen price increases over the past year due to expectations of lower interest rates and continued fiscal stimulus, which has sustained demand for Bitcoin.

For Bitcoin to embark on a significant rally, an increase in stablecoin liquidity and circulating supply through more accommodative U.S. monetary policy is essential. Without these signals, Bitcoin will likely continue trading sideways or even correct further. Investors should adopt a long-term perspective, keeping an eye on changes in monetary policy and stablecoin supply as key indicators for Bitcoin’s future performance.

Bitcoin’s future performance is heavily influenced by U.S. monetary policy and the availability of stablecoin liquidity. Until these factors become more favourable, Bitcoin is expected to remain in its current trading pattern. Investors should monitor these indicators closely and maintain a long-term market view.