Is a new rally brewing as Bitcoin recovers $ 38,000 and stablecoin exchanges?

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The price of Bitcoin (BTC) extended its rally on January 14, recovering the $ 38,000 level. Additionally, the weekly candle has now turned green for the fifth week in a row despite falling 28% earlier this week.

BTC / USD (Bitstamp) weekly candle chart. Source: Tradingview

Meanwhile, stablecoin deposits are pouring into cryptocurrency exchanges, according to data from CryptoQuant. This influx may act as a short-term catalyst for Bitcoin as it suggests that marginalized capital is flowing back to BTC.

Influx of Stablecoins on exchanges. Source: CryptoQuant

Why do stablecoins indicate high buyer demand for Bitcoin?

In the cryptocurrency market, many traders sell crypto assets, like Bitcoin, as stablecoins rather than cash.

Stable coins, such as Tether (USDT), are pegged to the value of the US dollar and are tradable between exchanges.

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Most exchanges require a complex Know Your Customer (KYC) verification process for wire transfers, and cash deposits in exchanges can take a long time.

As such, if a whale or a wealthy investor wants to buy and sell millions of dollars in Bitcoin, stablecoins can be much more convenient than cash.

Strong demand for stablecoins from traders has driven Tether’s valuation to rise in recent months. Last month, Tether’s market capitalization exceeded $ 20 billion. A month later, that number is already over $ 24 billion, indicating an increase in marginalized capital in the cryptocurrency market.

Dry powder passing to exchanges

Meanwhile, stable coin deposits on exchanges have increased dramatically over the past 24 hours. CryptoQuant tracks wallets of exchanges and observes deposits and exits of stablecoins.

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Stable reserve of currency. Source: CryptoQuant

In major exchanges, stablecoin deposits rose significantly on January 13 as the price of Bitcoin began to recover.

On January 13, the price of Bitcoin fell to $ 32,500 after nearly $ 1 billion in futures contracts were sold off.

Investors were actively buying the downside, as evidenced by the increase in stablecoin deposits and the growing open interest in the Bitcoin futures market. As a result, Bitcoin saw a rapid recovery, advancing over 10% overnight.

Bitcoin futures open interest. Source: Bybt.com

So what comes next?

Alex Saunders, Cryptocurrency Analyst, said that stablecoins are “floodable exchanges” which often indicates an uptrend.

Ahead of the recovery, Michael van de Poppe, a full-time Amsterdam Stock Exchange trader, said a historic high was likely for Bitcoin if it broke $ 38,000 again.

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Overnight, the price of Bitcoin broke through the $ 38,000 resistance zone, which Van de Poppe identified. Therefore, in the short term, BTC is on track to retest its record. he said:

“Bitcoin hasn’t changed much. He reversed the $ 33,000 level for support and is therefore eager to test the $ 37,000-38,000 level. This one must return. If so, we will be eager to reach new, unprecedented heights. Otherwise, more likely consolidation. “

The Bitcoin rally also coincides with the opening of Grayscale products on January 13. If the value of Bitcoin continues to rise, this could push more institutional and accredited investors to gain exposure to BTC through the Grayscale Bitcoin Trust (GBTC).

There is also a strong argument to be made that the reopening of the GBTC has started the rally, to begin with, meaning that the uptrend is led by institutions, not retail investors.