How to sense BTC rising or falling by stablecoin flow (Part II)
Original author of this article is Phyre Ni, a Chinese analyst who is keen to research onchain data , you can refer here for original text.
Last time I wrote an article on sensing BTC fluctuation with USDT funding flow. We are aware of how important, or somehow unique, influence of funds flow on the movement of BTC prices, but USDT is not the only stablecoin in BTC transactions. Although USDT holds a great share in CEX transactions, USDC cannot be ignored nowadays. In particular, compared to non-compliant countries such as Asia and Africa where USDT is widely used, institutions and funds from Europe and US prefer to adopt USDC which is relatively more compliant. Since USDC is still not supported well on CEX, it tends to be used as value storage and intermediate chips in exchanges, while onchain USDC is active as USDT.
We already made some research in the previous article that funding flow is tending to decline in latest 3 months, which lead to the weakness of BTC. What about USDC?
The USDC’s funding flow trend indicate completely different from USDT’s decline all the way down, despite its decline until mid-March, USDC’s transfer volume has kept in a relatively high level. If we look closely, from this January, when BTC’s massive drop, to touched $35,000, USDC’s on-chain active flow was already ahead of USDT by a relatively large margin. In subsequent it touched $38,000 thrice, USDC’s flow volume continued to be substantially higher than USDT. Even now USDC’s onchain volume is still larger than USDT.
Does this convey the notion that USDC onchain flow has become greater than USDT, and become the dominant player?
When we switch to the funds which are switched to the funds transferred to CEX, it can be seen that the advantage of USDC are gone, only fractions of USDT flow into CEX. By comparison of these two charts, USDC is completely crushed by USDT, and proves my previous observation that although USDC occupy more liquidation and funds on chain, the adaption of USDT in CEX is still wider. Since we all know that in CEX, USDT as the countparty for other Cryptos are still unshakable, even Coinbase, one of the strongest CEX, had to apply SEC for open USDT trading.
Another conclusion we can make is USDC is enhancing its position since 2022, surpass USDT dramatically on chain. If you have been observing CURVE protocol for a long time, you will notice that 3POOL occupy the largest TVL, and the biggest transaction volume comes from the interchange between USDT and USDC. After all, USDC will be slightly higher on security and compliance, even if exchanging into USDT, loss of gas fee is less than one ten- thousandth, which is completely nothing.
So today’s conclusion about USDC is that, together with BTC gains more recognition by West, USDC onchain flow volume has greatly surpassed USDT.
Then we get to the main topic of the day, the impact of USDC on the price of BTC.
With the findings of the previous article on USDT, we can skip a lot of introductions, we can see before BTC first hit $40,000, USDC’s onchain flow remained almost unchanged, at around $1.5 billion. Even when BTC reached its first ATH of $63,000, USDC’s onchain flow was only $3 billion. This is far less than USDT which is nearly $10 billion. But it doesn’t take away the contribution of USDC anyway, so we can clearly see that:
When BTC first hit $63,000 in the first phase of the bull market, total funding flow of USDT and USDC on chain was around $13 billion.
And then came the end of the first phase, when BTC break through $30,000 bottom line, USDC had started to increase its momentum, though $3.5 billion USDC flow was continuously lower than the flow of USDT which is around $6.5 billion, USDC burst in the first time throughout the plunge, and while it was not as high as USDT’s $22 billion at the peak, at the high end of the mean volume, it was ahead of USDT’s $12.5bn by $14bn.
When the bull market comes to the second phase, we could feel uptrend of USDC clearly. At the point of BTC hitting $67,000, USDC contributed $8 billion liquidity, while the amount of USDT at that time was nearly $10 billion, although there is still a gap, it should be noted that before reaching the highs of the second phase, USDC acted lots of bursts in succession , averaging 2–3 times per week, each time exceeding $12 billion. This volume was at least 20% ahead of USDT, USDC grew up from a bench-warmer in stage 1 to a mainstay in stage 2. As USDC possession increasing, and pushing BTC from $40,000 to $60,000, USDC played a crucial role. So comes to our second conclusion:
When BTC hit $67,000 in the second phase of the bull market, the total flow of USDT and USDC on chain was around $23 billion, while it took about $17 billion to push BTC from $40,000 to $50,000, roughly $9 billion came from USDC. Another $20 billion was take to pull price up from $50,000 to the top of $60,000, USDC provided over $10 billion of the $20 billion.
What’s even more frightening is that the second pull up requires almost 70% more volume than the first, knowing that nowadays flow volume of USDC and USDT is just under $10 billion, if we have to pull BTC up to $50,000 now, we will require another $7 billion flow, that is to say 70% of total funds flow would be needed to return the bull.
We can also see that at the end of the second phase, the possible volume of USDC bargain-hunting volume had already surpass USDT. When BTC fell to a low of $35,000, USDC’s flow was over $10 billion for almost two weeks, while USDT was over $10 billion for just one day, so in terms of liquidity, USDC has started to overtake USDT at this stage.
As time limped into 2022, total volume of USDC flow per day has overtaken USDT across the board, the more important thing is that now USDT continues to retreat, USDT’s active volume is less than half of its peak, and even less than the average value at the bottom of 2021. While USDC’s volume is not only not retreating, but on the contrary, exceeds the peak of 2021. But unfortunately, the current trend of USDC is also gradually weakening, which is why I said that this week’s funding flow data is very important.
If this week’s funding volume is lower than last week’s, then this wave of BTC rise will inevitably turn into a fall, back to $38,000 bottoming area again to seek next opportunity, while if it is not much different from last week’s, then even if it does not fall sharply, BTC’s upward momentum stops there, only when this week’s funding flow has a large burst, BTC can maintain a sustained upward momentum. To hit $45,000, a minimum of almost $15 billion of onchain flow will be demanded.
Back to the transferring to CEX, although USDT has broken through somewhat. But compared to USDT’s performance on chain, there is still a big gap, so we won’t analyse it in depth here, but we also need to reiterate once again that the amount of funds transferred to CEX will be more important compared to the flow on chain, after all, BTC, although there are many institutions which acquire chips on chain OTC, but it will not affect price on the market. To rise the price, the most important thing is to be raised fund inflow to CEX, so the third conclusion is:
If BTC is to go to a higher level, say $50,000, the total volume transferred to the exchange cannot be less than $1.5 billion, of which $300 million will come from USDC and $1.2 billion from USDT, although of course if volume in USDC increases, volume in USDT can be reduced relatively. And if we aim to rush to $45,000, the total volume would be no less than $1.2 billion, while the current CEX flow in total is just about $900 million, which needs to be boosted by almost 30%.
To achieve a small short-term goal, pushing BTC to $45,000, it requires $15 billion in on-chain flow (up to $12 billion last week) and $1.5 billion in CEX transfers (up to $1 billion last week), we still have a long way to go.
Here comes to the end of introduction on USDT and USDC funding flow, but is it enough just to track USDT and USDC data? No enough (again and again). There is an uncrowned “king” that is not usually visible and does not have a strong presence on chain, but has a significant position in CEX, with a daily turnover of around 30% of USDT, the third largest stablecoin — BUSD. I’ll find another opportunity to write about it.
