Stablecoin exchange deposits are still low, what does it mean for Bitcoin?

On-chain data shows that stablecoin exchange deposits have been low recently. Here’s what this could mean for Bitcoin.

Stablecoin exchange deposits stay low, while withdrawals rise

As one analyst noted in a CryptoQuant post, the fact that stablecoin exchange withdrawals have skyrocketed while deposits have remained low may be a bit alarming for BTC.

There are two indicators of relevance here: the “stablecoin exchange withdrawal transactions” and the “stablecoin exchange deposit transactions”. As their names already imply, these metrics track the total number of withdrawals and deposit transfers, respectively, that investors in ERC-20 stablecoins are making right now.

Investors generally look to the safety of these fiat tokens whenever they want to escape the volatility associated with the other assets in the sector. Eventually, when these holders think the prices are just right to jump back into the volatile markets, they trade their stables for the desired cryptocurrency.

These investors often make use of centralized exchanges for this purpose. So when exchange withdrawal transactions are high, it may be a sign that holders are exchanging coins like Bitcoin for stablecoins right now.

On the other hand, the fact that deposits are high may imply that these investors are looking to buy volatile assets using their stablecoins. Naturally, in the former case, Bitcoin and others may feel a bearish sell-off, while in the latter case, prices may see bullish momentum.

Now here is a graph showing the trend in stablecoin exchange withdrawing and depositing transactions over the last two years:

It appears that only one of these two metrics has had a high value recently | Source: CryptoQuant

As shown in the chart above, the stablecoin exchange deposit transaction metric has been relatively low for a while now. This would suggest that there may not be enough demand to convert the stables into other assets at this time.

On the chart, it is visible that the last time the indicator shot up was in March of this year. After the deposits back then, Bitcoin saw a sharp rally in its price as the rally saw a resurgence. The timing of these inflows could mean that it was the purchase of these stablecoin holders that provided the fuel for BTC’s rise.

On the graph, the quantum has also marked other similar past instances. It seems that the BTC price usually sees a rise after the increase in stablecoin deposits, given that withdrawals are low at the same time.

Recently, however, only stablecoin withdrawals have seen a spike, implying that investors are withdrawing these tokens from exchanges, likely holding them for extended periods in self-custody.

Since there are no deposits to counter this, the BTC price has been struggling recently. If the trend continues and more stablecoin withdrawals continue, the cryptocurrency may take a hit in the short term.