The recent decision by the Federal Open Market Committee (FOMC) to raise interest rates by 25 basis points has had a profound impact on the world of finance. However, it appears that two crypto indicators – stablecoin supply and the profitability of bitcoin (BTC) held by investors with short-term horizons – will likely have a greater impact on investors than the FOMC decision.
One of the critical indicators is the current number of short-term holders of bitcoin who are in profit. According to recent data, 97.5% of the bitcoin circulating supply held by short-term investors is in profit as the current price exceeds the average cost basis. Short term is described as bitcoin that was acquired less than 155 days ago, and this group mainly consists of participants who are newer to the market or more likely to trade in and out of positions quickly. The percentage of short-term holders sitting in profit means that if enough people view Federal Reserve Chair Jerome Powell’s comments as bearish, there could be additional selling pressure.
According to experts, the decision to sell by these short-term holders will be influenced by their interpretation of Powell’s remarks. A bearish interpretation could lead to increased selling pressure, while a more bullish one could result in short-term holders holding their positions and ultimately moving into the long-term holder (155 days or more) cohort. Investors holding on to bitcoin signals that they believe the price will increase, which could lead to more significant demand for the cryptocurrency.
Furthermore, the total supply held by the long-term bitcoin holders has increased by 5% over the past year. Since long-term holders are less likely to spend bitcoin, increases in this group can serve as a supportive base of relatively illiquid supply, undergirding bitcoin’s price. However, for this to take hold, a stablecoin supply shift would be beneficial as well.
Stablecoins serve as a mechanism by which a significant portion of digital assets like bitcoin and ether are purchased. The aggregate supply net position change of the four top stablecoins has steadily contracted since April 2022. An expansion of stablecoin supply indicates an increase in capital available for deployment, while a contraction suggests the opposite.
Therefore, for investors with a bullish view on BTC, an increase in stablecoin supply would be an attractive development. The shift in the stablecoin supply will provide insight into investors’ sentiment towards the cryptocurrency market.
As capital markets continue to digest the rate decision and subsequent FOMC commentary, monitoring short-term holders to see whether BTC prices sell off will be critical. Additionally, tracking the supply of stablecoins will provide insight into the extent that BTC may move higher.
To sum up, stablecoin supply and the profitability of BTC held by investors with short-term horizons will determine the future price direction of the cryptocurrency. The decision to sell or hold on to bitcoin by short-term holders will largely depend on their interpretation of Powell’s remarks. An increase in stablecoin supply will provide more funding for the crypto market, while a decline suggests the opposite. Therefore, investors should carefully track these indicators as they make investment decisions.
