The global cryptocurrency sector has shrunk 8.3% shedding over $220 billion in market cap over the week. Despite the pullback, fresh bullish market catalysts have emerged.
The crypto market slipped into recess this week, sparking widespread negative sentiment. On-chain market data highlights key metrics that could trigger the next recovery phase.
Why is the crypto market down this week?
The global crypto market cap is down 8.3% this week, largely thanks to Bitcoin ETF outflows, and widespread liquidations in the derivatives markets. On March 21, the market showed early signs of a rebound after the U.S. Federal Reserve announced a third-consecutive rate pause despite witnessing higher-than-expected inflation rates for February 2024.
But within 48 hours, the market had surrendered the gains from the bounce generated by the rate pause as Bitcoin ETF outflows led by Grayscale redemptions, piled on more bearish pressure.
The Block’s ETF netflows chart below tracks the difference between daily deposits and withdrawals across all 11 approved Bitcoin ETFs.
Bitcoin ETF are now on a four-day streak of negative flows, according to ETF.com. Since trading opened for the week of March 18, the 11 approved ETFs have shed over $836 million in capital stock.
Although firms like Michael Saylor’s MicroStrategy and Blackrock have increased their BTC holdings to record highs, the negative sentiment and rapid volatile fluctuations initiated by the $836 million outflows over the last 5 days have triggered massive liquidations across crypto derivatives markets, which appears to have created an outsized downward market reaction.
But, looking at two core fundamentals, the crypto market has not suffered any noticeable decline in investor interest, nor shortage in liquidity.
Top 5 stablecoins market cap hits $150b
Interestingly, despite the 8% market pullback, the on-chain data observed this week shows some critical positive trends, flashing vibrant signals of an imminent bullish rebound.
Firstly, the stablecoin sector has witnessed significant milestone moments this week. While Tether-backed USDT grabbed the headlines as the first to reach the $100 billion market cap milestone, similar bullish trends have been observed in other top-ranked stablecoins.
On March 21, the total market capitalization of the top 5 stablecoins reached the 150 billion mark, the highest since May 2022. At the current valuation of $105 billion, USDT now gained more market share, with a record dominance of 69.6%. Circle’s USDC comes in distant second with a $32 billion market cap.
MakerDAO’s DAI, Binance-supported FDUSD and ARAW Network’s USDE make up the rest of the pack with a combined market share of just less than 6%.
What happens next?
The mild market downturn this week has seen a number of highly-leverage positions wiped out, cooling the overheated market conditions. Also, the record-breaking stablecoin inflows offer a more bullish outlook.
Typically, increased stablecoin flows amid market pullback could read bullish signals for several reasons.
Firstly, increased stablecoin flows during a market downtrend indicate a classic ‘flight to safety’, suggesting that investors are seeking safety and stability rather than exit.
This influx of stablecoins can provide market liquidity and act as a cushion against further downward pressure on crypto asset prices.
Secondly, the growing stablecoins market cap often signifies growing interest and participation in the cryptocurrency market, as new entrants and existing investors doubling down on their positions typically use stablecoins as a means to on-ramp fresh funds into the crypto market.
Lastly, the influx of stablecoins could also indicate potential buying power waiting on the sidelines, ready to re-enter the market once conditions stabilize. This pent-up demand could potentially fuel a parabolic rebound in asset prices once market sentiment swings bullish again ahead of the forthcoming Bitcoin halving.