Does the outflow of stablecoins affect the price of cryptocurrencies?
Do stablecoin outflows impact cryptocurrency prices?
Author: Michael Rinko; Translation: Biteye Core Contributor Crush
How does the outflow of stablecoins affect the price of cryptocurrencies? Is the market still purely a game for individual investors? This article will give you the answers.
The market value of stablecoins has been decreasing in the past two years, and the current decline has even returned to the level of the bear market in 2018.
- Five Key Points of Hong Kong’s Cryptocurrency Policy in the N...
- Meta-Enterprise Traditional Enterprises Migrating to the Business P...
- Rise of DeFi, frequent issuance of central bank digital currencies,...
If we conduct a regression analysis, we will find a strong correlation between the total market value of stablecoins and Bitcoin, with r= 0.68, r^2 = 0.47.
(Translator’s note: Here, r represents the correlation between the market value of stablecoins and the price of Bitcoin, ranging from -1 to 1. -1 indicates 100% negative correlation, 1 indicates 100% positive correlation; r^2 represents the explanatory power, for example, here it means that 47% of Bitcoin’s current price can be explained by the market value of stablecoins, and the remaining portion may be caused by other reasons.)
It has a stronger correlation with Ethereum, with r= 0.80, r^2 = 0.64. This is likely due to Ethereum’s significant decentralized financial ecosystem.
The market value of stablecoins has the strongest correlation with the total locked value in DeFi, with r= 0.80, r^2 = 0.65.
This is reasonable because most people enter DeFi through stablecoins, and more stablecoins mean more locked value in DeFi.
Overall, there doesn’t seem to be a clear causal relationship between Bitcoin and the market value of stablecoins. We can verify this by conducting correlation analysis with different lag periods from -10 to 10 days. We found that the highest correlation between Bitcoin and the total market value of stablecoins occurs with a lag period of 0 days.
(Translator’s note: The lag period here refers to shifting the market value of stablecoins forward by 10 days, 9 days, 8 days, and so on, until shifting this data backward by 10 days, and then analyzing the correlation between each day’s value and the Bitcoin price on that day to calculate the r value, in order to check whether there is some degree of temporal precedence or causality between the two.)
If we extend the growth rate to 180 days, we can see that in the previous cycle, the market value of stablecoins led the rise of Bitcoin, but in the decline, Bitcoin led ahead of stablecoins.
However, we should not rely too much on this observed causal relationship, as we only have one market cycle to establish this relationship.
Below is a chart of the annual growth rate:
In conclusion, @Pentosh’s statement is correct. Currently, the entire market is still in a PVP game state. Once we see a large influx of stablecoins, it may indicate the return of more retail investors and risk-takers.