USDC Exchange Reserve Spikes – Can This Help Push Bitcoin Back Up?

On-chain data shows the USDC exchange reserves sharply rose recently, something that could help push Bitcoin back up after the latest drop.

As pointed out by an analyst in a CryptoQuant post, the large amount of USD Coin that flowed into exchanges recently could be deployed to act as fuel for Bitcoin.

The “exchange reserve” is an indicator that measures the total amount of USDC currently sitting in wallets of all centralized exchanges.

Since stablecoins are tied to fiat (which in the case of USDC is USD), their value is as constant as the fiat currency itself. Because of this, investors often take shelter by shifting coins like Bitcoin into stablecoins during times when they want to avoid the volatility generally associated with much of the crypto market.

Once these investors feel the prices are right to dive back into the volatile markets, they exchange their stables for whatever crypto they want to buy into.

An especially large amount of buying from such holders can therefore help propel the prices of the major cryptos like Bitcoin.

Now, here is a chart that shows the trend in the USDC exchange reserve over the last few months:

As you can see in the above graph, the USDC exchange reserve has usually made a top around when the BTC price has slid down in the last few months.

Following this top, the reserve has started declining, while the value of Bitcoin has either moved sideways or observed a surge. This makes sense as a decreasing reserve of the stablecoin implies investors are now shifting into volatile coins.

Most recently, the value of the reserve has seen a very sharp rise. The “inflow” indicator (which measures the total amount of coins moving into exchanges) also shown in the chart registered a big spike at about the same time as this rise.

This implies that most of the latest increase in the reserve has come from USDC that was sitting off exchanges since a while.

All these stablecoins can act as potential dry powder for fueling some upwards momentum for Bitcoin after the coin’s price has plunged below $22k today.

However, one thing to note is that only the USDC flowing into spot exchanges can influence the market like this. A large chunk of the latest inflows seem to have gone into derivatives instead, which, while also an indication of higher volatility for the market, doesn’t specifically mean the price will tend to go up. This volatility could make the price swing in either direction.

At the time of writing, Bitcoin’s price floats around $21.4k, down 10% in the past week.