Here is how stablecoins on-chain activity can help time Bitcoin price action

Bitcoin price action has been ambiguous for a long time. However, with the introduction of multiple on-chain metrics, traders and investors can now understand why Bitcoin makes certain moves. This is imperative mostly after Bitcoin retraced from the recent spike above $38,000. Meanwhile, support at $32,000 stood its ground, sending Bitcoin above $33,500.

How stablecoins on-chain activity signals Bitcoin price movements

Mid-last week Bitcoin dropped to sub $30,000 for the third time since it hit the record high of around $42,000. The correction triggered uncertainty among investors leading to a streak of panic selloffs. Short-term holders also experienced capitulation.

According to Santiment, a leading behavioral analytics platform, there is an undeniable relationship between the stablecoins’ on-chain activity and Bitcoin’s price action. Stablecoins refer to digital assets that reduce volatility by being pegged to a relatively stable fiat currency or a basket of assets. Tether (USDT) is the largest stablecoin mainly used as a liquidity provider on exchanges.

Stablecoins exchange inflow signals buy the dip

Santiment’s data illustrates that all the dips in Bitcoin price have coincided with a surge in exchange inflows of major stablecoins such as Tether, USDC, and DAI. To put this into perspective, Santiment writes that:

Major stablecoin inflows to exchanges as BTC is pulling back could signal a propensity of market investors to ‘buy the dip’ and exchange assets like Tether or DAI for more volatile cryptocurrencies, jumpstarting price recovery.

The exchange inflow metric highlights the amount of USDT entering known exchange wallets daily. The data ignores transfers from one exchange to another.

The increase in Tether’s exchange inflow is beneficial when predicting a rebound or buying the dip as Bitcoin price drops. The chart below shows USDT exchange inflow plotted together with Bitcoin price. From the chart, we can tell that the surge in Tether’s exchange inflow marked the beginning of Bitcoin’s recovery.

USDT exchange inflow plotted against Bitcoin price (green)

For instance, all the three times Bitcoin tested sub $30,000 in January, Tether’s known exchange inflow shot up and followed by a rise in Bitcoin price. The first dip toward the end of the first week of January confirms the theory. In addition to the price drop and recovery witnessed between January 10 and 13.

Similar price action was observed when BTC dived to $30,000 on Wednesday last week. A vivid increase in the Tether exchange inflow gave way to the majestic spike in Bitcoin price above $38,000 toward the end of the week.

USDT exchange inflow plotted against Bitcoin price (green)

At the time of writing, Bitcoin is trading above $33,000, following the drop from levels above $30,000. The current USDT exchange inflow is relatively low compared to the levels achieved last week. As long as this thesis holds, an increase in the exchange inflow volume will signal a buy the dip for scenario before a potential breakout toward $40,000.

USDT exchange inflow plotted against Bitcoin price (green)

Bitcoin bulls battle crucial resistance

The 4-hour chart shows Bitcoin drawing nigh to $34,000. The immediate downside upside is limited by the 100 Simple Moving Average (SMA). A 4-hour candlestick must form above this moving average to validate the uptrend.

On the other hand, the Relative Strength Index seems to be reinforcing the potential breakout as it settles above the midline. Besides, gains above $34,000 are likely to increase the bulls’ confidence in the recovery toward $40,000.

BTC/USD 4-hour chart

It is worth mentioning that the bullish outlook will be invalidated if Bitcoin fails to close the day above the 100 SMA, 34,000, and the 200 SMA, respectively. Moreover, delays are anticipated at $36,000 and could see overhead pressure escalate. Support at $32,000 may remain intact and ensure that Bitcoin does not test $30,000 for the fourth time this year.