On the 22nd of January 2023, @Chinchilla on Twitter shared a chart showing the decline of stablecoins and correlating it to the pump of tokens, including Bitcoin.
What does it mean?
No new capital is flowing in. Conversely, people are off-ramping stables from the system.
Therefore, we are in PvP mode. So money is rotating from majors to L1/L2 to midcaps to lowcaps.
But no one is in-ramping fiat into crypto. No new interest.
7/
— Chilla (@chilla_ct) January 22, 2023
The inflow of stable coins like USDT has been declining since 2022, according to the chart shared by Chinchilla on Twitter. It seems people are cashing out their stables from the crypto space. In the past, the inflow of stablecoins was directly related to the amount of pump or rally a coin or token experienced. And major outflows lead to major depressions.
Since no new capital is flowing in, nobody is in-ramping fiat into the crypto space, and there is no interest, how are currencies rallying?
Would the current Bitcoin rally be attributed to PVP transactions, where money is just rotating from layer 1s to layer 2s?
The decline of stablecoins started around the 28th of February, 2022, around the time of 3AC’s debacle. Naturally, users ran for the exit clutching whatever funds they coil.d salvage from the wreck. This led to a situation of FUD climaxed by FTX’s crash.
Though the bleeding of funds was not a welcome sight, the fact that the stablecoin supply and crypto space as a whole didn’t buckle under a liquidity crunch. The billions of dollars withdrawn showed the resilience and transparency behind tether’s supply.
On the 12th of November 2022, the supply of stablecoins has been decreasing steadily. Showing a 20% drop in supply from February and a 5% drop since November, the crypto space is still experiencing a monumental rally.
So why is the industry pumping? How long would it pump? And would it go on more than can be handled by the space?
Some of the speculations shared by Chinchilla include funds rotating between tokens, sidelined stablecoins, and $1 liquidity compared to the $1 market cap cause of tokenomics and leverage. Capping it all up by asking if the thoughts shared are worse-case speculation without any proof.
Still, the stablecoin outflow from the system is clearly seen in the charts, which is not a healthy sign. His analysis was based on charts from Dune Analysis, a blockchain ecosystem tool created by and for the crypto community.
It allows users to explore and share data from multiple chains. But the Dune platform doesn’t show data from certain chains, which could explain the difference in total stable supply and the crypto space’s behavior.
