After the stablecoin USDT crashed on October 15, other stablecoins seized the opportunity to occupy the market and increase their supply. Since October, the total supply of stablecoins gradually increased from $2.1 billion to $2.54 billion, helping alleviate the problem of inadequate liquidity in the market. The question is: Will the increase in stablecoins stabilize BTC’s price?





Using data from CoinMarketCap, we calculated how many new stablecoins were issued between October and December:

The stablecoin USDC increased the most (700%) with an increase in supply worth USD$170 million from October 15 to December 10. PAX increased its supply by $136 million (374.6%) during the same period. GUSD issued an additional $74.64 million worth of tokens, an increase of 513.9%. TUSD issued an additional $52.64 million, an increase of 33.5%. In the same period, however, the USDT in circulation decreased by 23.2%, or $569 million US dollars. This was a result of the USDT October crash and Tether's redeeming of a large amount of USDT.





The increase in other stablecoins led to a decline in the market share of USDT, which fell from 91% on October 15 to 74% on December 10. USDC and PAX became the winners, with their shares increasing from 1% and 1% to 8% and 7% respectively.









In countries like China, where fiat-to-cryptocurrency exchanges are banned, stablecoins are pivotal for funds to flow in and out of the crypto market. More generally, stablecoins provide a safe haven from the volatility of Bitcoin and add liquidity to the market. After October 15, Tether redeemed $1 billion of USDT, the supply of which fell from $2.8 billion to around $1 billion.





What effect did this have on Bitcoin? In mid-October BTC was still relatively stable, so the reduction in USDT’s supply was not immediately reflected in Bitcoin’s price. Then the price of BTC started to fall, and investors started using USDT as a safe haven. There wasn’t enough USDT in supply, however, to satisfy investors’ demand. This meant that investors had less currency to buy BTC, adding to the downward pressure on BTC’s price.





Fortunately, since October the increase in total supply of stablecoins has alleviated the problem of inadequate liquidity in the market. Now we will see if the increase in the supply of stablecoins can stabilize BTC’s price.





We all know that the number of BTC in circulation is increasing, despite the constant increase in the supply of stablecoins. When the price of BTC falls, miners behave differently. If the price of BTC relative to mining costs means that mining is still profitable, then miners are more willing to hold BTC. However, when the price of BTC keeps falling, miners are more likely to sell BTC in order to offset their mining costs.





Assuming that 12.5 BTC will be mined every 10 minutes, 1800 BTC will be mined every day. We calculated the selling pressure of one day with BTC’s closing price of that day, and calculated how much money is available every day with the increase and decrease in the supply of stablecoins. The funding gap is visualized below:

We can see from the chart that after the Bitcoin price stabilized above $6,000, every day there was a gap between the supply of daily issued Bitcoins and the supply of daily issued stablecoins. Although there were fluctuations, the overall gap was not large.





In mid-October and early November, there was a relatively large gap, corresponding with Tether’s redeeming of USDT. At that time, the widening of the gap between stablecoins and BTC supply caused the price of BTC to fall further. After November 12, however, the situation changed. The gap narrowed and then was frequently positive. In other words, after November 12, the number of new stablecoins issued daily were able to offset the selling pressure of BTC.





The price of BTC has continued to fall. But if there is a continuous increase in the supply of stablecoins over the long term, we might see a positive impact on the price of BTC.





