Introduction
Since November 2022, Bitcoin has lost over 50% of its value, with the catastrophic collapse of UST and LUNA delivering a final blow amid broader macroeconomic challenges. This week, we analyze the ripple effects of this "black swan" event on the stablecoin market and explore key on-chain metrics signaling potential Bitcoin bear market bottoms.
Note: This report retrospectively examines market behavior and should not be construed as investment advice.
The (Un)stable Stablecoins
Stablecoins are designed to preserve value within crypto markets, typically pegged 1:1 to the US dollar. Their peg mechanisms vary:
- USDT & USDC: Centralized, fiat-collateralized stablecoins backed by dollar reserves.
- DAI: Decentralized algorithmic stablecoin governed by smart contracts and MakerDAO.
During UST’s depegging event, other stablecoins experienced volatility, revealing systemic risks that spilled over into Bitcoin and altcoins. Below, we dissect changes in price and supply dynamics.
USDT vs. USDC: A Flight to Safety
USDT (Tether)
- Historically criticized for opaque reserves, now holds predominantly U.S. Treasuries.
- Briefly depegged during UST fallout due to panic selling and arbitrage pressures.
- Maintained peg after Tether reassured markets, underscoring resilience despite FUD.
USDC (Circle/Coinbase)
- Compliant, audited reserves bolstered trust during turmoil.
- Price stability and rising demand positioned it as a preferred hedge; potential to overtake USDT in market cap.
Key Takeaway: Investors favored USDC’s transparency, signaling a shift toward regulated stablecoins post-UST.
DAI: Algorithmic Stability Tested
- MKR governance token surged as DAI redemptions spiked.
- Despite volatility, DAI held its peg, contrasting UST’s collapse.
- Declining supply reflected waning confidence in algorithmic models, though DAI emerged as the sector’s survivor.
Bitcoin Bottom Indicators
Three historically reliable on-chain metrics suggest potential market bottoms:
1. MVRV Z-Score
- Signal: Values < 0 (green zone) indicate undervaluation.
- Current Trend: Approaching green zone, hinting at accumulation opportunities.
2. Profit/Loss Supply Ratio
- Pattern: When loss supply (red) surpasses profit supply (green), reversals often follow.
- Observation: Narrowing gap between lines suggests nearing bottom.
3. Realized Profit vs. Cost (RPV) Ratio
- Threshold: <0.001% RPV marked past bear market lows.
- Rarity: Signals are infrequent but high-accuracy.
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FAQs
Q: Will USDT lose its dominance to USDC?
A: Likely, if demand for transparency persists. USDC’s regulatory edge makes it a safer choice.
Q: Is DAI still viable post-UST?
A: Yes, but algorithmic stablecoins face heightened scrutiny. DAI’s peg mechanism proved more robust.
Q: How accurate are Bitcoin bottom indicators?
A: Historically reliable, but combine multiple metrics for confirmation.
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Conclusion
The UST collapse reshaped stablecoin hierarchies, favoring transparent, compliant options like USDC. Meanwhile, Bitcoin’s on-chain metrics suggest we’re approaching historic buy zones—though patience remains key in this bear market.
Stay prepared: Winter tests both HODLers and traders alike.
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