The price of Bitcoin (BTC) extended the recovery on Jan. 14, reclaiming the USD 38,000 level. In addition, the weekly candle has now turned green for the fifth consecutive week despite the 28% crash earlier this week.

BTC / USD Weekly candle chart (Bitstamp). Source: Tradingview

Meanwhile, stablecoin deposits are pouring into the cryptocurrency exchanges, according to data from CryptoQuant. These inflows can act as a short-term catalyst for Bitcoin as it suggests that sidelined capital is moving back to BTC.

Stablecoins pour into exchanges. Source: CryptoQuant

Why are stablecoins indicative of strong buyer demand for Bitcoin?

In the cryptocurrency market, many traders sell crypto assets, such as Bitcoin, on stablecoins instead of cash.

Stablecoins, such as Tether (USDT), are tied to the value of the US dollar and can be traded on exchanges.

Most exchanges require a complicated Know Your Customer (KYC) verification process for bank transfers, and depositing cash on the exchanges can take a long time.

So, if a whale or a wealthy investor wants to buy and sell millions of dollars worth of Bitcoin, stablecoins can be much more convenient than cash.

The high demand for stablecoins from traders has resulted in Tether’s valuation rising in recent months. Last month was Tether’s market cap exceeded $ 20 billion. A month later, this number is already above $ 24 billion, indicating an increase in the excessive capital within the cryptocurrency market.

Dry powder going to exchanges

Meanwhile, stablecoin deposits on exchanges have increased significantly in the past 24 hours. CryptoQuant tracks the wallets of exchanges and observes stablecoin deposits and outflows.

Exchanges the stablecoin reserve. Source: CryptoQuant

On the major exchanges, stablecoin deposits surged significantly on January 13, just as Bitcoin’s price was starting to recover.

On January 13, the price of Bitcoin fell after nearly $ 32,500 to $ 32,500 $ 1 billion worth of futures contracts were liquidated.

Investors actively bought the dip, as evidenced by the rise in stablecoin deposits and the rising open interest rate of the Bitcoin futures market. As a result, Bitcoin saw a rapid turnaround and rose more than 10% overnight.

Bitcoin futures open interest. Source: Bybt.com

So what comes next?

Alex Saunders, a cryptocurrency analyst, said that stablecoins are “flooding exchanges,” often indicating a bullish trend.

Ahead of the recovery, Michael van de Poppe, a full-time trader at the Amsterdam Stock Exchange, said a record high is likely for Bitcoin if it surpasses $ 38,000 again.

Overnight, the price of Bitcoin pushed through the USD 38,000 resistance area, which Van de Poppe noted. Therefore, BTC is on track to retest its record high in the near term. He said:

“Bitcoin hasn’t changed much. It has flipped the USD 33,000 level for support and is therefore eager to test the USD 37,000-38,000 level. It has to turn around. If so, we will be eager for new record highs. If not, there is more chance of consolidation. “

Bitcoin’s rally too coincides with the opening of Grayscale products on January 13. If Bitcoin’s value continues to rise, it could encourage more institutional and accredited investors to gain exposure to BTC through the Grayscale Bitcoin Trust (GBTC).

There is also strong argument that GBTC’s reopening kickstarted the rally to begin with, indicating that the upward trend is being led by institutions, not retail investors.