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## Analysis of the Reasons Behind the Decline in Stablecoin Reserves

The phenomenon of stablecoin reserves falling to $66.37 billion is, in essence, a signal of liquidity contraction in the cryptocurrency market. Its core drivers may include the following:

‌1. Risk-aversion drives capital to shift‌

Global government bond yields continue to climb (for example, the U.S. 10-year Treasury yield is edging toward 4.5%, and the 30-year yield has surpassed 5%). The appeal of traditional low-risk assets has increased. Investors convert the stablecoin reserves held on exchanges into fiat currency or increase their holdings of government bonds, forming a typical “flight-to-safety” behavior.

‌2. Lagging effects of the Federal Reserve’s tightening policy‌

Market expectations that the Federal Reserve will keep interest rates high are reinforced (CME futures show the probability of no rate cut in March exceeding 95%). This keeps the cost of capital elevated. Institutional investors tend to hold cash-like assets as “dry powder,” rather than putting money into high-risk crypto markets.

‌3. Changes in exchanges’ liquidity structure‌

The stablecoin reserves of leading exchanges, such as bn, shrank by 18.6% (about $10 billion) within three months, accounting for a major portion of the total market contraction. This both reflects the trend of users’ assets moving to on-chain wallets or to compliant custody, and also suggests that some funds have fully exited.

‌4. The “dollarization” reality of stablecoins is highlighted‌

At present, 90% of stablecoins are backed by U.S. dollar assets. The essence of their contraction is a mirror-like feedback of dollar liquidity in global crypto markets. Regulatory frameworks such as the U.S. “GENIUS Act” are accelerating the institutionalization of this system.

As for whether the decline in stablecoin reserves will affect the trend of BTC, Xiaocaishen believes it depends on the following points:

‌1. New buy-side demand needs to break through a liquidity bottleneck‌

The current stablecoin market capitalization has stalled around $300 billion. The 150% growth seen over the past two years has come to a halt. If there is no new inflow of stablecoins into exchanges, the market lacks sufficient “fuel” to support continued price increases.

‌2. A game between the technical and the capital flows‌

‌Positive signals‌: the Bitcoin stablecoin supply ratio (SSR) has fallen to below 13, a historical low. This level has corresponded with price bottoms on multiple occasions (such as mid-2021 and the 2024 cycle).

‌Risk points‌: the Bitcoin reserves of platforms like bn are declining in sync, indicating that sell pressure has not been fully absorbed yet. The true support needs to be observed in terms of whether institutional funds are flowing in through channels such as spot ETFs.

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‌3. Timing effects from macro policy shifts‌

If the Federal Reserve releases clear signals of rate cuts, a drop in short-term Treasury yields would prompt capital to chase risk assets again in the near term. Historical data shows that changes in stablecoin reserves typically lead Bitcoin prices by 1–2 months.