THURSDAY

CRYPTO, LESSON 4 –  STABLECOINS

As I mentioned in yesterday’s article, a stablecoin is a coin representing a fiat currency, usually the USD, designed to maintain a value close to 1, remaining stable with minimal fluctuation. Examples include USD Coin (USDC), Tether (USDT), Binance USD (BUSD), DAI, etc.

There are four types of stablecoins:

1. Stablecoins backed by real-world assets, such as U.S. dollars.
2. Stablecoins backed by cryptocurrencies, usually ERC-20 tokens
3. Stablecoins backed by commodities
4. Algorithmic stablecoins: These use mathematical algorithms to maintain their value over time

An important aspect is the dominance of stablecoins, since an increase in their dominance implies that investors are seeking refuge, which in turn suggests that the crypto market is expected to decline in the short term. On the other hand, if stablecoin dominance decreases, it is positive for the market as long as Bitcoin’s price is rising, because this means that the capital leaving stablecoins is being invested back into the crypto market rather than flowing out of it.

In the following chart, we can see how a drop in stablecoin dominance from early to mid-July coincided with a 25% increase in Bitcoin and an 87% increase in Ethereum during the same period.”

Source: Tradingview

One stablecoin dominance indicator I use is the Aggregate Stablecoin Dominance, which brings together the four largest stablecoins (USDT, USDC, BUSD, and DAI).
It consists of two moving averages: a short-term moving average (21 periods) and a long-term moving average (50 periods).

The thicker line is the slow-moving average (50 periods). When this MA is above the fast-moving average (21 periods), the price is rising, as we can see in the first circle on the graph, because stablecoin dominance is falling. This means money is flowing out of stablecoins into altcoins, signalling a bullish short-term outlook.

When the fast-moving average is above the slow one, the price is going down, as we can see in the following chart, because dominance is rising. This means money is flowing into stablecoins, which act as a safe haven, and consequently, money is leaving altcoins since the short-term market outlook is bearish.

Source: Tradingview

Another interesting indicator is the Altcoin Season Index. This indicator has a blue upper line at the 75 level, which signals that the indicator is in the Altcoin Season zone, and an orange line at the 25 level, which signals that the indicator is in the Bitcoin Season zone.

In the following chart, we see Bitcoin on the left and Ethereum on the right. As we can observe, when the indicator is in the Bitcoin Season zone, it is a good time to buy altcoins, since altcoins (in this case Ethereum) rise more strongly than Bitcoin. Conversely, when the indicator is in the Altcoin Season zone, altcoins fall much more than Bitcoin

Source: Tradingview

All of this and much more can be found in my book Investing in Crypto with Confidence: How to Analyze, Select, and Manage Digital Assets (Palgrave Macmillan), which will be released in early 2026.

Javier Pineda, CMT has been a CMT charterholder since 2022, creator and manager of the only crypto hedge fund in Spain and is currently editing and publishing the book Investing in Crypto with Confidence (Palgrave Macmillan). Learn more at https://www.skycrypto.io/.

Shared content and posted charts are intended to be used for informational and educational purposes only. The CMT Association does not offer, and this information shall not be understood or construed as, financial advice or investment recommendations. The information provided is not a substitute for advice from an investment professional. The CMT Association does not accept liability for any financial loss or damage our audience may incur.