Bitcoin Boost Foreshadowed by Stablecoin Supply Ratios

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In Brief
  • Stablecoin Supply Ratios indicate big Bitcoin buying power.

  • There has recently been a new high of USDT on exchanges.

  • Bitcoin buying could cause the price of the asset to skyrocket.

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According to data from the on-chain market analysis group Glassnode, the current Stablecoin Supply Ratio has reached an all-time low. Conversely, the USDT balances on exchanges are at an all-time high, which could create a perfect storm for a barrage of Bitcoin buying.

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Glassnode outlines the Stablecoin Supply Ratio (SSR) as a metric that defines a stablecoins’ supply ready to purchase Bitcoin, and thus drive the price of the major cryptocurrency up.

For example, if the Bitcoin market is seen as a ‘closed system’ with a fixed supply of stablecoins. When the price of Bitcoin is low and a stablecoin’s supply is able to buy a larger portion of the circulating Bitcoin supply, it has a high buying power.

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The graph below from Glassnode not only shows the SSR at extremely low levels, but it also shows that there are huge amounts of stablecoins on exchanges, poised to be used for potential Bitcoin purchasing.

Stablecoins Gain a New Respect

Amid the ongoing COVID-19 induced market panic in traditional and cryptocurrency markets, there has been one entity that has fared well. Stablecoins have had their value justified, as their lack of volatility caused them to rise in prominence in the cryptocurrency markets.

In fact, some stablecoin producers have even gone as far as to mint new coins at this time to add to the overall market cap of the crypto industry — a bit like the Federal Reserve’s recent money printing. Tether (USDT) has even breached the $6 billion mark of minted USDT coins.

Back to Bitcoin Before the Halving

Having suffered a dramatic drop in price, there would have likely been a mass evacuation out of volatile cryptocurrencies into more stable options, which in turn might have been the boost in demand that led to increased supply.

However, with the markets now calming down, and seemingly poised to grow once again, a perfect storm may be brewing for a rush back to Bitcoin from stablecoins.

Bitcoin’s mining reward halving may also be a factor to consider when noting the Stablecoin Supply Ratio in comparison with the all-time high of USDT on exchanges.

While the markets have been struck by this unprecedented collapse, there are still many who feel that the Bitcoin reward halving will lead to renewed positive price action for Bitcoin. In fact, some are denouncing the current economic stimulus policies and putting forward Bitcoin as a way to ‘opt-out.’

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Julian has had a long interest in financial technology, especially cryptocurrency and blockchain. He studied to be a journalist and then decided to marry his passion for fintech with his skill in writing to report on this ever-changing and rapidly moving space.

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