Today, stablecoins buy 15-times as much Bitcoin as in early 2018, this could bode well for the next bull run, if and when, it happens.
Stablecoins have never had more buying power than now, this could bode well for the next bull run.
Glassnode keeps track of the Stablecoin Supply Ratio, or SSR, which is calculated by dividing Bitcoin’s (BTC) market capitalization by the market capitalization of all major stablecoins. Low SSR indicates that stablecoins have more buying power, which the company asserts could be interpreted as a bullish sign.
SSR = BTC Market Cap / Stablecoin Market Cap
SSR, Bitcoin price and market capitalization. Source: Glassnode
This ratio currently stands at just above 15, meaning that, in theory, stablecoins could buy approximately one fifteenth of all Bitcoin. For reference, back in March 2018, this ratio stood at 88. Thus, in just over two years the stablecoin buying power increased more than sixfold.
Rise of stablecoins & Bitcoin stagnation
Since the ratio has two components, which is to “blame” for this drastic change? — Looking at the chart, it becomes very clear that the radical change is mostly due to the growth of stablecoins. The market capitalization of BTC at the time was $195 billion, currently, it stands at $171 billion, this represents a decrease of 12%. Meanwhile, the cap for stablecoins has increased from $2.2 billion to $11 billion or 500% growth.
Stablecoins represent a convenience vehicle for traders and investors. It allows them to park their crypto assets in stable assets without the need to cash out and exit the crypto ecosystem. A recent study found that exchanges that support BTC-USDT pairs record more “whale” trades than the ones that support BTC-USD pairs.
Correlation break down
Although the market capitalization of stablecoins has been increasing rapidly, the price of BTC has not kept pace. The correlation between the SSR and Bitcoin price appears to have broken down around Black Thursday. Whether the growth of stablecoins will transform into the next bull run remains to be seen. However, if and when this run happens, the maturity of the stablecoin space should provide more efficient mechanisms for market participants.