Stablecoin supply ratio shows much more buying power among stablecoin holders currently, with Bitcoin trailing at $11,400.
Bitcoin (BTC) at $11,400 is ripe for a fresh price surge thanks to stablecoin investors buying up cheap coins, data suggests.
Highlighting the latest readings from its stablecoin supply ratio (SSR) metric on Aug. 26, on-chain monitoring resource Glassnode forecast upside for BTC/USD.
Stablecoin supply ratio “3x stronger” than July 2019
SSR refers to the potential buying power of stablecoins over Bitcoin. A low Bitcoin price allows stablecoin owners, for example on exchanges, to purchase more of the BTC supply. This demand pushes the price of Bitcoin up, given its predictable, verifiable supply and high stock-to-flow ratio.
As the price increases, stablecoins, which remain priced the same in whichever fiat currency they are pegged to, can buy less of the BTC supply.
The ability to enter a BTC position is called “buying power” — currently, that buying power is high, meaning stablecoin owners can purchase a comparatively large amount of the supply.
“SSR is 3x stronger than it was when BTC hit these price levels over a year ago,” Glassnode commented.
“Further support comes from an increase in the $USDT (ERC20) balance on exchanges over the past year – indicating that stablecoins are waiting on the sidelines.”
Bitcoin stablecoin supply ratio comparative chart. Source: Glassnode/ Twitter
Tether holders waiting to enter BTC?
Tether market cap vs. Bitcoin price. Source: CryptoQuant
One reason for increasing the supply, and therefore market cap of a stablecoin, is to allow investors who purchased other assets to cash out. As Glassnode explained in a blog post about SSR last December, an increase in BTC price, for example, requires more stablecoins.
“The resulting lack of liquidity in the stablecoin supply makes it harder for investors in profitable positions to exit,” the post summarizes, concluding:
“In order to compensate for the lack of buying power as Bitcoin’s price increases, new fiat money needs to flow into the market, i.e. the supply of stablecoins needs to increase.”