Key Indicator Shows Capital Beginning to Flow Back Into Bitcoin

The stablecoin supply ratio oscillator is recovering in a sign of renewed capital inflow into bitcoin.

AccessTimeIconJun 25, 2021 at 11:27 a.m. UTC
Updated Mar 6, 2023 at 3:20 p.m. UTC

An indicator that has historically marked major price bottoms is pointing to a renewed flow of capital into bitcoin.

The stablecoin supply ratio oscillator created by analyst Willy Woo and tracked by blockchain analytics firm Glassnode has risen from a 12-month low of -2.6 to -1.9 in the past four weeks.

The recovery indicates capital has been flowing from stablecoins into bitcoin, Glassnode tweeted Thursday. In other words, bargain hunters look to have employed stablecoins to buy the dip in bitcoin and broader crypto markets.

Stablecoins are cryptocurrencies with value tied to an external reference like the U.S. dollar. They are essentially proxies for fiat currencies, offering a price-stability advantage that other digital assets do not have, and are widely used to fund crypto purchases. The total market capitalization of stablecoins has surged 10-fold year-over-year to more than $100 billion, according to Messari.

The stablecoin supply ratio (SSR) is the ratio of the bitcoin supply and the stablecoin supply denoted in BTC. "When the ratio is low, the buying power for bitcoin is high, as the same amount of USD can buy relatively more BTC. Conversely, a high ratio means fiat has weak buying power," Glassnode said in the explainer blog post.

The stablecoin supply ratio oscillator helps traders identify extreme readings on the SSR and any impending trend change. The metric, however, doesn't consider the fiat-based trades or bitcoin derivatives and is not a perfect indicator.

Nevertheless, it has proved to be a reliable indicator of changes in the past.

For example, bitcoin's previous bull runs, including the one seen in the final quarter of 2020, kicked off with a below -2 reading on the oscillator. So, the recent recovery could be a signal of an impending change of fortunes for bitcoin and broader crypto markets.

Bitcoin is currently trading near $33,560, representing a 3% drop on the day. The leading cryptocurrency fell sharply in mid-May and has been restricted mainly to the $30,000 to $40,000 range ever since, barring the temporary dip to $29,000 earlier this week.

The market capitalization of tether (USDT), the largest stablecoin, has increased from $59 billion to over $64 billion in the past four weeks.


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