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Stablecoin holders would see the price of Bitcoin go up quickly

August 27, 2020

At USD 11,400, Bitcoin (BTC) is facing a new price hike thanks to stable Bitcoin investors buying cheap coins, the data suggest.

Highlight The latest readings from your Stablecoin Supply Ratio (SSR) metric on August 26th. On-chain monitoring resource Glassnode is forecasting an increase for BTC / USD.

Stablecoin supply ratio “3 times stronger” than in July 2019

SSR refers to the potential purchasing power of stablecoins versus bitcoin. A low Bitcoin price enables stable Bitcoin owners, for example on exchanges, to buy more of the BTC supply. This demand drives the price of Bitcoin skyrocketing due to its predictable and verifiable supply and its high inventory-to-flow ratio.

Stablecoin holders would see the price of Bitcoin go up quicklyStablecoin holders would see the price of Bitcoin go up quickly

As the price increases, stablecoins, which remain the same price in whatever fiat currency they are pegged to, can buy less from the BTC supply.

The ability to take a position in BTC is known as “purchasing power”. This purchasing power is currently high, which means that stable coin owners can buy a comparatively large part of the supply.

“SSR is three times as strong as it was a year ago when BTC hit that price level,” commented Glassnode.

The signature in another tweet he showed that the largest stablecoin, tether (USDT), was remarkably ready to take such positions.

“Additional support comes from an increase in USDT (ERC20) balances on the exchanges last year, suggesting stablecoins are on the verge.”

Comparison table for Bitcoin's stable Bitcoin supply quota

Comparative table of Bitcoin’s stable Bitcoin delivery rate. Source: Glassnode / Twitter

Tether holders waiting to enter BTC?

As Cointelegraph reported, Tether’s market cap passed a $ 10 billion milestone in July. In terms of the average daily transfer value USDT outperformed both Bitcoin and PayPal this month.

Tether market capitalization vs. Bitcoin price

Tether’s market capitalization compared to Bitcoin price. Source: CryptoQuant

One reason to increase the supply, and therefore market capitalization, of a stablecoin is to give investors who have bought other assets the opportunity to withdraw cash.. For example, as Glassnode explained in a blog post on SSR last December, increasing the BTC price requires more stable coins.

“The resulting lack of liquidity in providing stable currencies makes it difficult for investors to exit profitable positions,” summarizes the publication.

“In order to compensate for the lack of purchasing power when Bitcoin prices rise, new fiat money must flow into the market, ie the supply of stable coins must increase.”

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