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Bitcoin’s Buying Power Surges as Stablecoin Supply Ratio Hits New High

Bitcoin, the leading cryptocurrency by market capitalization, has been experiencing a strong rally in the past few weeks, reaching highs above $52,000. One of the factors that could be driving this bullish momentum is the increased buying power of the stablecoin supply, as measured by the Stablecoin Supply Ratio (SSR).

The SSR is a metric developed by Glassnode, a blockchain analytics firm, that quantifies the supply forces between Bitcoin and various stablecoins, such as Tether, USD Coin, and Dai. Stablecoins are digital tokens that are pegged to fiat currencies, such as the US dollar, and are often used as a medium of exchange and a store of value in the crypto ecosystem.

The SSR is calculated as the ratio of Bitcoin’s market cap to that of stablecoins denoted in Bitcoin. In other words, it shows how many Bitcoins are available for each stablecoin unit. A lower SSR means that there is more stablecoin supply relative to Bitcoin supply, which implies a higher buying power for the current stablecoin holders to purchase Bitcoin.

Stablecoin Supply Ratio | Source: Glassnode

According to Glassnode, the SSR has been signaling increased buying power for Bitcoin in the past ten days, dropping from 2.04 to 1.74. This is the lowest level since January 2020, when Bitcoin was trading around $7,000. The SSR has been declining steadily since November 2020, when it peaked at 5.86.

Glassnode attributes this trend to two main factors: the growth of the stablecoin market and the appreciation of Bitcoin. The total market cap of all stablecoins has increased by more than 300% in the past year, reaching over $100 billion. This indicates a high demand for stablecoins, especially from institutional investors who use them as a gateway to enter the crypto space.

Meanwhile, Bitcoin’s market cap has also increased by more than 500% in the same period, reaching over $1 trillion. This reflects the growing adoption and recognition of Bitcoin as a digital asset class, especially after the launch of several Bitcoin exchange-traded funds (ETFs) in Canada and the US.

The combination of these two factors results in a lower SSR, which suggests that the demand for Bitcoin is driven by stablecoin liquidity entering the Bitcoin market. As Glassnode notes, “this is a clear sign of increased capital flows from the fiat world into the crypto economy.”

However, the SSR is not the only indicator of Bitcoin’s market strength. Glassnode also points out other metrics, such as the Net Unrealized Profit/Loss (NUPL), the Spent Output Profit Ratio (SOPR), and the MVRV Z-Score, that show that Bitcoin is in a healthy and sustainable uptrend, with room for further growth.

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