The return of stablecoin purchasing power has positively impacted the price performance of Bitcoin overall.
Stablecoins’ “buying power” is increasing, which is helping Bitcoin as their supply rises.
Data from the stablecoin supply ratio (SSR) oscillator indicates a continuous decline, according to Glassnode, an on-chain analytics company.
Corporations and institutions are steadily increasing their on-chain BTC reserves, driving up Bitcoin volumes.
This surge in demand reflects a growing institutional interest in Bitcoin as a long-term store of value and hedge against inflation.
Moreover, the return of stablecoin purchasing power has significantly influenced Bitcoin’s price performance.
As stablecoins’ buying power expands with their rising supply, they inject liquidity into the crypto market, providing a stable foundation for Bitcoin’s value.
Notably, data from Glassnode’s stablecoin supply ratio (SSR) oscillator reveals a sustained downward trend, indicating a continuous influx of stablecoins into the market.
This influx not only boosts Bitcoin’s liquidity but also enhances its price stability, contributing to its overall positive performance.
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After initially rising in October 2023, Bitcoin is expected to reach two-year highs this month. Stablecoin data suggests that this is not a coincidence.
The ratio of the value of all known stablecoins combined with the market capitalization of Bitcoin is tracked by the SSR oscillator.
The technology “serves as a proxy for the supply/demand mechanics between BTC and USD,” as explained by Glassnode.
Stablecoins have greater purchasing power to absorb the supply of Bitcoin when SSR values are low.
The SSR oscillator dropped significantly after reaching new all-time highs in October, from 4.13 on October 25 to just 0.74 on January 22.
James Van Straten, a research and data analyst at the cryptocurrency insights company CryptoSlate, identified an increase in supply starting in the fourth quarter of 2023 by examining changes in the total stablecoin market capitalization.
The pattern is sustained in this year.
On January 31, he said to X subscribers, “As we saw last week with the rotation of stablecoins moving into Bitcoin, that sent BTC above 42k.”
Stablecoin supply is now 10B higher from the low, and 3.5% higher in the past 30 days.
On the other hand, stablecoin supply decreased from May 2022 to October 2023.
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These have been made possible by the recently introduced spot Bitcoin exchange-traded funds (ETFs), which have for the first time allowed institutional capital flows into the US.
Additionally, the recently converted Grayscale Bitcoin Trust (GBTC) is one ETF that is currently undergoing a significant “rebalancing.”
Three weeks after the ETF’s introduction, Glassnode admits that on-chain flows are still changing in the most recent issue of its weekly newsletter, “The Week On-Chain.”
A major rebalancing event has been triggered by conversion to a spot ETF, following many years of trading at a severe NAV discount (with an extremely high 2% fee), researchers noted.
"Around ~115.6k BTC have been redeemed from the GBTC ETF since conversion, creating significant market headwinds."
Forecasts indicate that while these redemptions are ongoing, volumes will soon decline sharply, relieving sell-side pressure.
According to Glassnode, overall institutional flows are raising on-chain volumes.
The introduction of spot Bitcoin exchange-traded funds (ETFs) has opened the doors for institutional capital to flow into the US market, facilitating the accumulation of BTC by organizations.
Notably, the conversion of the Grayscale Bitcoin Trust (GBTC) into an ETF has sparked significant rebalancing activities within the market.
This transition, after years of trading at a NAV discount with a high fee, has led to the redemption of approximately 115.6k BTC from the GBTC ETF, causing notable market headwinds.
As these redemptions continue, it’s anticipated that volumes will sharply decline, alleviating some of the sell-side pressure.
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