Throughout the crypto market’s consolidation phase, the total supply of circulating stablecoins has been on the rise.
Because this rise has come about independent of any type of notable selloff in the market, it appears that investors are pouring fresh capital into these digital assets.
There are likely two primary factors causing this rise, including global investors looking to add USD exposure to their portfolios, and so-called “yield farmers” purchasing the stablecoins to tap into lucrative DeFi incentives.
This trend has helped drive Bitcoin’s “Stablecoin Supply Ratio” (SSR) to new lows, potentially being indicative of a strong base that could help the entire crypto market experienced a strong third quarter.
Crypto market lays a strong base for a Q4 uptrend as stablecoin issuance rises
Stablecoins play an important role within the crypto ecosystem.
Although widely being used as a trading instrument to store capital during 2017 and 2018, over the past year investors in countries with unstable fiat currencies have been using them to gain USD exposure.
This trend has picked up steam throughout 2020, with the economic turbulence seen as a result of the ongoing pandemic causing Tether (USDT) – the largest stablecoin by market capitalization – to see massive inflows.
Since the start of the year, USDT’s market cap has more than doubled, climbing from $4.6 billion in January to recent highs of $9.2 billion.
Global investors are likely the primary source of this growth, but the ongoing “yield farming” trend – which can, in some cases, require USDT – could also be a factor as well.
The amount of stablecoins sitting on the sidelines is looked upon by many investors as a powder keg that could ultimately work to fuel a massive crypto market rally.
Data shows that there is merit to this notion, and Glassnode’s SSR indicator is now signaling that recent stablecoin issuance is laying the groundwork for Bitcoin to see strong price action in the quarter ahead.
“The rise in stablecoins supply has lead to new lows of the Stablecoin Supply Ratio (SSR). A low SSR indicates increased buying power for Bitcoin – a higher capacity of stablecoins to purchase BTC and thereby drive up the price.”
Data Source: Glassnode
Bitcoin’s volatility dives to levels not seen in over a year
The ongoing rise in the number of circulating stablecoins also comes as Bitcoin’s volatility reels to levels not seen in over a year.
Bouts of volatility this low are typically short-lived and suggests that a major movement is brewing.
“Bitcoin ten days realized volatility = 20%. Last time we reached that level, we had the great sell-off of November 2018 shortly after.”
Data Source: Skew
Because the large stablecoin quantity could act as dry powder to fuel an uptrend, it is a strong possibility that this imminent volatility will favor buyers.
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