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An indicator that has historically marked major price lows indicates a new flow of capital to bitcoin.
The stable coin supply ratio oscillator created by analyst Willy Woo and tracked by blockchain analytics firm Glassnode fell from a 12-month low of -2.6 to -1.9 during of the past four weeks.
The rally indicates that capital has shifted from stablecoins to bitcoin, Glassnode tweeted Thursday. In other words, bargain hunters seem to have used stablecoins to buy the bitcoin and broader crypto markets down.
Stablecoins are cryptocurrencies whose value is linked to an external benchmark such as the US dollar. They are essentially proxies for fiat currencies, providing 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 increased tenfold year over year to more than $ 100 billion, according to Messari.
The stablecoin supply ratio (SSR) is the ratio of the bitcoin supply to the stablecoin supply indicated in BTC. “When the ratio is low, the purchasing power of bitcoin is high, because the same amount in USD can buy relatively more BTC. Conversely, a high ratio means fiat has low purchasing power, ”Glassnode said in the explanatory blog post.
Stable Coin Supply Ratio Oscillator helps traders identify extreme readings on the SSR and any impending trend changes. The metric, however, does not take into account transactions based on fiat or bitcoin derivatives and is not a perfect indicator.
Nevertheless, it has proven to be a reliable indicator of changes in the past.
For example, Bitcoin’s previous bull runs, including the one seen in the last quarter of 2020, started off with a reading below -2 on the oscillator. So the recent rally could be the signal for an impending change in fortunes for bitcoin and the broader crypto markets.
Bitcoin is currently trading at around $ 33,560, which is a 3% drop on the day. The major cryptocurrency fell sharply in mid-May and has since been mostly confined to the $ 30,000- $ 40,000 range, with the exception of a temporary drop to $ 29,000 earlier this week.
The market capitalization of tether (USDT), the largest stablecoin, has grown from $ 59 billion to over $ 64 billion in the past four weeks.
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