Bitcoin Price Gets Boost From Surging Stablecoin Supply

Stablecoins have seen a significant supply increase over the past month, giving them greater purchasing power to acquire bitcoin and boost its price. The uptrend that started in October 2022 has played a major role in continued rise. Bitcoin reached two-year highs in January after starting its uptrend in October 2022.

Stablecoin Metric Drops 80% From October Peak

Glassnode reports that a key stablecoin metric has declined considerably since late last year. The stablecoin supply ratio (SSR) oscillator tracks the ratio between bitcoin's market capitalization and the total market cap of all stablecoins. 

The SSR hit a peak of 4.13 on October 25, indicating stablecoins had diminished purchasing power relative to bitcoin. However, it has since plunged around 80% to 0.74 on January 22. The lower the SSR, the more stablecoins can potentially buy up bitcoin.

Stablecoin Supply Jumps 3.5% In One Month

According to Analysis by James Van Straten of CryptoSlate, the overall stablecoin market cap noted that the supply has been increasing since Q4 2022. In the last 30 days, It has jumped 3.5% seeing a serious uptrend as the month ends. 

Previously, stablecoin supply was declining from May 2022 until October 2023. The fresh influx of stablecoins has supported bitcoin's rally above $42,000 in late January, according to Van Straten.This is a promising trend with investors seeing a positive trend going to Feb 2024.

Institutional Flows Adding To Bitcoin Volumes

Bitcoin is also seeing a change in its own supply dynamics, partly thanks to new spot bitcoin ETFs in the US that have unlocked institutional investment.

Grayscale's Bitcoin Trust (GBTC) converted to a spot ETF in January, triggering a rebalancing event. Around 115,600 BTC have been redeemed from GBTC since its conversion, resulting in selling pressure on bitcoin.

Despite this uptrend as of Jan 31 2024,analysts expect these redemptions to slow significantly soon. This will reduce downward pressure on bitcoin price and allow stablecoin inflows to have a greater impact.

The combination of surging stablecoin supply and diminishing GBTC outflows sets the stage for bitcoin to potentially sustain its upward momentum. Stablecoins now have more "buying power" to absorb incoming bitcoin supply.