A quant has explained how stablecoin supply ratio (SSR) data can be used to find Bitcoin buy or sell signals.
Stablecoin Supply Ratio Can Predict Bitcoin Buy and Sell Signals
As explained by an analyst in a CryptoQuant post, stablecoin’s stock ratio can help us find BTC buy or sell signals.
The “stablecoin supply ratio” (or SSR for short) is an indicator that measures the ratio between Bitcoin’s market capitalization and that of all stablecoins.
In simpler terms, what this stat tells us is how the stablecoins’ supply compares to BTC’s. Investors usually use these fiat-bound coins when they want to escape volatile markets and hold until the price reaches a viable return point.
So in a sense, stablecoins represent potentially dry powder for Bitcoin. When the value of the SSR is high, it means that the supply of BTC is currently much higher than stablecoins. This means that there is less potential buying power available in the market and therefore could be bearish for the price of the crypto.
On the other hand, a low value of the ratio means that there is a decent amount of purchasing power available in the form of stablecoins right now. Obviously, this could be bullish for the value of BTC.
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Here is a chart showing the trend in the supply ratio of stablecoins over the past 2 years:
The correlation between BTC price and the ratio | Source: CryptoQuant
In the chart above, the quant has highlighted the relevant trend areas in the SSR RSI (a modified version of the indicator).
The analyst notes that when the value of this metric is below 25, it is usually a good buying point for Bitcoin.
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On the other hand, readings above 70 seem to indicate a sell signal instead. A few months ago, the stat showed a buy signal and has been on the rise ever since.
If the past trend has anything to offer, the price of the crypto can now rise and the indicator will show a sell signal on the upside.
At the time of writing, Bitcoin’s price is hovering around $43k, up 5% over the past seven days. Over the past month, the crypto has gained 15% in value.
The chart below shows the trend in the price of the coin over the past five days.
The price of BTC seems to have risen in recent days | Source: BTCUSD on TradingView Featured image from Unsplash.com, Charts from TradingView.com, CryptoQuant.com