Cryptocurrency

Stablecoin supply on exchanges reaches all-time high

US dollar pegged cryptocurrencies have grown exponentially over the last few years.

Stablecoins, as the name suggests, provide the stability needed by traders who use them to store value, invest capital, and close trades. Due to its inherent relationship with Bitcoin and other cryptocurrencies, stablecoins are a solid indicator of broader market performance, as abundance on exchanges is a key indicator of market liquidity.

For example, let’s look at the supply rate (SSR) of a stablecoin. SSR is the ratio of Bitcoin supply to stablecoin supply expressed in BTC. It is the market cap of Bitcoin divided by the market cap of stablecoins.

The stablecoins included in SSR are USDT, TUSD, USDC, USDP, GUSD, DAI, SAI and BUSD.

If the SSR is low, the current stablecoin supply has more purchasing power to acquire BTC. A high ratio reduces the purchasing power of the market and lowers buying pressure on BTC.

Bitcoin/stablecoin supply ratio
Bitcoin stablecoin supply rate (via Glassnode)

The term “dry powder” refers to the amount of stablecoins such as USDT and USDC held on exchanges. High levels of dry powder are often seen as an indicator of an upcoming bullish trend and a positive sign for BTC.

Many analysts believe this indicates that users are waiting for the macro to shift from a risk-off to a risk-on environment, with investors looking to invest their wealth in cryptocurrencies pegged to fiat currency. , and encourages them not to convert to fiat currency. Also, the high supply of stablecoins on exchanges does not mean that investors will always convert it to BTC, so investors should be willing to hold their capital in cryptocurrencies. also shows.

Take Argentina for example. Since regaining its independence from Spain in 1816, the country has defaulted on her debts nine times and is experiencing her nearly constant double-digit inflation. In the worst case, Argentina’s inflation rate reached her 5,000%, resulting in several significant currency devaluations. Argentines looking to preserve their life savings are more likely to hold them in stablecoins, adding to a sizeable portion of the stablecoin supply held on exchanges.

All Stablecoins: Exchange Balance
All Stablecoins: Exchange Balances (via Glassnode)

The chart above shows STBL, a crypto asset that aggregates data from the largest ERC-20 stablecoins (USDT, USDC, DAI, BUSD, GUSD, HSUD, USDP, EURS, SAI, and sUSD). STBL is used to create a metric that aggregates stablecoin balances across exchanges.

Exchange metrics are based on CryptoSlate’s constantly updated labeled data of exchange addresses, data science techniques, and statistics that change over time. Therefore, all displayed metrics are modifiable. The data itself is stable, but the most recent data points fluctuate slightly over time.

According to Glassnode data, a “dry powder” of stablecoins worth over $40 billion awaits the cryptocurrency market bystanders.

Overlaying this supply with a dramatic macro event shows the exact moment when the stablecoin supply dramatically increased. His COVID-19 crash in March 2020 appears to have sparked a broader stablecoin accumulation trend throughout 2021. The start of the bear market at the end of 2021 has further boosted supply on exchanges and continued to grow after Russia. Invaded Ukraine in February 2022.

Analyzing the data reveals that stablecoin supply on exchanges tends to increase significantly when uncertainty hits the market.

Posted In: Research, Stablecoins

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