Bitcoin's impressive 43% rise and Ethereum's 38% gain in 2023 have not ignited a larger-scale investment in other cryptocurrencies, such as stablecoins. According to major stablecoin indicators, a significant amount of capital remains inactive. The stablecoin supply, which is a crucial mechanism used to purchase many crypto assets, has been declining. When the stablecoin supply increases, it suggests that there is more capital to purchase crypto assets, while a decrease implies the opposite.
Aggregate supply net position change of top stablecoins declines
The aggregate supply net position change of the top four stablecoins (USDT, USDC, BUSD, and DAI) has been negative since Sept. 14 and has been trending lower since Feb 7. For context, the aggregate supply net position change for stablecoins was positive between February and March 2022, indicating strong demand for digital assets during that time period. The decrease in stablecoin supply suggests that investors are cautious, despite the positive performance of BTC and ETH.
The stablecoin supply ratio (SSR) increases, and buying power decreases
The stablecoin supply ratio (SSR), which measures the ratio of bitcoin's market cap to the market cap of stablecoins, has been increasing. This indicates that the buying power of stablecoins has decreased relative to BTC. The current SSR may imply a decrease in demand for BTC, but a more optimistic interpretation is that capital is sitting on the sidelines, ready to be deployed in the near future.
BTC and ETH establish new support levels
BTC and ETH are establishing new levels of support near $23,000 and $1,640, respectively. The longer they trade near these ranges, the more confidence investors are likely to have in those levels. BTC and ETH volume was relatively in line with their 20-day average, with some trading days falling below the average.
Stablecoin supply is an important signal to watch
The supply of stablecoins may be an important signal to watch, as it could indicate a move higher. A shift from the current supply levels to where they stood between 2020-2022 could signify increased demand for crypto assets. While the decline in stablecoin supply suggests caution among investors, it could also mean that capital is waiting to be deployed. It remains to be seen whether stablecoins will regain their buying power, or whether investors will continue to sit on the sidelines.
In conclusion, BTC and ETH have performed well in 2023, but stablecoin supply has been declining. The SSR has been increasing, indicating a decrease in buying power relative to BTC. BTC and ETH are establishing new support levels, and stablecoin supply may be an important signal to watch. While the decline in stablecoin supply suggests caution among investors, it could also mean that capital is waiting to be deployed.
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