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The year 2021 will go down in history as a watershed moment for the cryptocurrency sector. The bullish trend that began at the end of the previous year is still driving the market and the values of its top tokens, such as Bitcoin and Ethereum. At the time of publication, both top cryptos were on their way to new ATHs. However, the overall bullish market has had a favourable effect on coins that don’t see much price volatility – stablecoins.
According to Glassnode results, stablecoin supply increased dramatically in 2021 and continues to do so. Surprisingly, this has also culminated in two significant systemic shifts in comparison to past business cycles. According to the paper, the developments include a significant rise in the “availability of derivatives for speculation and risk hedging” in the overall crypto-market, as well as an expansion in the use of stablecoins as “both a reference trading currency and as DeFi collateral.”
Currently, coins such as USDT, USDC, and BUSD account for more than 92 percent of the overall stablecoin market, and a glance at these coins demonstrates the significant development they have seen in the last few months and over the last six months. What’s also intriguing about this development is that it has occurred in lockstep with Bitcoin’s growth over the same period.
According to Glassnode numbers, the supply growth of these top stablecoins, along with Bitcoin’s market cap, shows a correlated growth that has been driven by steady demand for both properties. And when Bitcoin was trading horizontally, such as at the beginning of April, USDT liquidity increased by $3.36 billion.
Given the current appetite for commodities such as Bitcoin, this expansion is expected to continue. According to Glassnode, as more value and investors flood the stablecoin industry, it drives the development of more native ‘digital dollars’ that are easily transferrable in the cryptocurrency sector. This is a positive development because it raises market liquidity. In such a situation, consolidated exchanges and DeFi goods would have more opportunities.
Looking at the Stablecoin Supply Ratio (SSR), which indicates the ratio of Bitcoin’s market cap to overall stablecoin supply, is a clear measure of the market’s ‘buying power’ of stablecoins.The report noted,
“If the price of Bitcoin is low, that [stablecoin] supply is able to buy a larger portion of the circulating BTC supply and therefore, push the price up — buying power is high [and SSR is Low]. As the price of BTC goes up, that supply of stablecoins is able to purchase less and less of the BTC on the market which reduces its ability to move the price upwards — buying power is low [and SSR is High].”
Surprisingly, considering the that price, the SSR ratio remains low, and stablecoin stocks in 2020-21 have held the SSR metric near historical lows. This means that digitally native dollars continue to have increasingly high retail purchasing power. Furthermore, the appetite for stablecoins has been comparable to that of Bitcoin in the current market as the 2020-21 bull run begins.