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Stablecoin Supply Ratio (SSR)

Stablecoin Supply Ratio (SSR) is defined as a ratio of the Market Cap of BTC divided by the Market Cap of all Stablecoins.

Definition

Stablecoin Supply Ratio (SSR) is defined as a ratio of the Market Cap of BTC divided by the Market Cap of all Stablecoins. In other words, the SSR is calculated as the ratio between the Bitcoin supply and the supply of stablecoins denoted in BTC.
SSR=Market Cap of BTC Market Cap of stablecoins\text{SSR}=\frac{\text{Market Cap of BTC }}{\text{Market Cap of stablecoins}}

Interpretation

Bitcoin: Stablecoin Supply Ratio (SSR) Chart
In understanding Stablecoin Supply Ratio (SSR), understanding the function of a stablecoin and its assumption should be done.
First, stablecoins play an important role in the cryptocurrency market as a fiat currency like USD in the regulated market. This is because fiat currencies like USD as a supplier of liquidity have a lot of regulation issues.
Second, Stablecoin Supply Ratio (SSR) is easy to understand metric when there is an assumption that the market is a closed system containing only cryptocurrencies and stablecoins. The relationship between BTC and Stablecoins is like seasaw and provide valuable insight on who has more weight at the moment.

By Value Itself

This indicator shows the comparative power status between BTC and Stablecoins by comparing the market capitalization.

High: Low Potential Buying Pressure

High values mean Low Stablecoin supply compared to the market cap value of BTC indicating potential low buying pressure and possible price drop.

Low: High Potential Buying Pressure

Low values mean high Stablecoin supply compared to the market cap of BTC indicating potential buying pressure and support for possible price rise.

By Examining Trend

Buy and Sell Signals Dashboard for SSR. Source: CryptoQuant Verified Author - IT Tech
It shows the level of Exchange Activeness and Volatility
  • Increasing trend: Slowing down status of stablecoin's buying power - Bearish or sideways sentiment
  • Decreasing trend: Rising status of stablecoin's buying power - Bullish

Note

  1. 1.
    Additional stablecoins could be minted anytime disrupting the assumption that crypto market is a closed system. However, as crypto market continues to expand, additional mint would gradually lose its impact on the model.
  2. 2.
    As time passes, the degree of values' meaning could differ on level.

Practical Example

Let's consider a hypothetical scenario to illustrate the Stablecoin Supply Ratio (SSR) in action:
Suppose the market capitalization of Bitcoin (BTC) is $1 trillion, and the combined stablecoin market cap is $200 billion. In this case, the SSR would be calculated as follows:
SSR=Market Cap of StablecoinsMarket Cap of BTC=200,000,000,0001,000,000,000,000=5SSR = \frac{ \text{Market Cap of Stablecoins} }{ \text{Market Cap of BTC} } = \frac{200,000,000,000}{1,000,000,000,000} = 5

Interpretation

A Stablecoin Supply Ratio (SSR) of 5 indicates that the market cap of Bitcoin is five times larger than the combined market cap of all stablecoins. This scenario suggests a potential low buying pressure on stablecoins, indicating a possible price drop. Traders might interpret this as a time when Bitcoin holds a dominant position, and stablecoins are relatively less in demand.
Conversely, if the SSR were, for instance, 0.2, it would signify a situation where the market capitalization of stablecoins is five times larger than that of Bitcoin. This could imply high potential buying pressure on stablecoins, supporting a possible value rise. Traders might view this as a period when stablecoins are gaining influence in the market compared to Bitcoin.
By monitoring on-chain data and changes in SSR over time, traders can gain insights into the ebb and flow of buying pressures between Bitcoin and stablecoins, helping them make more informed decisions in the dynamic cryptocurrency market.