Stablecoin Metric Flashes Warning Ahead of Bitcoin Halving

Bitcoin (BTC) is trading at 17-month highs with the Bitcoin halving event only 164 days away, while the market is expecting a spot Bitcoin exchange-traded fund (ETF) approval in the coming months.

The crypto has seen a 106.38% year-to-date gains, but the stablecoin supply rate oscillator (SSRO) is raising a major flag, despite suggesting the start of a new bull cycle.

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Stablecoin buying power weakens ahead of Bitcoin ETF

The ratio of stablecoin supply to Bitcoin, a key indicator of the relative strength of stablecoins compared to Bitcoin, has reached a record high of 4.13 on October 25, according to Glassnode. This suggests a strong demand for Bitcoin.

However, this also shows that the purchasing power of stablecoins is at its weakest.

This is the highest SSRO divergence since 2019, when it hit 4.12 on June 26 — exactly 320 days before the May 2020 halving. This same signal has re-emerged on the SSRO this week, potentially indicating a period of retracement before the next halving in April 2024.

Although the buying power is currently weak and a local top like in 2019 is possible, the larger implication is that high SSRO levels have also marked the beginning of bigger bull market cycles in the past.

“Reserve risk” implies this BTC rally could be different

The possible approval of a spot Bitcoin ETF has stirred the markets and could have a significant impact on BTC’s price. The reserve risk (RR) indicator offers an unique perspective on market sentiment, suggesting this Bitcoin rally may be unlike the one in 2019.

The RR assesses the risk-reward ratio in regards to the current “HODL bank” and spot BTC price. As Glassnode explains, when the SSRO hit similar levels in June 2019, the RR also rose above the green band, as seen in the chart above.

However, despite the SSRO reaching record-highs, the RR is still at multiyear lows near the bottom of the green band. Historically, buying Bitcoin when the RR is so low (i.e., large hodl bank relative to current BTC price) has resulted in significant returns.

It implies that, despite Bitcoin being at 17-month highs, confidence in its future price performance is still strong. Long-term holders may be in for big gains, considering they control an all-time high of the total supply.

Factor in the potential multibillion-dollar inflows into a Bitcoin ETF, and it’s easy to see why six-figure BTC price predictions are becoming commonplace for the post-halving period.