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Founded in 1993, The Motley Fool is a financial services company dedicated to making the world smarter, happier, and richer. The Motley Fool reaches millions of people every month through our premium investing solutions, free guidance and market analysis on Fool.com, personal finance education, top-rated podcasts, and non-profit The Motley Fool Foundation.
Founded in 1993, The Motley Fool is a financial services company dedicated to making the world smarter, happier, and richer. The Motley Fool reaches millions of people every month through our premium investing solutions, free guidance and market analysis on Fool.com, top-rated podcasts, and non-profit The Motley Fool Foundation.
Founded in 1993, The Motley Fool is a financial services company dedicated to making the world smarter, happier, and richer. The Motley Fool reaches millions of people every month through our premium investing solutions, free guidance and market analysis on Fool.com, personal finance education, top-rated podcasts, and non-profit The Motley Fool Foundation.
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Key Points
October is off to a great start, but fundamentals matter more than what month we're in.
Uptober — a mix of “up” and “October” — has become a popular social media tagline for the crypto community. So far, it’s off to a good start. On Oct. 6, Bitcoin (BTC -1.28%) set a new all-time high of more than $126,000, with gains of over 9% on the first six days of the month.
Bitcoin has historically performed well in October, posting gains in all but two of the past 12 Octobers, per CoinGlass data. These memes can be fun and boost sentiment in the short term. But it’s also important to be wary: Fundamentals and wider economic factors are more significant long-term.
That said, there are a couple of metrics that suggest this October could be another good month for cryptocurrencies, particularly Bitcoin.
The stablecoin supply ratio (SSR) compares the value of all the Bitcoin in circulation (its market capitalization) with the value of the stablecoin market. Many crypto traders use stablecoins to trade in and out of digital currencies. As such, when there’s a lot of money in stablecoins, people view it as cash on the sidelines that’s ready to be spent.
SSR is the Bitcoin market cap divided by the stablecoin market cap. A low SSR suggests there’s a lot of cash in stablecoins that could be used to buy Bitcoin. Conversely, a high SSR could show limited stablecoin purchasing power.
According to Cryptoquant, the SSR on Oct. 4 was 16.3. For context, in mid-August, when Bitcoin set its previous all-time high, it was over 19. Back in April, when Bitcoin was struggling due to tariff concerns, it slipped below 13.
The slight flaw in this metric is that stablecoins are starting to be used for many other purposes, such as decentralized finance, payments, and money transfers. As such, a higher stablecoin market cap does not necessarily mean there’s more dry powder waiting to snap up cryptocurrencies. It could also reflect growing interest in the stablecoin market for a mix of reasons.
Image source: Getty Images.
Bitcoin open interest (OI) shows the number of active futures and options contracts. These are types of derivatives that allow traders to buy or sell an asset at some point in the future. When Bitcoin OI is high, it means there are a lot of positions in the market. On its own, it doesn’t tell us much about prices, but it can show us how strong the conviction behind a particular trend is.
For example, when both prices and OI are increasing, it suggests traders are optimistic and points to upward momentum. If prices are increasing but OI has started to fall, that could be a sign that the rally is running out of steam. Increasing OI alongside decreasing prices may signal a strong downward trend.
According to CryptoQuant, Bitcoin OI reached a record high of $46.3 billion on Oct. 5. Taken alongside Bitcoin’s gains in recent days, this bodes well for another strong Uptober.
A recent report from JPMorgan says that the Bitcoin-to-gold volatility ratio has fallen below 2 — its lowest point ever. This suggests Bitcoin is becoming less risky in comparison. On this basis, the analysts say there’s room for investors to allocate more of their risk capital to Bitcoin. Indeed, the report says Bitcoin would need to rise to $165,000 for its market cap to match that of gold on a risk-adjusted basis.
The logic is that both Bitcoin and gold act as alternative stores of value that can hedge against weakening fiat currencies. Based purely on volatility, the JPMorgan team thinks Bitcoin could be undervalued against gold.
The argument makes sense, but it is worth noting that Bitcoin has yet to fully prove itself as a form of digital gold. Plus, volatility is not the only risk associated with Bitcoin investments. It is still a relatively new asset that could face regulatory, security, and technological risks, including hacking or even systemic failure.
These are just three of many metrics that suggest Bitcoin could rally further in October. Rather than focusing on a potential October surge, think about how Bitcoin may perform in the coming five to 10 years and how it fits with your portfolio. Be clear about your risk tolerance because this helps you decide how much of your portfolio you might allocate to assets like cryptocurrency.
Emma Newberry is a contributing Motley Fool cryptocurrency analyst covering digital currencies and blockchain trends. She previously wrote for Motley Fool Money (formerly The Ascent) on personal finance, investing, retirement readiness, and crypto. Earlier in her career, Emma founded an English-language newspaper in Colombia and contributed to Olympic city bid campaigns. She holds a bachelor’s degree in English literature with creative writing from the University of East Anglia in the UK.
JPMorgan Chase is an advertising partner of Motley Fool Money. Emma Newbery has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin and JPMorgan Chase. The Motley Fool has a disclosure policy.
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