Stablecoin Market Shrinks for 14th Straight Month, Posing Potential Headwinds for Crypto Costs

The stablecoin market is on observe to shrink for the 14th consecutive month, an indication of capital draining from the digital asset house, and a troubling pattern for the restoration of cryptocurrency costs.

The whole market capitalization of stablecoins dropped to $130 billion in Could, falling to the bottom degree since September 2021, digital asset knowledge agency CCData famous Tuesday in a market report. The stablecoin market has been in a steady decline since March 2022, per CCData.

Stablecoins are a subset of cryptocurrencies that peg their value to an exterior asset, predominantly to the U.S. greenback. They’re key plumbing for the digital asset universe, enjoying a significant position in facilitating cryptocurrency buying and selling and bridging government-issued fiat currencies with blockchain-based markets.

Analysts argue that the contraction of the stablecoin market poses headwinds for cryptocurrency costs, because it alerts deteriorating liquidity.

“Stablecoins are the liquidity of the crypto ecosystem. The extra liquidity, the extra capacity for funding and hypothesis,” Tom Dunleavy, macro analyst mentioned in a notice to CoinDesk. “The continued discount, regardless of the rising variety of purposes, says to me we’re nonetheless not out of the woods for this secular bear market.”

Banking big JPMorgan wrote final week in a report that cryptocurrency costs are unlikely to take pleasure in a sustained restoration till the stablecoin market stops shrinking. A report from world funding financial institution Goldman Sachs mentioned earlier this yr that the stablecoin shrinkage is equal to a kind of quantitative tightening for the crypto market, a sign of declining liquidity and leverage.

Buying and selling with stablecoins additionally plummeted 40.6% this month to $460 billion in quantity on centralized exchanges, in response to the CCData report. That is the bottom month-to-month quantity since December 2022.

“The drop in buying and selling quantity comes with main crypto property staying range-bound and failing to interrupt key assist and resistance ranges,” the report mentioned.

TrueUSD (TUSD) stablecoin has defied the market-wide droop, with its buying and selling quantity rising to $29 billion to this point this month, per CCData. TUSD has overtaken USDC and BUSD, two struggling opponents, making it the second most traded stablecoin on centralized exchanges for the primary time.

TUSD resurgence stems from Binance, the world’s dominant crypto alternate by buying and selling quantity, selling the token’s use on the platform by waiving buying and selling charges for getting and promoting bitcoin (BTC) with it.