Stablecoins Lag Behind in Crypto Market Recovery

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Stablecoins: No Recovery Despite Market Recovery

Despite the current market recovery, the overall value of stablecoins has not noticeably increased. Many experts believe that the ongoing rally, which began in mid-October, marks the beginning of an extended bull market for the crypto-asset market. Such a period is usually characterized by a strong influx of stablecoins. However, the reality looks somewhat different.

Market Capitalization of Stablecoins Remains Subdued

At the time of publication of this article, the total market capitalization of all circulating stablecoins was $129.5 billion, compared to $139 billion in December 2022. The stablecoin market began to decline after the dramatic collapse of Terra USD [UST] last year. With the bearish sentiment in the broader market, trading activity and thus demand for stablecoins decreased. For comparison, the value of the stablecoin market peaked at $188 billion in the weeks before the UST collapse. At the time of publication, the value was 31% below the peak.

No Capital Flowing from the Traditional Financial Market?

The total supply of stablecoins on crypto exchanges was still significantly lower than last year. According to an analysis by AMBCrypto based on CryptoQuant data, at the time of publication of this article, 16.9 billion ERC-20 stablecoins were held in exchange wallets, compared to 30 billion in the same period last year.

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An increase in stablecoin reserves on exchanges usually indicates strong buying pressure and a bullish sentiment in the market. The fact that stablecoins have not flowed to trading platforms in significant quantities shows that the ongoing rally was not driven by capital from the traditional market.

Ethereum Loses, Tron Wins

Upon closer analysis, it turned out that Ethereum [ETH] was one of the biggest losers in stablecoins. The chain lost 27% of its stablecoin market capitalization since the start of the bear market in May 2022, according to data from DeFiLlama. On the other hand, Tron [TRX] saw an increase in stablecoin supply of 37% over the same period.

Conclusion

The current market situation shows that despite the general market recovery, the demand for stablecoins has not increased to the extent that one might expect. This could indicate a certain caution on the part of market participants, who are waiting to see how the situation continues to develop before making further investments. As always, it is important to closely monitor market developments and stay well informed.

Sources: AMBCrypto, DeFiLlama, CryptoQuant.

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