Stablecoin market capitalization is set to shrink for the 14th straight month. This is a sign of capital draining out of the cryptocurrency market and a troubling trend for cryptocurrency price recovery.
Digital asset data firm CCData said in a May 23 report that stablecoin market capitalization has fallen to $130 billion, the lowest level since September 2021. Stablecoin market capitalization has been shrinking continuously since March 2022.
Analysts say a shrinking stablecoin market capitalization would mean worsening liquidity and a headwind for cryptocurrency prices.
“Stablecoins are the liquidity of the crypto-asset ecosystem. The higher the liquidity, the more investment and speculation possible. indicates that we are still in a long bear market,” macro analyst Tom Dunleavy told CoinDesk.
US bank JP.Morgan Chase & Co. reported last week that a sustained rally in crypto assets was unlikely until stablecoins stopped shrinking. Large investment bank Goldman Sachs similarly said in a report earlier this year that the shrinking of stablecoins amounted to a kind of quantitative tightening in the cryptocurrency market, reducing liquidity and leverage.
Stablecoin trading volumes have also plummeted 40.6% this month, with trading volumes on centralized exchanges hitting $460 billion, according to a CCData report. This is the lowest level since December 2022.
“The decline in trading volume was attributed to major crypto assets staying range-bound and failing to break key supports and resistances.” (CCData)
In that context, TrueUSD (TUSD) bucked the overall market slump, with trading volume rising to $29 billion so far this month, according to CCData. It overtook rivals USD Coin (UCDC) and Binance Dollar (BUSD) to become the second most traded stablecoin on a centralized exchange for the first time.
The revival of TUSD was due to the fact that Binance, the largest cryptocurrency exchange by trading volume, promoted the use of TUSD, such as by waiving transaction fees for Bitcoin (BTC) using TUSD. ing.
｜Translation: coindesk JAPAN
｜Editing: Takayuki Masuda
｜Original: Stablecoin Market Shrinks for 14th Straight Month, Posing Potential Headwinds for Crypto Prices