Stablecoins, cryptocurrencies designed to maintain parity with a reserve asset like the US dollar, have been experiencing a consistent decrease in market capitalization since a peak in March 2022, according to leading crypto analytics firm Santiment. The combined market capitalization of the top five stablecoins, Tether (USDT), USD Coin (USDC), Binance USD (BUSD), Dai (DAI), and TrueUSD (TUSD) has been on a downtrend in the stablecoin sphere for the past 15 months. The decreasing market cap is a reliable indicator of the overall health of the crypto market, as it represents a decline in buying power to purchase Bitcoin or altcoins in the future, suggesting a potential market downturn.
Despite the decreasing market cap, Santiment reports that large holders of stablecoins, colloquially known as ‘whales’ or ‘sharks,’ remain unshaken. These entities, which typically hold between $100,000 and $10 million in assets, play a crucial role in market dynamics. Specifically, sharks and whales holding Tether, USD Coin, and Dai currently command over 40%, 37%, and just under 40% of the respective supplies. These holdings are the highest they’ve been since November 2021 or February 2023, indicating that these whales are merely holding their wealth in stablecoin form, biding their time for an opportune moment to jump back into more volatile assets.
While the collective stablecoin market cap has been dropping, Santiment notes a steady accumulation of assets among whales. The recent weeks have seen minimal movement among dormant stablecoins, which could have suggested major buys of Bitcoin or altcoins. Although USD Coin has shown some promising dormant movement at the end of May, the activity falls short of the dormant stablecoins surge witnessed in mid-March, which ignited a notable bull rally.
According to data from DeFillama, the total stablecoin market capitalization currently stands above $120 billion, down by nearly 1% in the past 7 days. Out of all the stablecoins, Tether’s USDT holds the most dominance at 64.57%. The stablecoin currently has a market capitalization above $80 billion while Circle’s USDC Coin ranks second in the stablecoin market with a market cap of $28.7 billion. As the stablecoin market has decreased steadily, larger crypto assets such as Bitcoin and Ethereum may be benefitting from this metric.
Over the past 24 hours, both Bitcoin and Ethereum have shown an uptick up by nearly 1% respectively, despite the regulatory scrutiny in crypto that has recently affected the world’s largest crypto exchanges, Binance and Coinbase. Bitcoin’s price has been moving sideways on the 4-hour chart, according to TradingView.com.
Stablecoins were introduced as a way to tackle the price volatility associated with cryptocurrencies, allowing users to move assets between exchanges or platforms without incurring high transaction fees or market fluctuations. However, the decreasing market cap of stablecoins suggests that the market is shifting towards more volatile assets, indicating a potential increase in trading activity and market momentum in the future.
