Whales hoarded more than 50% of the total stablecoin supply. The stablecoin exchange reserve was recently the highest since May 2020.
Stablecoins aim for 1:1 parity with the target asset and can be paired with all types of assets: gold, dollars, euros, reais (BRZ, the most used stablecoin in Brazil and the most used stablecoin that is not paired to the dollar), Argentine pesos, and there are even stablecoins that are matched to the Bitcoin price.
The most used are those collateralized by assets and, therefore, enjoy greater acceptance and trust by the market – USDT, USDC and BUSD, in order of use and popularity). Saying they are collateralized means that they are backed by assets that match the number of tokens issued, which are held as collateral.
Although less used or known, those backed by cryptocurrencies are no less reliable for this reason. Many, among them DAI, from MakerDAO, and CUSD, from Fundación Celo, are serious projects that do not have large banks and financial conglomerates behind them.
The so-called “Algorithmics” have this name because they work entirely on the basis of the algorithm created on top of the coin. Two examples are Nirvana, made with Solana, and UST, made by Terra. Both projects were victims of attacks, which clearly indicates that this type of technology is far from being developed enough to trust its operation.
The stablecoin sector witnessed significant expansion over the past four months, one of many bullish signs for the broader crypto market.
Demand for Stablecoins Soars
According to on-chain analytics firm Santiment, the global stablecoin market capitalization increased by $9.42 billion in the October-January period, representing an impressive 7.8% growth.
Additionally, whale wallets with over $5 million in holdings account for over 50% of the total stablecoin supply at the time of writing.
The sharp rise in stablecoin holdings coincided with that of Bitcoin. [BTC] price drop, suggesting whales were buying the dip. Indeed, an increase in the supply of stablecoins indicates an increase in capital inflows into the cryptocurrency market. This is because most traders in traditional markets would use stablecoins to enter and exit trades on crypto exchanges.
Recent research by a CryptoQuant analyst also drew attention to a strong correlation between Tether, the world’s largest stablecoin. [USDT] circulating supply and price of Bitcoin.
“Since the end of 2022, the circulating supply of USDT has increased by around 30 billion. Each increase in supply has traditionally positively influenced the development of the btc price.”
Stablecoins Return to Exchanges
The market capitalization of stablecoins entered a downward spiral after the dramatic collapse of Terra USD. [UST] in 2022. As sentiment in the broader market turned bearish, trading activity declined, as did demand for stablecoins.
However, the bullish vigor injected in the last four months has once again put the focus on these cryptocurrency derivatives. According to AMBCrypto analysis of CryptoQuant data, around 27% of all stablecoins in circulation were present on exchanges, as compared to 24% at the beginning of the year. The current stablecoin exchange reserve was the highest since May 2020.
Main Assets Lead the Way
The growth in the stablecoin market was also reflected in the upward trajectory of leading assets such as USDT and USDC.
According to AMBCrypto analysis of Glassnode data, the USDT market capitalization has increased by 5.4% since the beginning of 2023.
On the other hand, even USDC, which faced challenges in 2023, saw an 8% jump year-to-date (YTD).
By Leonardo Perez
