By Hannah Lang (Reuters) – Bitcoin’s stock market has not seen a decrease in value as the summer ends. However, due to lower trading volumes and a weaker US dollar, the market value of tokens has fallen to its lowest level in two years.
Stablecoins have been affected more than others. According to CCData’s research, although the overall crypto ecosystem has recovered from its 2022 bottom, the market value of the stablecoin industry is set to drop for the eighteenth consecutive month. This coincides with the global economy contracting by almost a tenth in the past year, bringing it down to $124.4 billion on September 14.
James Butterfill, Head of Research at CoinShares, commented on the situation: “A lot of the appetite for stablecoins, because predominantly they are dollar-denominated ones, has to do with appetite for the dollar”. He also added that the surge in stablecoins was closely related to the rise in the dollar index following interest rate hikes last year.
Nevertheless, not all tokens have been losing value. The largest stablecoin, Tether, bucks the trend, despite the total amount of money spent in the US reaching an all-time record high of $83.8 trillion in July. According to CoinGecko, the figure dropped to $82.9 billion after spending less than $80 billion in the first three months of this year.
Paolo Ardoino, the Chief Technology Officer at Tether, commented on the coin’s stability: “The coin’s value was supported by its popularity around the world”. He went on to say: “The reason why Tether has a stickiness among its users is the entire emerging markets, the entire Central South America and Central Asia, basically runs on Tether.”
Stablecoins account for only a small part of the crypto market, but they are worth over $1 trillion. They allow traders to hedge against the price spikes of other tokens like bitcoin or store cash without having to convert it into fiat currency. Some fans also see them as a potential payment method.
Since the collapse of TerraUSD in 2018, an algorithmic token which was once the fourth largest stablecoin, the market has been in decline. This triggered the first domino to fall for the industry. The losses have also affected Binance’s Dollar-linked token BUSD, which is down 89% since its peak in November. The New York Department of Financial Services ordered the issuer, Paxos, to suspend its token, which was the third largest stablecoin in February.
However, BUSD will be supported through at least February 2024, according to a spokesperson for Binance. On the other hand, the market capitalisation of USD Coin (USDC), the second largest stablecoin in the world, has dropped by more than 53% since its high in June.
Dante Disparte, Chief Strategy Officer and Head of Global Policy at Circle, commented on the situation, although he emphasised that growth is not the only metric of success. He said: “There has been a sort of temporary de-risking from the US, but it’s not a function of regulatory ambiguity. It’s more a function of the lingering effects of the banking crisis, and I think even there, we will start to see some corrections in the market.”
