Markets
Stablecoin market cap climbs to $164 billion after months of stagnation as capital flows into cryptocurrencies
Stablecoins, which serve as a funding source for many cryptocurrency trading strategies, are seeing growth after months of stagnation, a sign of a renewed influx of capital into the cryptocurrency market.
The overall market capitalization of the stablecoin sector, which includes hundreds of coins, has climbed to more than $164 billion for the first time in Terra collapse As of May 2022, according to data source DefiLlama and trading firm Wintermute, the price of bitcoin was stagnating around $160 billion.
Stablecoins are digital currencies whose values are attached to an external referencelike the US dollar. Tether’s USDT, the leading dollar-pegged stablecoin, alone has a market cap of $114.26 billion.
These coins help investors mitigate market volatility as they maintain a fixed value relative to the external reference. They are widely used to fund cryptocurrency purchases, derivatives trading, and yield-generating strategies like lending via Decentralized Finance (DeFi). Stablecoins are also used for real-world payments and cross-border money transfers.
The expansion “indicates growing investor optimism, supporting a bullish outlook,” Wintermute said in a note shared with CoinDesk. “The increase in stablecoin supply indicates that money is being deposited into on-chain ecosystems to generate economic activity, either through direct on-chain purchases that can catalyze price appreciation or through yield-generating strategies that could enhance [market] liquidity. This activity ultimately drives positive on-chain growth.
Blockchain analytics firm Nansen expressed a similar opinion on X, calling the stablecoin’s expansion a bullish development.
Yet the two largest cryptocurrencies – bitcoin (BTC) and ether (ETH) – have fallen 5.5% and 10% respectively this week, according to CoinDesk data.
The price drop is likely due to a “sell the facts” reaction to the launch of the highly anticipated U.S. spot ether ETFs on Tuesday and a sharp decline in Wall Street’s tech-heavy Nasdaq 100 index. The index fell 3.7% on Wednesday, wiping out $1 trillion in market value.