- Bitcoin is currently trading around $9,650 and the rapidly increasing market capitalization of stablecoins supports the bitcoin price.
- Major stablecoins were launched in 2018 but it was over the past year that their market capitalization grew 2 to 3 times. During this one year period, stablecoins added more than $5 billion in total market value.
Earlier in 2020, the demand for stablecoins was pushed higher as traders sought stability while digital currencies were declining considerably following the COVID-19 sell-off. While Bitcoin and Ether suffered huge losses, demand for stablecoins only went higher.
The strengthening dollar also supports stablecoins. According to the Bloomberg Crypto Outlook report published in June, “the advancing dollar will fuel demand for the Tether stablecoin.”
Dollar is depreciating in terms of Bitcoin and gold but enjoying an uptrend against most other currencies.
“The greenback appears best positioned as global currency values recede, with all facing unlimited supply.”
Why does the US Dollar remain strong despite rising money supply?
Rising demand for USD from countries where money supply growth is as high, or higher than US.
Investors prefer the US Dollar when they perceive that central banks will destroy purchasing power of local currency pic.twitter.com/sIPdW7U9zu
— Daniel Lacalle (@dlacalle_IA) June 2, 2020
These dollar-pegged stablecoins are gaining traction as vehicles for dollar exposure without intermediaries. Also, they are increasingly being used for transferring value among the crypto assets.
Currencies Going Digital
The rapidly increasing market capitalization of stablecoins also indicates that fiat currencies are going digital. COVID-19 actually hastened the shift away from paper money. Besides the risk of spreading diseases, central bank's quantitative easing to mitigate the effect of the pandemic on the economy is helping in this shift to digital currencies. Bloomberg states,
“We can't help but draw parallels to the adoption of paper currencies throughout history as the world today moves rapidly toward digitization.”
Tether on Track to be No. 2
This past week, the total market cap across the leading stablecoins reached an all-time high of over $10 billion, up from $4 billion a year ago. Nearly all major stablecoins are ERC20 tokens.
Interestingly, Tether alone accounts for $9.65 billion of market cap, as per Messari.
The largest stablecoin has already taken over third position from XRP quite a few times. According to Bloomberg, it is on track to be number 2 behind bitcoin. Ethereum’s market cap is nearly 3 times that of Tether.
“Absent an unlikely reversal in predominant crypto trends, it should be a matter of time until Tether passes Ethereum to take the No. 2 spot in total assets behind Bitcoin.”
USDT is benefitting from widespread adoption “with a viable case as a proxy for the world's reserve currency.” And there seems to be little stopping the increasing adoption of the USD-pegged coin.
In May, BTC trading into USDT decreased by 7% but still represents the majority of BTC traded into stablecoins at ~98%.
Recently, on June 2nd, Tether also saw its biggest network activity ever with 133.25k addresses active, 37.29k new addresses created, and 66.89k addresses transferring out all their tokens, as per IntoTheBlock.