Stablecoin Market Shrinks for 14th Consecutive Month, Indicating Deteriorating Liquidity in Crypto Industry

Stablecoin Market Shrinks for 14th Consecutive Month, Indicating Deteriorating Liquidity in Crypto Industry


The continuous decline of the stablecoin market signals deteriorating liquidity and poses headwinds for cryptocurrency prices, as noted by macro analyst Tom Dunleavy and banking giant JPMorgan, hindering the recovery of digital asset prices.

The contraction of the crypto stablecoin market implies that the cryptocurrency market is still in its bear phase, macro analyst Tom Dunleavy said.

The crypto stablecoin market is on track to shrink for the 14th consecutive 30 days, a sign of financial resources draining from the digital investment space, and a troubling tendency for the recovery of digital currency prices.

The total market cap of crypto stablecoins dropped to $130 Billion in May, sliding to the weakest point since September 2021, digital investment data company CCData noted Tuesday in a market report. The crypto stablecoin market has been in a continuous decline since March 2022, per CCData.

Crypto Stablecoins are a subset of digital currencies that peg their price to an external investment, predominantly to the United States dollar. They are key plumbing for the digital investment universe, playing a critical role in facilitating digital currency trading and bridging government- announced fiat currencies with blockchain-based markets.

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Analysts argue that the contraction of the crypto stablecoin market poses headwinds for digital currency prices, as it indicates deteriorating liquidity.

“ Crypto Stablecoins are the liquidity of the cryptocurrency ecological system. The more liquidity, the more capacity for financing and speculation,” Tom Dunleavy, macro analyst stated in a note to CoinDesk. “The continued reduction, regardless of the growing number of applications, reveals to me we are still not out of the woods for this secular bear market.”

Banking giant JPMorgan wrote past week in a report that digital currency prices are unlikely to enjoy a sustained recovery until the crypto stablecoin market stops shrinking. A report from worldwide financing bank Goldman Sachs Group stated earlier this year that the crypto stablecoin shrinkage is equivalent to a sort of quantitative tightening for the cryptocurrency market, an indication of declining liquidity and leverage.

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Trading with crypto stablecoins likewise plummeted 40.6 percent these 30 days to $460 Billion in volume on centralized exchanges, reports by the CCData report. This is the lowest monthly volume since December 2022.

“The fall in volume of trading comes with major cryptocurrency assets remaining range-bound and failing to break key support and resistance levels,” the report said.

TrueUSD (TUSD) crypto stablecoin has defied the market-wide slump, with its volume of trading increasing to $29 Billion so far these 30 days, per CCData. TUSD has overtaken USDC and BUSD, two struggling competitors, making it the Second most traded crypto stablecoin on centralized exchanges for the 1st time.

TUSD resurgence stems from Binance Crypto exchange, the world’s dominant cryptocurrency exchange by volume of trading, promoting the token’s use on the platform by waiving trading charges for buying and selling Bitcoin (BTC) (BTC) with it.

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