Stablecoin Market Cap Shrinking: Sign of Crypto Recovery?
In the midst of regulatory uncertainties, many countries are embracing stablecoins as a growing number of companies develop products for mainstream use. However, the total market capitalization of stablecoins has been steadily declining, with one dominant player emerging in the market. Analysts suggest that this decline could actually be a sign of market recovery, coming six months after the cycle bottom.
Since April 2022, there has been an aggregate decline in stablecoin supplies. This shrinking market could be a lagging indicator of market recovery, according to experts. A recent Tradingview chart posted by DeFi researcher Jake Pahor shows the decline in stablecoin capitalization over the past 15 months. The total cap has dropped by 25%, from $160 billion to approximately $120 billion. Interestingly, the decline in stablecoin capitalization peaked around six months after Bitcoin’s price reached an all-time high in November 2021.
CoinGecko, which includes more stablecoins in its total capitalization count, reports slightly higher figures. Currently, around $128 billion is circulating, representing about 10% of the total cryptocurrency market. This is significantly lower than the 16% market share held by fiat-pegged assets last year.
Among stablecoin issuers, Tether remains the market leader with a 65% market share and $83.7 billion USDT in circulation. Its supply has grown by 27% since the beginning of 2023, thanks to profits from high-yielding US treasury reserves. On the other hand, rival issuer Circle has experienced a 38% decline in supply, resulting in a 21% market share with $27.3 billion USDC in circulation.
Despite regulatory uncertainty, stablecoins are being embraced by many countries as they look to the future of finance. Start-ups, growth-stage companies, and traditional financial institutions are building products designed to bring stablecoins into the mainstream. Even if consumers may not realize it, they are likely to use stablecoins soon.
Recently, DeFi lending platform Aave introduced its own stablecoin, GHO, into the growing market. GHO, an overcollateralized dollar-pegged token minted on Ethereum, is similar to MakerDAO’s DAI. It allows users to supply crypto collateral to mint the stablecoin. Since its launch, over $2.2 million GHO has already been minted.
As the stablecoin market experiences a decline in total capitalization, some analysts speculate that this could be a sign of a longer-term market recovery. The emergence of dominant market players and increasing global acceptance of stablecoins indicate a shift toward a more mainstream adoption of these digital assets. While the regulatory landscape remains uncertain, the trend of stablecoin market cap shrinkage may be an indicator of positive developments in the crypto markets.
