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Stablecoins Signal Crypto Ecosystem Buoyancy as Market Cap Jumps to $164B
Renewed expansion in stablecoins is bullish for the broader crypto market.
Updated Jul 25, 2024, 8:38 a.m. Published Jul 25, 2024, 8:31 a.m.
- Expansion of the stablecoin market is bullish for the broader crypto ecosystem.
- BTC and ETH slid amid broad-based risk aversion on Wall Street.
Stablecoins, which serve as a funding source for many crypto trading strategies, are experiencing growth after months of stagnation in a sign of renewed capital influx into the crypto market.
The aggregate market capitalization of the stablecoin sector, which includes hundreds of coins, jumped to over $164 billion for the first time since the collapse of Terra in May 2022, according to data source DefiLlama and trading firm Wintermute. It had been languishing around the $160 billion mark.
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Stablecoins are digital currencies whose values are pegged to an external reference, such as the U.S. dollar. Tether's USDT, the leading dollar-pegged stablecoin, alone boasts a market capitalization of $114.26 billion.
These coins help investors mitigate market volatility because they maintain a fixed value to the external reference. They are widely used to fund crypto purchases, derivatives trading and yield-generation strategies like lending through decentralized finance (DeFi). Stablecoins are also utilized for real-world payments and cross-border remittances.
The expansion "indicates growing investor optimism, underpinning 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 yield-generation strategies that could improve [market] liquidity. This activity ultimately fosters positive on-chain growth."
Blockchain analytics firm Nansen voiced a similar opinion on X, calling the stablecoin expansion a bullish development.
It looks like it's not only a big day for ETH...but also for stablecoins!
— Nansen 🧭 (@nansen_ai) July 23, 2024
The total stablecoin market cap has finally started to break $160b after 3 months of remaining relatively flat, highlighting increasing demand and growing confidence in these assets
Bullish. pic.twitter.com/Zv8qe6RTJ7
Still, the two biggest cryptocurrencies – bitcoin {{BTC}} and ether {{ETH}} – have declined 5.5% and 10%, respectively, this week, CoinDesk data show.
The price swoon is likely due to a "sell the fact" reaction to Tuesday's debut of the highly anticipated spot ether ETFs in the U.S. and the sharp slide in Wall Street's tech-heavy Nasdaq 100 index. The index fell 3.7% on Wednesday, wiping out $1 trillion in market value.
The ongoing decline in the copper-to-gold ratio and the steepening of the U.S. Treasury yield curve favors risk-off sentiment.
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When adjusted for asset market capitalization SOL's relative futures volume looks better, K33 Research noted.
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- Solana's SOL futures began trading on the Chicago Mercantile Exchange (CME) on Monday, with a notional daily volume of $12.3 million and $7.8 million in open interest, significantly lower than the debuts of bitcoin (BTC) and ether (ETH) futures.
- Despite the seemingly lackluster debut, when adjusted to market value, SOL's first-day figures are more in line with BTC's and ETH's, according to K33 Research.
- Despite the bearish market conditions, the launch of CME SOL futures offers new ways for institutions to manage their exposure to the token, said Joshua Lim of FalconX.
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