The early months of 2023 saw something anomalous happen: as the crypto market went up, stablecoins went down.
Usually, stablecoins grow along with crypto markets, so it is at least curious that the growth of crypto markets in 2023 was not accompanied by growth in stablecoins, which instead actually lost ground.
The growth of crypto markets in 2023
According to CoinGecko data, at the end of 2022 the crypto market as a whole capitalized about $828 billion, while it has now risen above $1,168 billion. Moreover, in mid-April it also surpassed 1.3 trillion, only to retrace somewhat in recent weeks.
These are significantly lower than the all-time peak at nearly $3 trillion in November 2021, but still well above the $400 billion just before the start of the last big bull run.
Incidentally, these are figures that also include the market capitalization of stablecoins.
So as of late 2020, with the start of the last big bull run, the crypto market went from about $400 billion to about $3 trillion in total capitalization, a +650% increase in about a year.
However, it subsequently fell well below 900 billion due to the bear market, with a loss of more than 70% in just over a year.
At that point there was a 44% rebound in the first three and a half months of the new year, bringing capitalization above 1.3 trillion, followed in turn by a 15% retracement.
The performance of stablecoins in relation to the crypto market
In some ways the trend in the overall market capitalization of stablecoins over the same period has been similar.
Before the start of the last big bull run, the total market capitalization of all stablecoins was just over $20 billion, or only about 5% of the entire crypto market.
Then again, it is Bitcoin and Ethereum that dominate it, and their market capitalization is in both cases far greater than that of all stablecoins combined.
The peak, however, did not occur in November 2021, because the growth of stablecoins continued until May 2022, which was just before the implosion of the Terra/Luna ecosystem.
The all-time high was then reached in 2022 at a level above $160 billion, that is, with growth of +700% in about a year and a half.
Excluding the timing, which was slightly more stretched for stablecoins, the percentage increase was similar to that of the overall crypto market.
After the implosion of the Terra/Luna ecosystem, and especially of the UST algorithmic stablecoin, a decline was triggered that brought the capitalization of stablecoins below $135 billion by the end of 2022, that is, with a very small decline of only -15%.
This decline continued in 2023 to the current $130 billion.
The main difference really seems to be the timeframes.
After all, since the price of stablecoins is by definition stable, while that of real cryptocurrencies is not, it is easy to understand how quickly the market capitalizations of cryptocurrencies can change, and how slowly those of stablecoins vary.
For a stablecoin’s capitalization to vary, as its price is stable, the supply must vary, and this depends on how many tokens their managers issue or withdraw from the market.
So it is a given that there is a difference in the time frame.
The second obvious difference is that in 2023 the crypto markets started to rise again, while stablecoins did not.
In fact, even this second difference can be trivially explained by resorting to the first, which is that just as the growth of stablecoins lasted for a full six months after the growth of the crypto market as a whole ended, perhaps things are going similarly with regard to the subsequent descent.
But there is another distinctly important difference. During the bull run the increase in percentage terms was similar, but during the bear market it was not.
On the contrary, for cryptocurrencies it was a real collapse, while for stablecoins it was just a retracement. Perhaps that is also why that retracement is not yet over, because -15% in the last twelve months actually seems decidedly small.
The weight of stablecoins in the crypto market
Note that over these past three years the weight of stablecoins in the crypto market has also changed.
As mentioned earlier, before the start of the last big bull run they weighed about 5% of the entire crypto market.
By the time of the all-time high in November 2021, the weight as a percentage had shrunk to less than 4.5%, although the growth path was similar.
This reduction in the dominance of stablecoins in the crypto market is most likely due to the difference in the timing of growth.
In fact, by early May 2022, when stablecoin market capitalization hit all-time highs, stablecoin dominance had risen to nearly 9%, roughly double that of only six months earlier.
With the collapses of the rest of 2022, subsequent to the implosion of the Terra/Luna ecosystem and the UST algorithmic stablecoin, this percentage actually went up again, despite the still ongoing decline in stablecoin market capitalization. In fact, it is now at 11%.
The current situation is very different from what it was at the end of 2020, so much so that there is still some adjustment required to bring it back to some sort of normality.
The stablecoins that are losing the most
The stablecoin that by far has lost the most is definitely UST, which is the algorithmic stablecoin of the Terra/Luna ecosystem that imploded last year. By now in fact it is hardly worth anything, so much so that it is no longer even a stablecoin since its price has imploded dropping well below $1.
Second to lose a lot was Binance USD (BUSD), which is the stablecoin issued by Paxos but under the brand of the world’s largest crypto exchange.
At the beginning of May 2022, BUSD capitalized more than $17 billion, down to $16.5 billion at the end of 2022. It has since plummeted to $5.5 billion, while maintaining its price of about $1. This collapse is due to the fact that Paxos has stopped issuing new BUSD tokens, merely withdrawing existing ones from the market.
But even the world’s second largest stablecoin, USD Coin (USDC), is falling.
It actually went up again in May last year, to a peak of $56 billion touched in the following month. But by the end of 2022 it had already fallen to 44.5 billion, and now it is as low as $30 billion. Basically in eleven months it has almost halved, while still maintaining the price of $1.
In contrast, for the world’s leading stablecoin, Tether dollar (USDT), things have been different.
Although it peaked in May 2022 at $83.3 billion, it lost quite a bit during 2022, ending the year below $66.3 billion.
However, during 2023, with the strong BUSD and USDC problems, it rose back up to the current 82.9 billion, which is very close to last year’s all-time high.
Hence, USDT is holding up very well to the continuation of the 2022 decline, which instead ended up having major impacts, especially on BUSD and USDC.