Stablecoins, which are digital assets designed to maintain a stable value, have long been seen as a potential bridge between the cryptocurrency world and the traditional financial industry. However, recent developments have cast uncertainty over its perceived stability.
As global policymakers continue to grapple with concerns about the impact of the cryptocurrency sector on the established financial system, a surprising development occurred when tensions in the US banking industry reverberated throughout the stablecoin market.
According to Fitch RatingsThe tightening of financial conditions, culminating in the high-profile failures of several banks, including the collapse of a respected Silicon Valley bank, has had a profound effect on stablecoins.
Stablecoins: Changing the Market
For example, Fitch Ratings reported that the market value of USDC, a stablecoin pegged 1:1 to the US dollar, saw a sharp drop of more than 25% in the first quarter. Although the currency’s value remains low, Fitch noted that it was able to restore its currency peg soon after.
according to Data from The BlockThe total supply of stablecoins decreased from $138 billion at the beginning of the year to $124 billion as of July 3. This decrease in supply also underscores the challenges faced by stablecoins and their struggle to maintain stability amid market turmoil.
Chart: The Block Crypto Data
“There was significant volatility, shook investor confidence, and a temporary but sharp decoupling in the stablecoin market in March as shock waves spread from traditional finance,” Fitch wrote.
Trend Bucks
In contrast to USDC, Tether, another notable stablecoin, has seen a 12% increase in its market capitalization over the same period. Notably, Tether accounted for nearly 72% of the USDC redemption volume, indicating a growing preference for Tether among investors.
Despite Tether’s positive performance, Top 10 stablecoins It saw a decrease in the monthly average daily trading volumes. From March to May 2023, these trading volumes decreased from $53 billion to $28 billion.
This decline indicates a decrease in activity within the stablecoin market, possibly driven by investor sentiments of caution in the face of ongoing market uncertainty.
Bitcoin approaches the $31K territory on the daily chart: TradingView.com
Fitch notes that efforts to regulate stablecoins are unfolding at varying speeds in the United States and Europe, resulting in notable differences in reporting standards and transparency for these digital assets.
The contrasting approaches taken by the two regions have created distinct regulatory landscapes for stablecoins, with direct consequences for reporting and transparency practices.
(Information on this website should not be construed as investment advice. Investing involves inherent risks and when you make investments, there is a possibility that you may sustain a loss of principal due to these risks).
Featured image by Zebpay
