The number of dollar-pegged cryptocurrencies or stablecoins, held at addresses like centralized exchanges, prolonged to the lowest level since May 2021, a sign of growing risk aversion among investors.
The balance was $21.06 billion as of Monday, according to data from Glassnode. The blockchain analytics company tracks stock balances for GUSD, DAI, BUSD, HSUD, SAI, USDP, sUSD, EURS, USDC, and USDT.
That number has more than halved since hitting an all-time high of over 44 billion in mid-December. It gained momentum after US regulatory sanctions against Paxos’ BUSD in February and the consequent USDC volatility in March.
USDC, the second-largest stablecoin in the world, saw price swings in March after issuer Circle announced it was holding cash in the then-ailing Silicon Valley Bank.
Tether (USDT), the largest stablecoin in the world by market value, has gained dominance as market balances have fallen, while USDC and BUSD have last ground.
Reasons For Not Choosing Stablecoins
Over the past three years, investors have increasingly favored stablecoins to fund cryptocurrency purchases as they help circumvent the price volatility associated with other tokens.
The decline in the stablecoin balance, coinciding with the rise in bitcoin prices, suggests that the rotation of money from stablecoins to BTC was the main reason behind the cryptocurrency’s 70% increase this year. The market has yet to see the inflow of fresh money.
Last year, investors threw their money into stablecoins as the Federal Reserve’s aggressive cycle of rate hikes to control inflation increased the appeal of the US dollar (USD) and its counterparts. However, the incentive to hold the USD has faded since last year in hopes of renewed shrinking liquidity.
“In terms of assets, stablecoin balances on [centralized] CeFi exchanges continue to decline, and little additional new capital is entering the ecosystem,” SignalPlus, a technology company focused on democratizing crypto options, announced in its daily market report.
Furthermore, user actions on GameFi/DeFi [non-fungible tokens] remain depressed regardless of the recovery in the spot price, reinforcing our cautious view on cryptocurrency prices in the future.
PEPE, the brand derived from the “Pepe the frog” meme, has reached a market cap of $502 million after climbing 2,100% since its release last month. PEPE has around 75,000 multi-wallet holders, neglecting centralized exchanges holding more than $5 million worth of tokens.