In the first months of 2023, something anomalous happened: while 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 lost ground.
The growth of crypto markets in 2023
According to CoinGecko data, the crypto market as a whole capitalized around $828 billion at the end of 2022, while it has now surged above $1.168 billion. In addition, it also crossed the 1.3 trillion mark in mid-April, before falling back slightly in recent weeks.
These are significantly below the all-time peak of nearly $3 trillion in November 2021, but still well above the $400 billion mark just before the start of the last major bull run.
These are figures that also include the market capitalization of stablecoins.
So at the end of 2020, with the beginning of the last major bull run, the crypto market went from about $400 billion to about $3 trillion in total capitalization, up +650% in about a year.
However, the bear market then sent it well below 900 billion, losing more than 70% in just over a year.
At that point, there was a 44% recovery in the first three and a half months of the new year, taking capitalization above 1.3 trillion, followed by a 15% retracement.
The performance of stablecoins in relation to the crypto market
In some ways, the trend in the overall market cap of stablecoins was similar over the same period.
Before the start of the last major bull run, the total market capitalization of all stablecoins was just over $20 billion, or only about 5% of the entire crypto market.
On the other hand, it is Bitcoin and Ethereum that dominate it, and their market capitalization in both cases is much larger than that of all stablecoins combined.
However, the peak did not come in November 2021, as stablecoin growth 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, i.e. with a 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 drop was caused that brought the capitalization of stablecoins below $135 billion by the end of 2022, i.e. with a very small drop of only -15% .
This decline continued into 2023 to the current $130 billion.
The main difference really seems to be the timetables.
After all, since the price of stablecoins is by definition stable and that of real cryptocurrencies is not, it is easy to understand how quickly the market caps of cryptocurrencies can change, and how slowly those of stablecoins vary.
For a stablecoin’s capitalization to vary, since the 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 clear difference is that in 2023 crypto markets started to rise again, while stablecoins did not.
In fact, even this second difference can be trivially explained by harking back to the first, which is that just as the growth of stablecoins lasted a full six months after the growth of the crypto market as a whole ended, it may be the same with regarding the subsequent descent.
But there is another clearly important difference. The percentage increase was similar during the bull run, but not during the bear market.
On the contrary, for cryptocurrencies it was a real collapse, while for stablecoins it was just a retracement. Perhaps that is also why the retracement is not over yet, because -15% in the last twelve months actually seems decidedly small.
The weight of stablecoins in the crypto market
Note that in the past three years, the weight of stablecoins in the crypto market has also changed.
As mentioned before, before the start of the last major bull run, they weighed about 5% of the entire crypto market.
By the time of the all-time high in November 2021, weight as a percentage had shrunk to less than 4.5%, although the growth path was similar.
This reduction in stablecoin dominance in the crypto market is most likely due to the difference in the timing of growth.
In fact, in early May 2022, when stablecoin market cap reached an all-time high, stablecoin dominance had risen to almost 9%, roughly double from just six months earlier.
With the collapse of the rest of 2022, after the implosion of the Terra/Luna ecosystem and the UST algorithmic stablecoin, this percentage actually went up again, despite the still-continuing decline in stablecoin market cap. In fact it is now 11%.
The current situation is very different from the end of 2020, so much so that some adjustment is still needed to get things back to normal.
The stablecoins that lose the most
The stablecoin that has lost by far the most is without a doubt UST, the algorithmic stablecoin of the Terra/Luna ecosystem that imploded last year. By now, in fact, it’s barely worth anything, so much so that it’s not even a stablecoin anymore, as its price has imploded to well below $1.
The second to lose big was Binance USD (BUSD), the stablecoin issued by Paxos but branded by the world’s largest crypto exchange.
In early May 2022, BUSD capitalized over $17 billion, reaching $16.5 billion by the end of 2022. Since then, it has fallen to $5.5 billion, holding its price at around $1. This collapse is due to the fact that Paxos has stopped issuing new BUSD tokens, but has only taken existing tokens off the market.
But even the second largest stablecoin in the world, USD Coin (USDC), is falling.
It even went up again in May last year, peaking at $56 billion the following month. But by the end of 2022, it had already dropped to $44.5 billion, and now it’s just $30 billion. In fact, it has almost halved in 11 months while still holding the $1 price.
However, things have been different for the world’s leading stablecoin, the Tether dollar (USDT).
While it peaked at $83.3 billion in May 2022, it lost quite a bit in 2022, ending the year below $66.3 billion.
However, in the course of 2023, with the strong BUSD and USDC issues, it rose again to the current 82.9 billion, which is very close to the all-time high of last year.
Therefore, USDT is holding up very well in the continuation of the 2022 decline, which instead had major consequences, especially for BUSD and USDC.