A few days ago, CCData’s June 2023 Stablecoins & CBDCs report was released, highlighting the importance of stablecoins in today’s crypto market.
The report specifically talked about the declining trend of stablecoins market cap in 2023, but did not provide any details about the future.
CCData then released another report entitled “Market Spotlight: Crypto Surges as Institutions Eye Spot Bitcoin ETF” in which it instead focuses on Bitcoin and gives an indication of the possible evolution of the crypto market.
This is the latest issue of the weekly Digital Asset Digest, reporting that the past week has been marked by many regulatory and legal events.
Focus shifts to Bitcoin: CBDCs, crypto and stablecoins on the sidelines
BlackRock’s filing for the SEC to approve an ETF on the spot Bitcoin is the news that seems to have had the biggest impact.
Blackrock is the world’s largest asset manager and its decision has prompted similar requests from several other financial institutions.
It’s worth noting that Blackrock has maintained a 99.86% approval rate for its ETFs over the years to date, and when the first gold ETF launched, for example, it acted as a catalyst for the start of a multi-year bull run for the price of the precious metal
In addition, Bitcoin has significantly underperformed the S&P500 index since the start of the second quarter, while the S&P500’s rally appears to have stopped since BTC’s recovery.
This revival, unlike previous bull runs, has not been driven primarily by short liquidations, but rather by a real increase in buying pressure.
In other words, the focus of crypto investors has recently shifted to Bitcoin, so that dominance surpasses 50% for the first time since May 2021.
In fact, outstanding interest on Bitcoin derivatives has risen from $8.36 billion in early June to $9.80 billion. In contrast, outstanding interest on ETH remained relatively stable, averaging $5.05 billion.
The decline in liquidity on US stock exchanges
The report also notes that some US crypto exchanges, such as Binance US, Kraken and Gemini, saw their market liquidity decline in June, although in the case of BinanceUS it was as much as 71%.
At the same time, despite the allegations from the SEC, there has been a 17% increase in liquidity on Coinbase.
It is hypothesized that many US-based traders and market makers took refuge in the larger US exchange.
At the same time, liquidity on major foreign exchanges, including Binance and OKX, has increased, pointing to more trading activity on exchanges outside the US.
While this is a trend that will impact US crypto markets in the short term, the eventual entry of giants like BlackRock into this market could completely turn the tide in the future.
Indeed, BlackRock’s move signals a growing interest from institutional investors in the crypto market, despite the ongoing regulatory issues and volatility in this market.
The future vision of crypto, CBDCs and stablecoins
The question posed by the report’s authors is whether BlackRock’s entry into the crypto derivatives market with its own ETF could have a similar impact to the entry of the first ETF into the gold derivatives market in 2004.
Until then, the price of gold hovered around $400 an ounce for about 25 years, rising first to $700 from 2005 and then to more than $1,900 in 2011.
Such moves had never been seen before in the financial gold market, even though the price has since remained stable over the long term and today stands at around $1,930.
Bitcoin’s price, on the other hand, has never been stationary for an entire year, and a new innovation, like the one likely to be introduced next year, could make it move even more. It is worth noting that 2024 will also be the year of BTC’s fourth halving.
Coupled with the fact that BlackRock is joined by other big names in traditional finance, such as Fidelity Digital Assets, Charles Schwab and Citadel Securities, the situation could be set for a real boom.
The stablecoin landscape
The total market capitalization of major stablecoins pegged to the US dollar has now been shrinking for 15 consecutive months.
In June, it fell 0.57% to $128 billion, the lowest level since September 2021.
Stablecoin trading volumes also fell 10% to $414 billion in May. This is the lowest monthly trading volume on centralized exchanges for stablecoins since December last year.
As long as the market cap of stablecoins is declining along with the overall market cap of the crypto market, in other words, cryptocurrency prices are falling, nothing is out of the ordinary.
However, with recent increases, especially Bitcoin’s price coming back close to yearly highs, it’s a bit of a shock.
In the past seven days, BTC’s market cap has risen from $521 billion to $596 billion, UST’s has only increased from 83.1 to 83.2, while USDC’s has fallen from 28.4 to 28.3.
DAI’s rose from $4.6 billion to $4.7 billion, while TUSD’s remained essentially stable.
It is clear that stablecoins do not affect the price performance of cryptocurrencies in any way at the moment, and in particular that of Bitcoin, the best performing cryptocurrency in recent days among the first and second tier cryptocurrencies.
The full picture of CBCDs
In contrast, despite the statements and proclamations, the central bank digital currency (CBDC) sector appears to be rather stagnant.
It is true that the International Monetary Fund (IMF) unveiled a new CBDC-based platform for cross-border payments a few days ago, but the problem is that many CBDC projects have been halted or suspended.
The two major countries where they are already available (China and Nigeria) show no significant progress in their deployment. On the contrary, citizens apparently still prefer classic electronic payments with traditional fiat currencies.
At this point, the IMF’s new CBDC-based platform for cross-border payments is just a fabrication, not a reality.
Moreover, in the absence of widespread CBDCs, such a platform would be pointless, so beyond the statements of lofty proclamations, there is still very little concrete.
Moreover, there is already a platform for cross-border payments today. It is called the Lightning Network and it works by transferring Bitcoin.
Combine that with exchanges that allow BTC to be converted to fiat currency, and vice versa, and there really doesn’t seem to be a need for a platform as supposed by the IMF.
In other words, while the crypto sector continues to move forward, the CBDC sector appears to be essentially standing still, or operating at extremely slow speed.
The fact is that Bitcoin is not just a currency, but above all a protection against overly expansive monetary policies of central banks, against which CBDCs cannot provide protection.