According to a recently released report by CCData, total stablecoin market cap fell by 0.45% in the past month. This means it’s fallen for 14 consecutive months and currently sits at $130 billion — its lowest level since September 2021.
At the same time, stablecoin market dominance has risen to 11.1% in the overall crypto market, possibly a bearish sign for crypto.
The decline in stablecoin market cap coincides with an exit of liquidity from crypto exchanges. Metrics by numerous sources, including the Block, confirm that May was the lowest month in terms of crypto trading volume on exchanges since the beginning of 2022.
This decline in overall liquidity is paired with a heavy decline in stablecoin trading volume, which according to CCData fell in May by 40.6% to $460 billion. This represents the lowest monthly trading volume by stablecoins on centralized exchanges since December 2022.
Tether’s market cap has grown in tandem with bitcoin’s rise in price this year, growing from an alleged $66.2 billion to $83.5 billion. Tether has recently also announced it made $1.4 billion in profit in Q1 of this year alone and declared that it will be using some of its profits to buy bitcoin.
However, Tether’s finances are also very opaque and the company is currently being investigated by the Department of Justice for bank fraud and money laundering. On the other hand, Circle, the company running the major stablecoin USDC, suffered a setback earlier this year as its major banking partner, Silvergate Bank, crashed causing USDC to temporally lose its peg. However, USDC’s market cap remained stable this year starting at $30.15 billion and settling at $29.05 billion.
Crypto markets did see some respite this year with bitcoin up 67% so far and Ethereum not far behind with 58%. Last year, bitcoin crashed from its 2021 high of around $65,000 while wider crypto markets were characterized by a series of token failures and the FTX crash.
This year, crypto is seeing increasing challenges and regulatory pressure from the US as the SEC increases its enforcement actions on various players including exchanges such as Coinbase and Binance.
Apart from structural and regulatory challenges, crypto may also run the risk of becoming passé as the hype shifts toward artificial intelligence products. Indeed, a16z, a company that has been known for its investments in the crypto industry, is now making most of its investments into AI. Most of the large tech companies, including Microsoft, Alphabet, Meta, and Amazon have announced during their latest earnings calls that developing AI products is at the top of their priority list.