According to a report by The Block, Citi Wealth strategists believe that the adoption and growth of stablecoins may not only consolidate the dominance of the US dollar but also challenge the narrative that Bitcoin could one day end the dollar's hegemony.
Citi strategists wrote in a new report, "Initially, cryptocurrencies like Bitcoin were seen as competitors to central bank-issued currencies. Indeed, some people once believed—and still believe—that Bitcoin could end the dollar's hegemony; however, stablecoins (which account for over four-fifths of cryptocurrency trading volume) are challenging this narrative."
Citi pointed out that the vast majority of stablecoins are pegged to the US dollar, and stablecoin issuers hold both US dollar cash and US Treasury bonds as reserves. They also suggested that if the US government further pushes for the legalization of stablecoins, it could strengthen the dollar's dominance.
Citi's report stated, "Better regulatory clarity may further enhance the appeal of stablecoins. If so, the demand from stablecoin issuers for US Treasury bonds may begin to increase from the current level of about 1% of purchase volume. Therefore, these cryptocurrencies will not replace the US dollar; rather, they will make the dollar more accessible globally and reinforce the long-standing global dominance of the US currency."
Citi also provided data to illustrate the widespread use of stablecoins:
"(Transaction) activity has reached an all-time high, with a value of $5.5 trillion across the first quarter of 2024. In comparison, Visa's transaction volume is about $3.9 trillion. In response to this challenge, Visa, PayPal, and other traditional providers are adapting by offering their own stablecoins or settling transactions with other companies' coins."
As demand for stablecoins increases and adoption expands, the total market cap of stablecoins surpassed $200 billion for the first time this Wednesday. Following the election victory of Donald Trump, who supports cryptocurrencies, last month, the growth rate of stablecoin supply has significantly accelerated, increasing by nearly $30 billion since November 6.
Data from DefiLlama shows that the largest stablecoin by market cap is Tether's USDT, with a supply that has risen to a record approximately $140 billion, growing about 12% in a month. The second-largest stablecoin is USDC issued by Circle, which has also grown by about 12% in the past month, reaching approximately $41.6 billion. The market cap of PYUSD, issued by payment company PayPal last August, ranks eighth at $541 million.
Changes in the total market cap of stablecoins, Source: DefiLlama
Related article: (Stablecoin total market cap reaches $200 billion milestone, asset management company Bitwise optimistic about doubling growth next year)
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