The cryptocurrency market is a-buzz with talk about the stablecoin’s 65% increase in the total market cap, reaching an impressive $202 billion.
This happened during a period of tightening, which makes it even more of a head-scratcher. So, should we consider this growth as sustainable? And, more importantly, could stablecoins actually help propel the next crypto bull market? Let’s take a closer look at the situation.
Stablecoin Market Cap Hits $202 Billion
As of January 2025, the entire stablecoin market has a capitalization of $202 billion, which has now soared past its previous high from August 2022. This seems to be a stable recovery, not a “dead cat bounce,” to quote Coinbase’s Eric Anzalone, coming off of a local bottom of $122 billion in October 2023—our lowest stablecoin baseline since May 2023.
This backdrop of monetary tightening and QT is all the more impressive given the current macroeconomic environment. Stablecoins have often appeared in times of acute crypto market distress—a refuge for users in a risk-off environment. The bounce back of stablecoins is a bounce back for crypto liquidity. Given QT, the liquidity boost provided by stablecoins has become even more critical, even as stablecoins find themselves in a more regulated environment and even as we tend to visualize the crypto scene as “stables vs. dees.”
Stablecoins’ Role in the Crypto Ecosystem
An intriguing trend surfaces when one looks at the association of stablecoins with other prominent assets such as Bitcoin (BTC) and Ethereum (ETH). As of the fourth quarter of 2023, stablecoins constituted 22% of the collective market value of Bitcoin, Ethereum, and stablecoins.
Stabil koinler %65 büyüdü, bu artış boğa rallisinin devam edebilmesi için yeterli mi?
202 milyar doları aşan stabil token market değeri, kripto piyasası için can suyu mu?
1⃣Stabil Koin Market Cap’i %65 Arttı
Ağustos 2022’deki zirveyi aşarak toplam stabil koin market cap’i 202… pic.twitter.com/gfqsLkz8Pe
— Burak Kesmeci (@burak_kesmeci) January 24, 2025
The presence of stablecoins in the overall crypto market is losing ground, for the time being at least. Their percentage of the total crypto market capitalization has dropped to 7.91%. This may be interpreted in any number of ways, but one possible meaning is that we are seeing a relative growth of price recovery in stablecoin’s competition, such as Bitcoin and Ethereum. Indeed, those competitors have seen some even more pronounced recoveries of late.
The current decline in dominance may show that investors are allocating more of their funds to riskier, higher-reward assets as sentiment in the crypto market improves. In any case, stablecoins are a vital liquidity source and perform an important function in the crypto market. They are a bridge between fiat and crypto.
The Stablecoin Leaderboard
The struggle for market share among stablecoins has intensified. Tether (USDT) remains in the pole position, holding a market cap of $139 billion. Although the company behind it faces regulatory scrutiny and periodic fear, uncertainty, and doubt (FUD), USDT remains the number-one stablecoin by a wide margin.
In the meantime, USD Coin (USDC) has made outstanding progress, boosting its supply by more than 10% in the past month to hit $52 billion. This push has ensured that USDC is now firmly planted in the stablecoin landscape and is vastly influential.
An important event has been the surge of Ethana’s USDE, which has now quickly and very recently taken over third place in the leaderboard of stablecoins, with a market value of $5.7 billion. This is quite a shift in the leaderboard of stablecoins. USDE took over the third spot from DAI, which had enjoyed that honor for many years.
Exchange Flow and Market Sentiment
Another vital component to deliberate on is the data flow from stablecoins on exchanges. This flow data is a reliable gauge of market sentiment and the behavior of investors. It is also, and perhaps most importantly, a signal for the kind of money that is entering the crypto market. During the 2020-2021 bull rally, the inflow of stablecoins into exchanges was a major reason for the upward movement of Bitcoin and other cryptocurrencies.
Although the flow of stablecoins has been steadily increasing again, the trend remains weaker compared to the previous bull run. This indicates that investor risk appetite is still subdued, probably on account of the high interest rates and the uncertainty surrounding the macroeconomy.
A significant increase in risk appetite is thought by many to require a decrease in interest rates and a resumption of quantitative easing. These would-be conditions are seen by many as necessary preconditions for anything like a crypto bull market. Whether they occur or not, and when and in what form, is of course an open question.
Is Stablecoin Liquidity Enough for a Bull Rally?
The stablecoin supply has risen sharply since November 2023, providing the crypto market with a fresh liquidity boost. This liquidity surge, alongside the ETF buzz of 2024, may offer some relief to crypto investors laboring under the reign of tight liquidity.
Stablecoin liquidity is a good sign, but it is not enough by itself to maintain a crypto bull market. For the current rally to be sustained, we will need to see other signs too, like better macroeconomic indicators, a big institutional buy, or a surge in retail trading.
Conclusion
The 65% increase in stablecoin market capitalization to $202 billion is a testament to the sector’s resilience and its essential role in the crypto ecosystem. Stablecoins offer much-needed assistance in terms of liquidity and stability; one doesn’t have to look too far to realize the importance of that very attribute in today’s crypto market.
A genuine bull rally will require other factors to be in place, including:
– Declining interest rates
– Resumed quantitative easing
– An increased appetite for risk
In these conditions, the crypto market could experience sustained growth. Stablecoins provide a foundational element that, along with these other central bank policies and macroeconomic tailwinds, could lead to a substantial bankable bull rally in the crypto market.
At present, the stablecoin market’s remarkable recovery is an encouraging sign; however, we have yet to determine whether it will be sufficient to trigger the next bullish rally.
Disclosure: This is not trading or investment advice. Always do your research before buying any cryptocurrency or investing in any services.
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