The market value of stablecoins has soared by 140%, and the demand has soared. Can it "boost" the Bitcoin bull market?
Recently, the total market value of stablecoins has exceeded 12 billion US dollars, which has aroused market discussion and attention. As a medium of value for encrypted asset transactions, stablecoins have a crucial impact on the encryption field.
Since 2020, Bitcoin and other mainstream assets have fluctuated violently in the great changes in the financial market. The demand for stablecoins in the cryptocurrency field is increasing day by day. Stablecoins have become the "sweet pastry" in the eyes of investors. According to statistics, since the beginning of 2020, the total market value of stablecoin supply has soared by 140%, the daily trading volume has climbed to 1.5 billion US dollars, and the purchasing power has increased by 50%.
secondary title
The market value exceeded 12 billion U.S. dollars, and stablecoin transactions were active
In recent years, the demand for stablecoins in the cryptocurrency field has been increasing day by day, and its market size has gradually risen since 2018. In 2020, the cryptocurrency market will experience severe market fluctuations, and the stablecoin market will usher in explosive growth.
image description
Stablecoin market value trends in 2020 Source: Stablecoin Index
After the stable currency was born, it took 5 years for the total market value to reach 6 billion US dollars, and after the 3.12 cryptocurrency market plummeted, the total market value of the stable currency soared from 6 billion to 12 billion US dollars in just 4 months. This shows its rapid growth rate.
After the crypto market experienced a slump on March 12, the sideways cycle of mainstream currencies has lengthened, and the on-chain transaction volume of Bitcoin has dropped sharply this year. According to data from CoinMarketCap, the trading volume of Bitcoin has dropped by another 16% in nearly a week, to a level of about 13 billion US dollars. In stark contrast to this is the performance of stablecoins. Stablecoin transactions are becoming increasingly active, especially USDT. The number of active addresses has continued to grow since March.
image description
Changes in the value of transactions on the stablecoin, Bitcoin, and Ethereum chains
Meanwhile, Messari data shows that USDT currently has a daily trading volume of $1.5 billion. According to data from BitcoinTradeVolume, the actual daily trading volume of Bitcoin is currently about 430 million US dollars. This means that USDT has become the only cryptocurrency with a daily transaction volume of more than $1 billion, which is much higher than that of Bitcoin.
In addition, data from Glassnode shows that the stablecoin supply ratio (SSR, Stablecoin Supply Ratio) is currently only slightly above 15 (16.12), a new low. This means that, in theory, stablecoins could buy about one-fifteenth of all Bitcoin.
The Stablecoin Supply Ratio (SSR) is the ratio between Bitcoin supply and stablecoin supply, calculated by dividing Bitcoin's market cap by the market cap of all major stablecoins. When the SSR is lower, it means that the stablecoin has stronger purchasing power against Bitcoin.
image description
Stablecoin Supply Ratio (SSR) Source: glassnode
To sum up all the data above, since the beginning of this year, the market demand and transaction activity of stablecoins have continued to rise. Under the circumstances of high market volatility and low transaction activity, stablecoins have increasingly highlighted their value and advantages, and have become the mainstay of the encryption market. "Sweet pastry".
2. Why is the market demand for stablecoins soaring?
The stablecoin market capitalization grew by $2.4 billion in the first quarter of 2020 and by a total of $3.8 billion in the second quarter. Why is the stablecoin market developing so fast? Where does the market demand mainly come from?
Based on the market environment and the development of stablecoins, OKEx Intelligence Bureau believes that the surge in demand for stablecoins is mainly related to three factors: arbitrage demands, hedging demand, and the explosion of DeFi.
Among the total market capitalization of stablecoins, the total supply market capitalization of USDT is more than 10 billion US dollars, accounting for more than 83% of the stablecoin market share. Therefore, it can be said that the demand for USDT dominates the total demand for stablecoins. Then the reason why USDT transactions are becoming more and more active can explain why the demand for stablecoins represented by USDT has increased dramatically.
(1) Driven by arbitrage demands
image description
USDT price trend in 2020 Source: Kraken
And a higher positive premium rate or negative premium rate will give birth to a large number of arbitrage investors. For example, when the negative premium rate is too high, brick movers can use RMB (CNY) to buy USDT through the OTC platform, and then exchange it for US dollars, so as to make profits by using the price difference.
(2) Hedging demand
Affected by the COVID-19 epidemic in 2020, the financial market has been volatile, stimulating capital outflows and growing risk aversion.
Although the United States has introduced a large-scale economic stimulus plan, the U.S. dollar is still appreciating against other major currencies. Therefore, stablecoins that provide U.S. dollar investment channels are also gaining more and more favor. In times of global economic turmoil, the dollar is relatively strong, and investors want to increase their holdings of the dollar in their portfolios, viewing the dollar as a "safe haven." And stablecoins are a better way to store and transfer dollars around the world.
image description
Changes in exchange wallet balances of BTC and USDT in 2020 Source: ViewBase
(3) Explosion of DeFi
In 2020, DeFi is developing explosively. In the second quarter assessment of stablecoins, Messari researcher Ryan Watkins pointed out that the use of stablecoins is also related to the rise of DeFi. Due to its stable value and low volatility, stablecoins have unique advantages in payment and storage pledge. Currently, more than $2 billion in value is locked in DeFi platforms. Among them, USDT is one of the main participants. Stablecoins based on USDT and Dai have become the foundation and core of DeFi services. The outbreak of pledge lending platforms such as Compound has greatly stimulated the usage and demand of USDT. .
In addition, the transfer of funds across borders may also be a relevant factor. In addition to the cryptocurrency market, the field of cross-border remittances has also been affected by the epidemic. Traditional cross-border circulation channels are closed, and the demand for international fund transfers seems to show signs of overflowing into the stable currency field.
3. Can stablecoins boost the Bitcoin bull market?
It can be seen that stablecoins not only occupy a strategic high ground in the cryptocurrency market, but also play an extremely important role.
Driven by the epidemic, its application scope is also expanding, and stablecoins are going out of the circle. As this trend continues to develop in the future, stablecoins may usher in even more violent growth.
But investors are more concerned about how the growth in demand for stablecoins will affect cryptocurrencies such as Bitcoin?
Since the threshold for converting stablecoins into Bitcoin or other digital assets is relatively low, many investors believe that the soaring demand for stablecoins will become the "fuel" for the bull market of mainstream currencies. For now, this trend may indeed have some beneficial effects for Bitcoin and the cryptocurrency market in the end.According to multiple data indicators, it can be inferred that the market is developing in a favorable direction. For example, according to Glassnode’s SSR indicator, the supply ratio of stablecoins, which represents the purchasing power of stablecoins, has reached a new low, which is a bullish signal. The latest weekly research report released by Glassnode also pointed out that the net supply of dollar-pegged stablecoins has soared, surpassing Bitcoin. The demand for such stablecoins is on the rise, and traders and investors can use the new stablecoins to inject funds into the bitcoin market.
These stablecoin funds tend to improve liquidity in the cryptocurrency market, as traders use them to buy or sell cryptocurrencies without the involvement of banking institutions and to seek stability during times of high volatility in trading. The report concluded that the more money there is in the stablecoin market, the more likely it is that Bitcoin will start a new round of price increases in a short period of time.
However, at the same time, there is another voice and doubt: whether stablecoins will gradually overtake Ethereum and Bitcoin, eat up market share, and become the leader of cryptocurrency, and whether this is a threat to Bitcoin investors. In this regard, there are indeed relevant predictions and statements. Research analyst Watkins stated in his stablecoin report that USDT may soon surpass Bitcoin to become the dominant currency on the public blockchain in the future.
However, there is no need to worry too much about this for the time being. People will not abandon mainstream currencies and choose stablecoins because of this, and the potential of cryptocurrencies will not be weakened by this. On the contrary, stablecoins are at the core of the entire financial system, connecting traditional finance at one end, digital assets at the other end, assets at one end, payment at the other end, on-chain at one end, and off-chain at the other end.
"In the long run, stablecoins are not a compromise solution for the crypto market, but a Trojan horse that can attract more and more off-market funds into the cryptocurrency market." Watkins said.
