How Could the $172 Billion Stablecoin Market Boost Crypto Prices?

Alice Liu, principal researcher at crypto data firm CoinMarketCap, said crypto investors should view the $172 billion stablecoin market as a massive cash reserve ready to be deployed into cryptocurrencies as soon as bitcoin (BTC) rebounds and gains momentum.

“A lot of people want to hold cash – both crypto developers and institutions,” Liu said. “This is like Warren Buffett keeping cash on the sidelines and waiting to make purchases.”

Berkshire Hathaway, the investment firm run by billionaire Buffett, reported holding about $277 billion in cash at the end of the second quarter. This represents a 46% increase from the $189 billion reported in the first quarter.

Some cryptocurrencies, such as ether (ETH), the second-largest cryptocurrency by market cap, remain well below the all-time highs they recorded in 2021. The stablecoin market, on the other hand, is only 8% behind its peak of $187 billion in the spring of 2022 and has almost completely regained its former strength.

Even more striking is the fact that stablecoins account for approximately 50% of all value paid to public blockchains. Bitcoin, the largest cryptocurrency by value, accounts for only 25% of such transactions.

While some of that capital will be used for other purposes (like generating returns through DeFi protocols), stablecoins will bolster the situation when it comes to existing liquidity starting to push crypto prices higher again, Liu says.

Of course, not only the market value of stablecoins but also where the tokens are located is important. For example, it is much easier for stablecoins held on crypto exchanges to be transferred to the market. According to data analytics firm CryptoQuant, the volume of stablecoins held on exchanges has increased by 20% this year.

According to Liu, “This element will be one of the main driving forces in the bull market.”