Stablecoins Signal Crypto Ecosystem Buoyancy as Market Cap Jumps to $164B

Stablecoins, which serve as the funding source for many cryptocurrency trading strategies, are experiencing growth in a sign of renewed capital flow into the cryptocurrency market after months of stagnation.

According to data source DefiLlama and trading firm Wintermute, the total market value of the stablecoin sector, which includes hundreds of coins, has risen above $164 billion for the first time since the collapse of Terra in May 2022. It had been hovering around $160 billion.

Stablecoins are digital currencies whose value is pegged to an external reference, such as the U.S. dollar. The leading dollar-pegged stablecoin, Tether’s USDT alone, has a market cap of $114.26 billion.

These coins help investors reduce market volatility because they maintain a stable value to an external reference. They are widely used to fund crypto purchases, derivatives trading, and yield-generating strategies like lending through decentralized finance (DeFi). Stablecoins are also used for real-world payments and cross-border remittances.

The expansion “suggests increased investor optimism and supports bullish sentiment,” Wintermute said in a note shared with CoinDesk. “The increase in stablecoin supply suggests that money is being invested in on-chain ecosystems to generate economic activity; this can be either through direct on-chain purchases that can accelerate price appreciation or through yield generation strategies. [market] liquidity. This activity ultimately drives positive on-chain growth.”

Blockchain analytics firm Nansen also expressed a similar view on X, describing the stablecoin expansion as a bullish development.

It looks like it’s going to be a big day not just for ETH but also for stablecoins!

The total stablecoin market cap has finally begun to surpass $160 billion after remaining relatively flat for 3 months, indicating increasing demand and confidence in these assets.

Bull. picture.twitter.com/Zv8qe6RTJ7

— Nansen 🧭 (@nansen_ai) July 23, 2024

Still, the two largest cryptocurrencies, Bitcoin {{BTC}} and Ethereum {{ETH}}, are down 5.5% and 10% respectively this week, according to CoinDesk data.

The price decline is likely due to a sell-the-truth response to Tuesday’s launch of highly anticipated spot ether ETFs in the U.S. and a sharp decline in Wall Street’s tech-heavy Nasdaq 100 index. The index fell 3.7% on Wednesday, wiping out $1 trillion in market value.

The story continues

The ongoing decline in the copper-gold ratio and the steepening of the US Treasury yield curve support risk-off sentiment.

SEE ALSO: Visa’s Data Partner Allium Labs Raises $16.5 Million as New Findings Show Stablecoin Activity Is Rising Again