Stablecoins regain favor, grow 7.8% in 4 months – Why?

• Whales cornered more than 50% of the total stablecoin supply.
• The stablecoin exchange reserve at press time was the highest since May 2020.

The stablecoin sector witnessed a significant expansion over the last four months, one of the many bullish signals for the broader crypto market.

Demand for stablecoins shoots up

According to on-chain analytics firm Santiment, the global stablecoin market cap increased by $9.42 billion in the October-January period, representing an impressive 7.8% growth.

Source: Santiment

Additionally, whale wallets with more than $5 million in holdings cornered more than 50% of the total stablecoin supply as of this writing.

The sharp increase in stablecoin holdings coincided with Bitcoin’s [BTC] price decline, suggesting that whales were buying the dip.

Overall, an increase in stablecoin supply indicates increasing capital inflows into the crypto market.

This is because most traders from traditional markets would use stablecoins to enter and exit trades on crypto exchanges.

A recent research by a CryptoQuant analyst also drew attention to a strong correlation between the world’s largest stablecoin Tether’s [USDT] circulating supply and Bitcoin’s price.

“Since the end of 2022, the circulating supply of USDT has increased by around 30 billion. Each increase in supply has traditionally positively affected the development of the BTC price.”

Stablecoins back on exchanges

The stablecoin market cap went on a downward spiral after the dramatic collapse of Terra USD [UST] in 2022.

As sentiment in the broader market turned bearish, trading activity declined, and so did demand for stablecoins.

However, the bullish vigor injected in the last four months has put the focus back on these crypto-derivatives of currencies.

According to AMBCrypto’s analysis of CryptoQuant data, about 27% of all stablecoins in circulation were present on exchanges at press time, up from 24% at the beginning of the year.

The current stablecoin exchange reserve was the highest since May 2020.

Source: CryptoQuant

Top assets lead the way

The growth in the stablecoin market was also reflected in the upward trajectory of leading assets like USDT and USDC.

According to AMBCrypto’s analysis of Glassnode data, USDT’s market cap increased by 5.4% since the start of 2023.

On the other hand, even USDC, which grappled with challenges in 2o23, saw an 8% jump year-to-date (YTD).

Source: Glassnode