The stablecoin market has reached a new milestone, with its total liquidity growing to $169 billion by the end of September. This marks a 31% increase in liquidity year-to-date (YTD), according to data from CryptoQuant.
The main contributors to this growth are Tether’s $USDT and Circle’s $USDC, both of which dominate the market. This rise in stablecoin liquidity hints at potential changes in the broader cryptocurrency market.
Stablecoins are critical to the crypto world, providing price stability by being tied to traditional assets like the US dollar or gold. This makes them a key part of the cryptocurrency ecosystem, especially for trading and transactions.
$USDT’s market cap has grown by $28 billion this year, bringing it to nearly $120 billion, and giving it a dominant 71% share of the stablecoin market.
Meanwhile, $USDC has also seen significant growth, with a market cap increase of $11 billion, reaching $36 billion. This gives it a 21% share of the market and a 44% YTD increase.
Stablecoins are typically backed by an equivalent amount of fiat currency held in reserve. This means that when more stablecoins are created, more actual fiat money is entering the cryptocurrency market.
This increase in liquidity offers traders and investors the opportunity to buy other cryptocurrencies, potentially driving market activity.
Link between stablecoin liquidity and market prices
The growing amount of stablecoins, particularly on cryptocurrency exchanges, often indicates potential changes in the market.
Data from CryptoQuant highlights that stablecoin balances on exchanges have increased by 20% this year.
The head of research at CryptoQuant, Julio Moreno, noted that “larger balances of stablecoins on exchanges are positively correlated with higher Bitcoin and crypto prices”.
For example, since the start of 2023, the amount of $USDT (ERC20) held on exchanges has increased by 146%, rising from $9.2 billion to $22.7 billion. Despite this surge, Bitcoin’s price has remained flat, but these rising stablecoin reserves may be a sign of future price increases.
Historically, when the number of stablecoins held on exchanges rises, Bitcoin prices tend to follow. While Bitcoin is currently down over 6% in October, this month has traditionally been a strong period for Bitcoin.
Past Octobers have seen price jumps as high as 16%, particularly after the middle of the month. This suggests that with the available stablecoin liquidity, there could be support for a price rise soon.
Looking ahead, a key factor that may affect the crypto market is the upcoming US presidential election. The results could influence the country’s monetary policy and regulation of cryptocurrencies, setting the tone for the next few years.
Ripple joins the stablecoin market
While $USDT and $USDC continue to lead the stablecoin market, there are new players entering the field.
One notable newcomer is Ripple, which has recently launched its own stablecoin, $RLUSD. Ripple is already well-known for its role in cross-border payments, and its new stablecoin, introduced in late September, is backed by the US dollar.
$RLUSD has already reached a market capitalisation of $47 million. What makes it different is that it operates on both the XRP Ledger and Ethereum networks.
Ripple’s move into the stablecoin market could signal upcoming shifts, especially in the areas of remittances and money transfers.
As more stablecoins enter circulation, liquidity may continue to increase, which could impact the wider crypto market.
In addition to the growing liquidity of stablecoins, there are other signs of potential market activity. On-chain analytics firm, Santiment, has reported an increase in large transactions on the Bitcoin network, which could indicate future price movements.
Santiment noted in a post that “our metrics indicate a major spike in dormant activity on Bitcoin’s network”, referencing $37.4 billion in on-chain volume, the highest in seven months.
This increase in activity could lead to Bitcoin returning to circulation, which often results in a positive impact on its price.
