Why is the market capitalization of USDC only half of what it was a year ago?

Author: Ben Strack, Translation: Shan Ouba, LianGuai

The market value of USDC is approximately half of what it was a year ago, and it continues to decline.

USDC is issued by the cryptocurrency payment company Circle and is a stablecoin pegged to the US dollar. The company states that USDC holders can redeem 1 USDC for 1 US dollar because the USDC reserves are held by BlackRock, Bank of New York Mellon, and other financial institutions.

According to data from CoinGecko, the market value of USDC reached a peak of about $55 billion in late July 2022 and then dropped to about $44 billion in early March of this year. Since then, due to the bankruptcy of Silicon Valley Bank, Circle deposited $3.3 billion in reserves in the bank, triggering a more severe decline. After SVB received federal assistance, Circle later regained control of these funds.

However, according to industry observers, this issue led to a temporary disconnection of the stablecoin from its peg, and the price dropped to around $0.97, causing continued damage to some people’s credibility.

Max Shannon, a researcher at CoinShares, said, “The rapid decline in price immediately caused token holders to lose trust in the stability of USDC, and billions of dollars of redemptions appeared a few weeks later.” “Token holders may not have realized in fear and concern that Circle easily handled the redemptions, but they also suspended withdrawals over the weekend.”

The suspension of withdrawals was not due to insufficient liquidity, but because Circle is connected to the traditional banking system. He added that although USDC can always be used on-chain, Circle operates only five days a week.

According to data from CoinGecko, the market value of USDC on Tuesday was about $26.7 billion, a decrease of about 2.5% since early July.

A spokesperson for Circle has not yet responded to requests for comment.

Matteo Greco, a research analyst at Fineqia International, pointed out that the main market for USDC is the United States, where cryptocurrency participants are facing legal challenges in the absence of comprehensive regulation.

Greco told Blockworks, “The strict actions taken by the U.S. Securities and Exchange Commission in the digital asset field are driving investors away from the U.S. market, and USDC has also been affected.”

Tether Supply Growth

Shannon said that the continued decline in the circulating supply and market value of USDC can be directly attributed to the rise of stablecoin competitor Tether (USDT).

He told Blockworks in an email, “Traders initially exited their positions because they knew that Tether did not have custodial risks within the U.S. banking system, so there was no unpegging.” “But the long-term trend is an increase in deep liquidity.”

According to data from CoinGecko, the market value of USDT on Tuesday was close to $84 billion, second only to Bitcoin (BTC) and Ethereum (ETH). Since July 2022, this number has grown by about 27% from $66 billion.

Tether is the exception, as the market value of other major stablecoins, including Binance USD (BUSD) and Dai (DAI), has fallen by 50% or more from their respective record highs.

Greco said that although some people have doubts about the specific level and degree of support for Tether, the growth of stablecoin’s circulation supply is beyond doubt.

“Tether is completely minted on-chain, so the supply itself is tamper-proof,” he pointed out.

The company spokesperson told Blockworks in March that Tether holds a “strong, conservative, and highly liquid portfolio,” which includes short-term US Treasury bonds as well as cash and cash equivalents.

Different use cases

Stablecoins are primarily used for trading and have the deepest liquidity pools among all major exchanges. When trading altcoins, they can also serve as safe havens in a risk-averse environment. Despite a 50% decrease in the supply of USDC over the past year, Greco said that USDC remains the preferred choice for many institutions.

He said, “In a regulated environment, it is highly welcomed as a bridge between the real world and the digital asset space.” “USDC is widely used in protocols that tokenize real-world assets such as stocks, bonds, real estate, or luxury goods.”

Although USDC is primarily used in the US market, USDT dominates in Asia, where stablecoins are gradually being accepted. Greco said that Tether has been favored by local cryptocurrency users since 2014, who primarily use it for daily transactions and provide liquidity in DeFi.

Greco added, “It is also the preferred asset used by local cryptocurrency investors when they exit the market and adopt a neutral strategy without returning funds to their bank accounts.”

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