Crypto markets stabilized in July with no final capitulation event as many had predicted. There is now a large sum sitting in stablecoins waiting to re-enter markets when the time is right.
Three of the top ten crypto assets by market capitalization are stablecoins. Their combined value at the time of writing is $138 billion, according to CoinGecko.
Tether’s USDT is the third largest cryptocurrency with $66 billion, Circle’s USDC is fourth with $54.4 billion and Binance’s BUSD is seventh with $17.8 billion.
On July 31, Binance CEO Changpeng Zhao pointed out that this was a lot of money sitting on the sidelines, waiting to get back in.
“If people wanted to get out of crypto, most won’t hold stablecoins.”
Cash on the sidelines
Those needing to exit crypto would have converted back into fiat and withdrawn from exchanges. This largely happened in mid-June when over $400 billion exited markets in a week.
Since then, crypto markets have been generally range-bound with a recent uptick to push total capitalization to $1.17 trillion, 33% up from its cycle bottom of $875 billion.
The amount sitting in the top three stablecoins works out at 12% of the entire crypto market capitalization. It’s still historically high despite having fallen over the past month or so with the shrinking Tether supply and minor market rally.
The elephant in the room is inflation. With most of the world suffering a cost of living crisis, retail traders simply don’t have the same amount of money to throw into high-risk assets such as crypto. Until there is a significant reduction in inflation, crypto markets are unlikely to turn bullish.
High inflation is another reason to hold stablecoins for those in countries that are looking to the USD as a hedge against their own currencies. Several Latin American nations have double-digit inflation and stablecoins are in high demand.
Crypto markets cooling off
Following a weekend of consolidation, there has been a slight retreat in total market cap during the Monday morning Asian trading session. Markets are down 1.2% to $1.13 trillion at the time of writing.
Bitcoin has dropped 1.7% on the day to trade at $23,323 whereas Ethereum is down 0.6% to $1,687, according to CoinGecko. Most altcoins today are in the red with a few seeing double-digit percentage losses.