The 2022 crypto bear market has spared no digital asset in the space, and stablecoins have been no different. Assets that have always served as a safe haven for investors from the high volatility of the crypto market saw declines at the start of the new year. As a result, for the first time, these stablecoins are now seeing a reversal of their otherwise bullish growth trend over the past two years.
Stablecoins See Market Cap Drop
Stablecoins had grown tremendously throughout the 2021 bull market. By the end of the year, the year-over-year growth in stablecoin market capitalization had actually amounted to a total of $151.3 billion. This growth is attributed to popularity among investors who held their funds in stablecoins, either from profits or while waiting to buy more cryptocurrencies.
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Major stablecoins had benefited from most of this growth. Assets such as USDT and USDC saw their market capitalization grow in the double digits of billions, although they continued to compete fiercely with each other. This competition, however, would work in favor of the USDC. Most of the support came from the fact that USDC had more regulatory oversight than USDT, whose reservations continue to be questioned even to this day.
2022 would also prove to be a bad year for USDT. He entered the new year with more than $78 billion. But in the first half of the year alone, it lost more than $12 billion to sit in its current market of just over $66 billion at the time of this writing.
Stablecoin supply drops | Source: Arcane Research
The USDC, on the other hand, is enjoying great success even through the bear market. Its market cap has added more than $10 billion this year alone, rising from $42.2 billion to $55.31 billion at the time of this writing.
The crash of the UST
The collapse of the UST was one of the main factors behind the drop in stablecoin market capitalization. At the beginning of this year, it was the largest and most popular algorithmic stablecoin, which is why the crash shook the market as much as it did.
Since then, the market capitalization of algorithmic stablecoins has fallen from $13.26 billion to around $3 billion. UST alone accounted for more than 94% of the post-crash decline, wiping $9.7 billion off the crash. There was the crash of other algorithmic stablecoins such as DEI, but the popularity and size of UST made it the most important.
USDT market cap drops to $66B | Source: Market Cap USDT on TradingView.com
This has naturally led to reluctance from crypto investors when it comes to using algorithmic stablecoins. As such, stablecoins such as USDT, USDC, and BUSD continue to dominate the market. However, the total supply of stablecoins has decreased by 35.8% over the past six months. This can be seen as a good thing, as an increase in supply can often lead to a decrease in value and vice versa.
Featured image from TRT World, charts from Arcane Research and TradingView.com
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