One way of measuring investors' exodus from the crypto ecosystem is the shrinkage of the stablecoin market, JPMorgan said in a research report Wednesday.
Stablecoins, a type of cryptocurrency whose value is pegged to another asset such as the U.S. dollar, are the equivalent of cash in the crypto world and provide a bridge between fiat currencies and cryptocurrencies, the report said. The growth of the stablecoin market can be viewed as a proxy for the amount of money that has entered the digital assets sector, the report added.
The combined market cap of the largest stablecoins reached a peak of $186 billion in May, before the Terra/LUNA collapse, the note said. That compares with less than $30 billion at the start of 2021 and about $5 billion a year before that. Since May, the stablecoin universe has dropped by $41 billion, with just under half of the decline attributed to the demise of Terra.
JPMorgan says that excluding Terra, it could be argued that the stablecoin market peaked at around $170 billion at the start of the year, was little changed till May 2022, and has been falling ever since.
The bank says that since May 2022 about $25 billion has actively exited the crypto market via stablecoin redemptions.
This outflow of $25 billion looks small relative to the $165 billion that had entered the crypto market via stablecoin creation in 2020 and 2021, “but it would be difficult here to imagine a sustained recovery in crypto prices without the shrinkage of the stablecoin universe stopping.”
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