Tether tightens its grip on the shaky world of stablecoins
(Our weekly analysis of the wild world of cryptocurrencies)
By Medha Singh and Lisa Pauline Mattackal
Feb 21 (Reuters) – The world of stablecoins suddenly looks shaky.
Seismic changes may be underway in the $137 billion market after New York-based Paxos Trust Company, which mints Binance’s stablecoin, said it would stop issuing new BUSD tokens after US regulators labeled the asset an unregistered security.
The US move has investors questioning the future shape of the market for stablecoins, tokens that are typically backed by traditional assets such as the dollar and US Treasuries to tame the wild swings that characterize cryptocurrencies.
However, the immediate effect has not been negative for the stablecoin market as a whole; it has actually seen its total value grow by $2 billion since the Paxos announcement on February 13.
“There is far too much demand for dollar-based stablecoins for them to disappear,” said Alex Miller, CEO of bitcoin developer network Hiro.
Instead, rivals are competing to cash in on the woes of BUSD, the world’s third-largest stablecoin, whose market cap has shrunk to $12.9 billion from $16.1 billion, with its market share down to 9.4% from 12.1%, according to CoinGecko.com.
Market leader tether (USDT) has been a big gainer, adding $1.9 billion to its market cap to reach $70.3 billion since the news. It now has 52.6% of the stablecoin market, up from just over 51%.
Circle’s USD Coin, the second largest stablecoin, increased over $700 million to $42 billion, increasing its market share to 31.3% from 30.9%.
AND THE WINNER IS.. Tether
Stablecoins are an important part of the cryptosphere, with their more even value meaning they are used to facilitate transfers between cryptocurrencies or to regular cash. Traders also use these tokens to hedge their positions, and therefore declining market capitalization is associated with declining liquidity and influence in the broader crypto market.
Markus Thielen, head of research and strategy at crypto firm Matrixport, said the Paxos announcement and the subsequent decline in BUSD had caused a major shift in the stablecoin market.
“And tether wins.”
A broader impact on the crypto market also appears to have been limited with bitcoin rising 14% in the past week to $24,902, shrugging off concerns that central banks will continue to raise interest rates.
Among the reasons for the brash reaction is that BUSD is largely used to trade on Binance, the world’s largest crypto trading platform, while its use is limited in other parts of the crypto world, according to research firm Kaiko.
“While BUSD is used in DeFi, it is not systemically important to the ecosystem,” said Kaiko’s Riyad Carey.
SET ON FUTURE PRICES
Developments around Binance’s stablecoin have also increased trading on competing platforms; since February 1, Binance’s bitcoin liquidity is down nearly 30% while US-based Coinbase is up nearly 15%, according to Kaiko.
Daily open interest for bitcoin to BUSD perpetual swaps has fallen from over 17,000 bitcoin in early February to 13,726 bitcoin, Binance data showed, pointing to traders taking bets on future prices for BUSD.
While there is still some uncertainty about the impact of the US Securities and Exchange Commission’s decision on other stablecoins, the market appears to have adjusted, according to some crypto players.
“This is unlikely to represent a critical major structural change in the market for the time being,” said Vetle Lunde, an analyst at Arcane Research. He added: “Enforcement against non-US domestic USDC or USDT could have more dramatic implications.”
(Reporting by Medha Singh and Lisa Pauline Mattackal in Bengaluru; Editing by Tom Wilson and Pravin Char)
