The crypto market has seen a remarkable recovery in recent months, with many coins reaching new highs and attracting more investors. However, this comeback has not translated into a significant increase in stablecoin volumes, according to a report by Fitch Ratings.
Stablecoins are digital tokens that are pegged to a fiat currency or a basket of assets and are designed to maintain a stable value regardless of market fluctuations. They are often used as a medium of exchange, a store of value, or a hedge against volatility in the crypto space.
According to Fitch, the total market capitalization of stablecoins grew by 158% year-to-date to $115 billion as of June 28, 2023. However, this growth was largely driven by the increase in the price of the underlying assets, rather than by the expansion of the user base or the transaction volume. Fitch estimates that the average daily transaction volume of stablecoins was $42 billion in June 2023, down from $63 billion in May 2023 and $113 billion in April 2023.
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Fitch attributes this trend to several factors, such as:
The dominance of Bitcoin and Ethereum in the crypto market, which account for more than 60% of the total market cap and have seen strong price appreciation and investor interest.
The regulatory uncertainty and scrutiny surrounding some stablecoins, especially Tether, which is the largest and most controversial stablecoin issuer. Tether has faced allegations of insufficient backing, lack of transparency, and involvement in market manipulation. The competition from other forms of digital payments, such as central bank digital currencies (CBDCs) and digital wallets, which may offer more convenience, security, and legitimacy than stablecoins.
Fitch noted that stablecoins may face more challenges in the future, as regulators and central banks seek to establish clear rules and standards for the crypto industry. The report also warns that stablecoins may pose systemic risks to the financial system if they are not adequately backed, regulated, and supervised.