Stablecoins: The Outsiders of 2023
The bearish trend in Q1 2023 started showing signs of dissipating. It’s not quite a bull run yet, but there’s a glimmer of hope visible. Such is the conclusion drawn from the 2023 Q1 Crypto Industry Report by CoinGecko.
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As of the close of the fourth quarter of the preceding year (i.e., January 1, 2023), the overall cryptocurrency market capitalization was $831.8 billion. The departure of bears from the crypto market led to a prompt 48.9% leap in market capitalization within Q1 2023, reaching $1.238 trillion. However, it's still premature to herald the arrival of the bulls: the market has only recuperated from the downturn of Autumn 2022, and explosive growth hasn't occurred yet.
The average daily trading volume saw an increase of 30% compared to Q4 2022. It's also important to note that this metric had previously shown a consistent negative trend (33% worse than the preceding quarter). Hence, the trading dynamics appear quite promising.
Spot market dynamics
The world's top 10 cryptocurrency exchanges collectively recorded a spot trading volume of $2.8 trillion in the period from January to March 2023, marking an 18% rise from the corresponding figure in the fourth quarter. Significantly, the spot volume is growing month on month, on average by $0.5 trillion. This is positive news for cryptocurrency holders and traders. Nevertheless, the spot trading volume in the first quarter has not yet achieved the $1 trillion per month level as seen, for example, at the start of 2022.
Interestingly, decentralized exchanges (DEX) are overtaking centralized exchanges (CEX) in terms of growth rate. The former saw a quarterly surge of over 33% compared to the 16.9% growth experienced by CEXs.
BTC, the foremost leader
Now that we have a grasp of the overall market situation, let's look at individual projects, starting with Bitcoin (with a market capitalization exceeding $521.5 billion). It's no secret that BTC is a market leader, but this time, it has also exceeded other assets in terms of growth dynamics.
The total growth of major asset classes falls short when compared to BTC's. Source: CoinGecko 2023 Q1 Crypto Industry Report.
For comparison, gold's growth rate for Q1 2023 was 8.4% relative to the October-December 2022 period, the NASDAQ grew by 15.7%, and U.S. Treasury Bonds increased by 4.1%. Against these three, Bitcoin stands out remarkably with a surge of +72%.
Bitcoin's price started at $16,540 in January and ended the quarter peaking at $28,516. This level was last seen in June 2022, when the market began to decline after the Terra crash.
The DeFi and NFT ecosystem
The DeFi (Decentralized Finance) ecosystem demonstrated a remarkable growth trajectory in the first quarter of 2023, swelling by a significant 65.2%. This impressive expansion implies a windfall of approximately $29.6 billion in profit. This robust performance was largely fueled by governance tokens associated with liquidity staking. Specifically, the market capitalization of these tokens soared by an astounding 210.9% from January to March, following the Ethereum Shapella upgrade.
The NFT (Non-Fungible Tokens) scenario, however, offers a stark contrast. On one end, numerous reports are painting a grim picture of NFTs' market share plummeting close to non-existence. Conversely, CoinGecko presents a rather optimistic view, reporting a 68% surge in the market, bringing the total to $4.5 billion in the first quarter of 2023. Combined, Blur and OpenSea witnessed their share of trade volume climbing from 52.8% in December 2022 to 71.8% by March 2023. Nonetheless, during the same period, OpenSea's portion shrank from 29.3% to 21.7%, indicating Blur's gradual usurpation of its rival from the NFT stronghold.
Top 6 NFT marketplaces. Source: CoinGecko 2023 Q1 Crypto Industry Report.
The downfall of stablecoins
Stablecoins emerged as the solitary segment of the crypto market exhibiting a downturn in market capitalization.
The leading 15 stablecoins together shed 4.5% of their value, translating into a loss of around $6.2 billion. This trend primarily roots in the cessation of Binance USD (BUSD) issuance.
The BUSD stablecoin, backed by the US dollar, was initiated by blockchain-based startup Paxos in collaboration with Binance, post securing approval from the New York State Department of Financial Services (NYDFS). However, in mid-February 2023, the US Securities and Exchange Commission (SEC) forwarded a Wells Notice to Paxos, which was subsequently subjected to an investigation by the NYDFS.
BUSD Market Capitalization over the previous 3 months. Source: CoinMarketCap.
In addition, the brief depeg of USD Coin (USDC), precipitated by the collapse of SVB Bank (a financier for IT projects), had a decidedly negative bearing on the overall market capitalization of stablecoins.
USDC Market Capitalization over the last 3 months. Source: CoinMarketCap.
On a brighter note, Tether (USDT), the leading stablecoin, managed to consolidate its position, enhancing its market capitalization by 20.5% to reach $13.6 billion. However, USDC and BUSD lost 26.9% and 54.5% respectively, effectively wiping out all the advancements of 2022.
USDT Market Capitalization over the last 3 months. Source: CoinMarketCap.
Amid the fluid situation in the stablecoin sphere, the US Senate crafted a document named “Payment Stablecoin: The Future of Money and Banking”. As we have previously reported, this legislative proposal significantly tightens regulatory standards, marking the culmination of a year-long inquiry by the Senate Committee on Banking and Financial Affairs.
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