What’s behind the recent drop in the USDC market cap, the second largest stablecoin in the market? Recently, it plummeted to a two-year low, standing just under $26 billion, a drastic plunge from its previous high of $56 billion last June. This contrasts starkly with its competitor, Tether’s USDT, which hit a new high of $83 billion. Let’s delve into the four main factors that experts believe are contributing to this slump.
The Impact of a Banking Crisis
The most significant factor affecting the USDC market cap was a major depegging event earlier this year. Amid a regional banking crisis in the United States, Circle, the company behind USDC, found itself with approximately $3 billion entangled in the turmoil. This predicament dragged the value of the stablecoin down to $0.87. “USDC hasn’t recovered from the banking crisis,” Tom Wan, an analyst at 21Shares, explained. In contrast, USDT was less affected by the crisis, resulting in lower volatility.
Rising Interest Rates
Another key factor has been the steady increase of interest rates. Garett Jones, chief economist at Bluechip, a non-profit stablecoin ratings platform, points out that holding USDC is now equivalent to forgoing a safe 4% to 5% per year. As high rates for bank accounts and certificates of deposit are expected to persist until 2024, the cost of keeping cash in USDC is growing.
Differences in Issuance Model
The issuance model of each stablecoin also plays a role. Evgeny Gaevoy, CEO and founder of market maker Wintermute, noted on Twitter that people are more inclined to sell USDC rather than USDT due to the difficulty in burning USDT during weekends. Moreover, Tether imposes a 0.1% mint fee and a 0.1% redemption fee. Gaevoy also highlighted how the use cases for these two stablecoins affect their market caps. While USDC is primarily used as non-volatile liquidity, Tether is used as collateral for perpetual trading.
Despite the downturn in the USDC market cap, the battle for stablecoin supremacy is far from over. Circle is making strides to regain its position, as evidenced by its recent integration with Shopify and the expansion of its token to six additional blockchains. The company’s ties with Coinbase also extend beyond its layer-2 network, as the crypto exchange recently acquired a minority stake in Circle.
Regardless of the winner in this stablecoin race, Jones from Bluechip asserts that the ability of the major asset-backed stablecoins to liquidate, shrink, and redeem their coins without causing significant difficulties for customers is a victory in itself. “It’s no guarantee of what the future holds, but it’s a good signal,” he said.
For those who want to keep an eye on these market dynamics, the cryptoview.io application can be a valuable tool. This platform allows users to monitor the market cap of various cryptocurrencies, including stablecoins like USDC and USDT.
