JPMorgan: The Shrinking Stablecoin Market Is Another Sign of Investors’ Exodus From Crypto

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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