Why the $172B Stablecoin Market Could Send Crypto Prices Higher

As a seasoned researcher with a keen eye for market trends and a knack for deciphering the cryptic world of blockchain, I find myself increasingly intrigued by the resurgence of stablecoins. Having navigated through the crypto market’s volatility over the years, I can confidently say that we are sitting on a veritable powder keg, poised to explode with renewed energy.

Crypto markets are sitting on a powder keg that could soon blast prices higher.

According to Alice Liu, the primary researcher at digital currency data company CoinMarketCap, she advised CoinDesk that investors in crypto should consider the $172 billion market of stablecoins as a vast amount of cash waiting to be invested in cryptocurrencies once bitcoin (BTC) recovers and momentum strengthens.

Liu stated that many individuals, including crypto enthusiasts (degens) and institutions, prefer to have a cash reserve. This is analogous to Warren Buffett keeping cash in reserve, ready to invest whenever an opportunity arises.

At the close of the second fiscal quarter, Berkshire Hathaway, the investment company led by tycoon Buffett, revealed they had amassed approximately $277 billion in liquid assets. This represents a substantial 46% rise from the $189 billion they held during the first quarter.

Dry powder

Stablecoins represent a type of digital currency that is intended to maintain its value by matching it with traditional currencies like the U.S. dollar. In simpler terms, they are cryptocurrencies that aim to keep their worth consistent with fiat money.

Despite some cryptocurrencies, such as Ether (ETH), not yet reaching their 2021 record prices, the market for stablecoins has nearly recuperated, showing only an 8% drop from its $187 billion high reached in the spring of 2022.

It’s even more noteworthy that approximately half of all values exchanged on public blockchains are tied to stablecoins, while bitcoin, currently the most valuable cryptocurrency, comprises just a quarter of these transactions.

Liu explained that some of this capital is utilized elsewhere, like generating returns via DeFi platforms, but given the abundance of this liquidity, if cryptocurrency prices surge once more, stablecoins could potentially fan the flames of further price increases.

It’s not just the total stablecoin market capitalization that’s important, but where these tokens are located. For example, stablecoins held on crypto exchanges are easier to deploy into the market rapidly – and historical data suggests that an increase in stablecoins on exchanges tends to precede higher prices. According to CryptoQuant, stablecoins on exchanges have grown by 20% this year.

That metric has grown by 20% this year, according to data analytics firm CryptoQuant.

“This is probably going to be one of the main drivers for us in a bull market,” Liu said.