Stablecoin Balances on Centralized Exchanges Reach Lowest Level Since May 2021

According to Glassnode, the balance of stablecoins on centralized exchanges has reached its lowest level since May 2021, indicating investors’ risk aversion to strengthen. Glassnode data shows that as of May 1, the balance of stablecoins on centralized exchanges was $21.06 billion.

This marks a significant decline since mid-December 2022, when stablecoin balances approached an all-time high of over $44 billion. The decline in stablecoin balances on exchanges accelerated after Paxos suspended the issuance of BUSD in February due to regulatory policy.

The founder and CEO of TDX Strategies, Dick Law, explained that the decline in stablecoin balances on centralized exchanges reflects risk aversion towards stablecoins after regulators’ directives to halt BUSD issuance and USDC’s recent depegging. As a result, the market caps of BUSD and USDC have also declined steadily.

Investors have favored buying cryptocurrencies using stablecoins for the past three years, as they have helped bypass the price volatility associated with other cryptocurrencies. However, the recent increase in the price of Bitcoin coincided with the decline in stablecoin balances, leading to the analysis that the movement of money from stablecoins to Bitcoin is the main factor driving Bitcoin’s 70% price increase this year. This also means that the cryptocurrency market is in need of an influx of new funds.

Furthermore, investors have put their money into stablecoins pegged to the dollar as the U.S. dollar became more attractive last year following the Federal Reserve’s aggressive rate hikes. However, since the end of last year, the expectation that liquidity will ease again has weakened the motivation to hold the US dollar.

The decline in stablecoin balances on centralized exchanges also led to an increase in Tether’s (USDT) market share. In terms of activity, stablecoin balances on centralized exchanges continue to decline, with little or no increase in new capital inflows into the ecosystem, according to cryptocurrency technology company Signal Plus.

In conclusion, the decline in stablecoin balances on centralized exchanges indicates investors’ risk aversion towards stablecoins and their movement towards Bitcoin. The cryptocurrency market requires an influx of new funds, as stablecoin balances continue to dwindle.

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