In brief:

  • Tether broke through the $11 billion level as its market cap soared, growing 136% since the start of the year.
  • Demand for stablecoins is up both as a crypto on-ramp and also as a hedge for volatility.
  • As a burgeoning crypto custodian industry will only fuel more demand for stablecoins, as research from Binance says they are a favourite of institutional investors.

As demand for stablecoins continues to break records, the market cap of Tether (USDT) has hit $11 billion, growing 136% since the start of 2020. 

As USDT-BTC is one of the most liquid crypto pairs, and the cheapest way to acquire BTC, Bitcoin inflows are up across all exchanges on month, according to Chainalysis but down during the past week as the market corrects.

Chainalysis market data shows that BTC inflows to exchanges is up on-month, but has slightly corrected over the last seven days. (source: Chainalysis)

What are stablecoins?

Stablecoins, which are tokens tied to a fiat currency like the US dollar, are used as on-ramps or off-ramps for cryptocurrency transactions. If an investor would like to purchase a token they can buy a stablecoin first, which, as its name implies isn’t as volatile as a cryptocurrency, and would have a minimal (if any) margin on the conversion. Conversely, if an investor would like to sell one specific token for fiat currency but not cash out of the market itself, stablecoins serve as an off-ramp to move capital out of the cryptocurrency market.

Market volatility drives demand for stablecoins

During the past year, the total supply of stablecoins has doubled to approximately 12 billion, largely as investors spooked by March crashes of equities and crypto looked for safe haven to park capital, according to research from Coin Metrics. For a point of comparison, it took nearly five years for supply to hit 6 billion. 

According to the report, “over 800 million new USDT_ETH were issued” within two weeks of the March 12 crypto crash. As a point of comparison, “740 million USDT_ETH were issued from January 1st through March 11th.”

According to date from CryptoCompare, traders bought 21 million BTC with USDT during March which means it represents 73% of total BTC traded into fiat.

Monthly BTC-Stablecoin conversion volume (source: CryptoCompare)

Institutional-grade investors are after stablecoins

One of the bigger news stories of the year has been the rise of the digital asset custody industry, which is a key requirement for institutional investors to jump in the market. Although Hong Kong was first to market with the regulatory framework, US regulators announced last month that they had greenlit US banks acting as crypto custodians — and industry leaders previously interviewed by Decrypt believe that this will be an accelerant for US-based institutional investors to double down on crypto. 

And what’s the first thing they will buy? Likely stablecoins. An Institutional Market Insights report published last November by Binance found that 96% of Binance’s institutional clients held at least one stablecoin with the most popular being USDT.


This story was produced in collaboration with our friends at Forkast, a content platform focused on emerging technology at the intersection of business, economy, and politics, from Asia to the world.

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