The cryptocurrency market has experienced a significant rally since mid-October, leading many analysts to believe that an extended bull market may be emerging. Major cryptocurrencies, including Bitcoin (BTC), have successfully reclaimed their pre-bear market levels, indicating a potential shift in market sentiment towards a more bullish outlook.
Typically, such a bullish phase is characterized by a strong inflow of stablecoins, as investors often use them to enter and exit trades on crypto exchanges. However, the current situation appears different. Despite the notable market surge, the overall value of stablecoins has not shown a corresponding increase, according to data from DeFiLlama.
The total market value of all circulating stablecoins was $129.5 billion at the time of writing, a decrease from $139 billion in December 2022. This decline in the stablecoin market began after the collapse of Terra USD (UST) last year, which coincided with a downturn in market sentiment and a subsequent decrease in transaction activities and demand for stablecoins.
Nevertheless, the stablecoin market value had peaked at $188 billion in the weeks preceding the UST collapse, indicating a 31% decrease from the peak. The total supply of stablecoins in crypto exchange wallets has also remained significantly lower compared to the previous year, with CryptoQuant data showing that exchange wallets held 16.9 billion ERC-20 stablecoins, down from 30 billion the year before. An increase in stablecoin reserves typically suggests strong buying pressure and bullish sentiment in the market.
The lack of significant movement of stablecoins towards trading platforms suggests that the ongoing rally may not be backed by traditional market capital. As previously explained, stablecoins act as a bridge between the crypto and traditional markets. Detailed analyses by experts have revealed that Ethereum (ETH) is among the biggest losers in stablecoin value, with a 27% loss since the start of the bear market in May 2022, according to DeFiLlama data. Conversely, Tron (TRX) witnessed a 37% increase in stablecoin supply during the same period.