The problems faced by the stablecoin Binance USD (BUSD) are benefiting USDT (Tether).
Indeed, yesterday USDT’s market capitalization rose from $68.5 billion to $69.5, thus growing by about a billion in just eleven hours.
In fact, it has been going up since early December 2022, both because many of the previously existing doubts about Tether’s management of stablecoin reserves are slowly thinning out and because its main competitors are suffering.
The market capitalization of the stablecoin Tether (USDT)
Before the start of the last big bull run, in November 2020, the capitalization of the stablecoin Tether (USDT) was below the $19 billion level.
It is worth mentioning, however, that it had already been rising since January 2020, as it capitalized only $4 billion at the end of 2019.
Thus, this is a trend that has been going on for years, although it stopped in 2022.
During 2021, it had risen as high as $78 billion, and it peaked in the first decade of May 2022 when it had risen as high as $83 billion.
With the implosion of the UST algorithmic stablecoin and the entire Terra/Luna ecosystem there were many fears about the resilience of other stablecoins, and then it was USDT itself that suffered the most.
In fact, within two months its capitalization halved to $40 billion again.
However, starting in late July it returned to growth, so that by early November it had risen again to almost $70 billion. The collapse of the crypto markets following the FTX bankruptcy brought it back to 65 billion, which is still a significantly higher level than the 40 billion of a few months earlier.
Instead, 2023 has so far proved to be a year of only uphill climb for Tether dollar, which began with a market capitalization of $66 billion, rising to over $69 billion yesterday.
The current level is far higher than the 2022 low, and is also discreetly higher than the level to which it fell after the collapse due to FTX. It is also noticeably higher than the level touched in spring 2021, which was after the first growth phase of the latest big bull run.
It is equal to the level touched in early November 2022, before the FTX collapse, and is below only the levels of early 2022, which culminated in the record high of 83 billion in early May.
Right now as much as over 51% of the entire market capitalization of all stablecoins is held by Tether, meaning USDT as a whole is worth more than all other stablecoins combined.
BUSD-related problems favour the stablecoin Tether (USDT)
The main problems are being experienced by Binance USD (BUSD), the third largest stablecoin by market capitalization.
For now, a total freeze on the minting of new tokens has been announced, so market capitalization can only decrease as they are returned for redemption.
After reaching an all-time high of $23 billion in market capitalization in mid-November 2022, it began first a slow decline, down to $22 billion, and then two collapses.
The first in December 2022, with capitalization dropping to $16 billion within three weeks, and then in February 2023, with the drop to $14.7. The latter descent occurred almost all in the last two days.
For now, BUSD’s future is bleak, although Binance has announced that it will try to revive it by finding a new partner so that new token issuances can be restarted.
USD Coin (USDC)
The second-largest stablecoin by market capitalization, USDC, is also not doing so well.
It lost nearly $5 billion in capitalization during 2023, but the decline had begun well before that.
It had peaked in June last year, when thanks to fears about USDT it had grown to close to $56 billion. At that time it was even thought to have the makings of an attempt to overtake Tether.
Instead, starting in July it began a long descent that took it first to 52 billion within a month, and then to 42 billion in early November.
It had recovered slightly with the collapse of FTX, again thanks to fears regarding USDT, but after mid-December it went back down again.
However, it is worth mentioning that the current level is enormously higher than the $3 billion in capitalization it had before the start of the last big bullrun.
This is fourth-largest stablecoin by market capitalization, DAI, only capitalizes just over $5 billion, so it does not currently play a particularly large role in this market.
The dollar-pegged stablecoins
The fact that US government agencies have gone after Binance USD, and perhaps USDC as well, seems to suggest that these are tough times for dollar stablecoins.
Despite the fact that all the world’s major stablecoins are in US dollars, with those in euros and gold relegated only to supporting roles, there are those who believe that 2023 could be a watershed year in this respect.
The hypothesis, put forth by Binance co-founder and CEO Changpeng CZ Zhao, is that in the European and Asian crypto markets, US dollar stablecoins could actually be replaced by stablecoins in euros, yen or Singapore dollars.
Indeed, for those operating in the US, dollar stablecoins remain the most convenient and useful of all, but outside the dollar markets they could become inconvenient or even too problematic.
CZ’s hypothesis therefore cannot simply be ignored as being considered unlikely, because it could arguably have all the makings of a momentous change to these markets.
It is important not to forget that the American market is the largest in the world, the Asian market is the second, and the European market the third.