Crypto market: focus shifts from CBDCs and stablecoins to Bitcoin

A few days ago, CCData’s June 2023 Stablecoins & CBDCs report was released, bringing to light the importance of stablecoins in the current crypto market. 

The report specifically talked about the waning trend of the market capitalization of stablecoins in 2023, but did not give any specifics about the future. 

CCData then went on to publish another report, titled “Market Spotlight: Crypto Surges as Institutions Eye Spot Bitcoin ETF,” in which it instead focuses on Bitcoin and gives some indication of the possible evolution of the crypto market. 

This is the latest issue of the weekly Digital Asset Digest, and reports that the week just ended was marked by many regulatory and legal events. 

Focus shifts to Bitcoin: CBDCs, crypto and stablecoins on the sidelines

BlackRock’s application to have the SEC approve an ETF on spot Bitcoin is the news that seems to have had the biggest impact. 

Blackrock is the world’s largest asset manager, and its decision has brought with it similar requests from several other financial institutions. 

It is worth noting that to date, Blackrock has maintained a 99.86% approval rate for its ETFs over the years, and when the first gold ETF was launched, for example, this acted as a catalyst for the start of a multi-year bull run for the price of the precious metal

In addition, Bitcoin has significantly underperformed the S&P500 index since the beginning of the second quarter, while since BTC began its recovery the S&P500’s rally seems to have stopped. 

This revival, unlike previous bull runs, has not been driven primarily by short liquidations, but rather by a real increase in buying pressure. 

In other words, the attention of crypto investors recently has shifted to Bitcoin, such that dominance has exceeded 50% for the first time since May 2021. 

In fact, open interest on Bitcoin derivatives has increased from $8.36 billion in early June to $9.80 billion. In contrast, open interest on ETH remained relatively stable, averaging $5.05 billion.

The decline in liquidity on US exchanges

The report also notes that some US crypto exchanges, such as Binance US, Kraken, and Gemini, saw their market liquidity decline in June, although in the case of BinanceUS it was as much as a 71% drop. 

At the same time, despite the SEC’s allegations, there has been a 17% increase in liquidity on Coinbase.

The hypothesis is that many traders and market makers based in the US sought refuge on the larger US exchange.

At the same time, liquidity on major foreign exchanges, including Binance and OKX, has increased, indicating more trading activity on exchanges outside the US.

While this is a trend that is impacting the US crypto markets in the short term, the eventual entry of giants such as BlackRock into this market in the future could completely turn the tide. 

Indeed, BlackRock’s move signals a growing interest by institutional investors in the crypto market, despite the ongoing regulatory problems and volatility in this market.

The future outlook on crypto, CBDCs, and stablecoins

The question posed by the report’s authors is whether BlackRock’s entry into the crypto derivatives market with its own ETF could have an impact similar to that of the first ETF’s entry into the gold derivatives market in 2004. 

Until then, for about 25 years the price of gold had hovered around $400 an ounce, whereas starting in 2005 it rose first to $700, and then to over $1,900 in 2011. 

Such movements had never been seen before in the gold financial market, even though since then, the price has remained stable over the long term, standing today at around $1,930. 

Bitcoin’s price, on the other hand, has never been stationary for even a full year, and a new innovation such as the one that will presumably be introduced next year could make it move even more. It is worth noting that 2024 will also be the year of BTC’s fourth halving. 

Coupled with the fact that BlackRock is being joined by other big names in traditional finance, such as Fidelity Digital Assets, Charles Schwab, and Citadel Securities, the situation could be gearing up for a real boom. 

The stablecoin landscape

The overall market capitalization of major stablecoins pegged to the US dollar has now been shrinking for 15 consecutive months. 

In June, it fell 0.57% to $128 billion, which is the lowest level since September 2021. 

Trading volumes of stablecoin also fell by 10% to $414 billion in May. This is the lowest monthly trading volume on centralized exchanges for stablecoins since December last year.

As long as the market capitalization of stablecoins declines along with the overall market capitalization of the crypto market, in other words, with cryptocurrency prices falling, there is nothing unusual. 

However, with recent increases, notably Bitcoin’s price back near annual highs, it does jar a bit. 

Over the past seven days, with BTC’s market capitalization rising from $521 billion to $596 billion, that of UST has risen only from 83.1 to 83.2, while USDC’s has fallen from 28.4 to 28.3. 

That of DAI rose from $4.6 billion to $4.7 billion, while that of TUSD remained essentially stable. 

Obviously, right now stablecoins are not affecting the price performance of cryptocurrencies in any way, and in particular that of Bitcoin, which is the best-performing cryptocurrency in recent days among the first and second tier cryptocurrencies. 

The full picture of CBCDs

By contrast, despite the declarations and proclamations, the central bank digital currencies (CBDC) sector seems rather stagnant. 

It is true that a few days ago the International Monetary Fund (IMF) unveiled a new CBDC-based platform for cross-border payments, but the problem is that many CBDC projects have been halted or suspended. 

The two large countries where they are already available (China and Nigeria) are not showing significant progress in their deployment. On the contrary, citizens apparently still prefer classic electronic payments with traditional fiat currencies. 

At present, the IMF’s new CBDC-based platform for cross-border payments is still only a figment of the imagination, not a reality. 

Moreover, in the absence of widely circulating CBDCs, such a platform would make no sense, hence beyond the declarations of lofty proclamations there is still very little concrete. 

On top of that, nowadays a platform for cross-border payments is already there. It is called the Lightning Network, and it works by transferring Bitcoin. 

Combine that with exchanges that allow BTC to be converted to fiat currency, and vice versa, and there really does not seem to be a need for a platform like the one hypothesized by the IMF. 

In other words, while the crypto sector continues to move forward, the CBDC sector seems to be essentially at a standstill, or proceeding at extremely slow speed. 

The fact is that Bitcoin is not only a currency, but more importantly a protection from any overly expansive monetary policies of central banks, against which CBDCs can offer no protection.