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To date, the outcome shows no signs of slowing down. In five months, more than half of the total stablecoin supply on exchanges has disappeared, equivalent to $22.8 billion. The outflow began in the fourth quarter of last year, after the FTX crash, and in the subsequent period of time during which Binance was also heavily criticized for how opaque the operation of the crypto exchange was.

Some outflows are easily explained. In February, the issuer of BinanceUSD SEC was sued by the SEC for violations of securities law, which means that there will be no more Binance-branded stablecoin, its market capitalization will gradually decrease to zero. USD Coin, the stablecoin issued by Circle in the US, also had its problems. First, because the company is based in the US, there were fears that regulators would start banging for the same reason Paxos collapsed. More dramatic, however, was the collapse of the Silicon Valley bank, as 8.25% of the reserves backing the dollar coin were held in that collapsed bank. Whereas the SVB fiasco ended up with the US administration guaranteeing deposits and this briefly lowered the USD peg to 92 cents, amplifying the outflow of an already declining USD market capitalization.

In fact, compared to before the FTX crash in November, all the major stablecoins saw significant outflows from exchanges: even Tether saw large outflows, its balance sheet plummeting by 30%. This is despite the fact that the world’s largest stablecoin is becoming even more dominant in terms of market share, which currently has the largest share in the last two years. A few weeks ago, we already published a study of the implications for cryptocurrencies in general of the growing dominance of Tether, but although its market share may increase, its balance on exchanges is still falling — in line with the behavior of other stablecoins, i.e. in other cryptocurrencies, liquidity is also shrinking. . Bitcoin supply on exchanges is at its lowest level since the previous bull market peak in 2017. Ethereum is exactly the same — the balance of ETH is at a 5-year low.

Numerous scandals have rocked the crypto space — LUNA, Celsius and FTX, just to name a few. Regulators are quickly taking action against some of the industry’s biggest players. And most detrimental of all is the broader macro environment: The Nasdaq lost a third of its value last year, its worst performance since 2008. This was the first significant and prolonged pullback in the wider markets in the history of the short existence of the cryptocurrency, since Bitcoin was only launched in 2009. The actual state of affairs in what happened to Treasury yields should give a clear indication of what happened to liquidity. After all, raising interest rates serves the purpose of slowing down the economy and draining liquidity from the system, helping to curb inflation (in theory). Given that Treasury bond rates have soared from 0% to 5% and could soar further, is it any wonder liquidity is leaking out of a leaky bucket?

“Liquidity has evaporated from the crypto space as a whole,” Max Copeland, director of CoinJournal, said recently. “Treasury bond yields are over 5% as institutions cut back on investment following the FTX and LUNA scandals. Despite the popular belief that crypto is becoming a mainstream asset class, the evidence suggests that money is moving in the exact opposite direction. This is true, even if prices have risen recently, helped by low liquidity in the markets.”

Low liquidity usually means higher volatility. The flip side of the coin is that less liquidity means it takes less to move the price, with both up and down moves being accentuated. This emphasis is a factor contributing to growth this year. Well, as the market shifted to softer forecasts about the future path of interest rates, we saw that prices began to rise again. In crypto, this has been most visible and aggressive: Bitcoin has risen by 68% this year, most other coins have shown similarly high profits. Moreover, the reduction in the supply of both bitcoins and stablecoins on exchanges means that volatility is naturally higher. And while the market is currently on a wave of optimism that rate hikes are coming to an end (even if it’s just because of banking fluctuations proving the whole system is on edge), this upward momentum could easily be reversed. . And with less liquidity, there is less opportunity to stop a runaway train — no matter which direction it is heading.

Investors are advised to take some time to think before making any investment. One of the legitimate forms of investment is, for example, the ASTL investment project, which allows investors to have the opportunity to directly invest fiat and cryptocurrency assets in a stable passive income that obviously exceeds inflationary expectations and is not subject to any sanctions, blocking and confiscation. The ASTL project is a simple and elegant solution for potential investors — an investment in the development of the real sector of a diversified portfolio of cryptocurrencies, with a fairly high ROI (up to 14% annually) with payments in stablecoin (USDT) and the possibility of a full return on investment through the subsequent sale of accrued ASTL tokens on leading crypto exchanges. Details can be found at https://astl.world.

as was originally published in Coinmonks on Medium, where people are continuing the conversation by highlighting and responding to this story.

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