Stablecoin dominance dropped in July – will the crypto market recover?

YEREVAN (CoinChapter.com) – Stablecoin dominance stood at 14.5% on Aug. 2, after falling since mid-June. Meanwhile, three out of the top 10 cryptos by market cap are stablecoins, according to CoinMaretCap.

Tether stablecoin (USDT) takes #3 rank with $66.3 billion, while Circle’s USDC and Binance USD (BUSD) rank #4 and #6 with market caps of $54.4 and $17.9 billion, respectively. Collectively, stablecoins share $153.4 billion in market cap, which could pose a threat to the crypto market. Here’s why.

What does stablecoin dominance mean for crypto?

Stablecoins are often perceived as the margin between fiat and digital assets. Thus, many experts see their utility as a gateway between the two markets. Typically, the swelling stablecoin market cap waves a bearish flag for other cryptos as traders flee to secure their funds against the crypto volatility.

For example, the weekly chart below demonstrates the inverse correlation between USDT dominance and Bitcoin price. When BTC peaks in value, stablecoin dominance tumbles, and vice versa.

Also read: What happens to crypto if Tether (USDT) collapses?

Meanwhile, the question remains, will the accumulated stablecoins flow back into crypto, or will they flock to fiat?

Crypto market to recover as stablecoin dominance continues to drop

Several experts believe that the recent drawdown after the spike in stablecoin holdings will continue, and the funds will flow back into the crypto market.

For example, Binance CEO Changpeng Zhao recently pointed out that the amount currently locked in stablecoins is just fiat on the “sidelines” and will eventually reenter the market.

Also read: Ethereum (ETH) Faces Hurdle, Start of Another Decline Or Buying Opportunity.

“If people wanted to get out of crypto, most wouldn’t hold stablecoins,” commented the CEO. However, several crypto experts share his optimistic outlook.

For example, a crypto analyst with the Twitter-handle GameofTrades pointed out that the “current move might be bigger than most investors believe.”

Also read: Bitcoin struggling to close above $24k, but indicators remain optimistic.

Crypto on-chain data agrees.

On-chain data platform Glassnode noted several metrics that played in favor of leading digital assets Bitcoin and Ethereum. For example, the platform pointed out that the number of accounts holding over 1BTC reached a record high of 891,565 on Aug. 2.

Also read: Bitcoin (BTC) Just Saw Key Technical Correction: Key Levels To Watch.

Additionally, the platform noted that the percent of addresses in profit reached a month-high of 60.6%. The metric could underscore the traders’ willingness to hold the asset in anticipation of growing profits.

Furthermore, the exchange inflow of the second-largest crypto, Ethereum, dropped to a monthly low, which shows traders’ incentive to hold rather than sell their ETH.

Also read: Hackers drain Nomad token bridge of $190M

Several factors hold a bullish flag for the crypto market. The growing incentive to hold major crypto assets, paired with the declining stablecoin dominance, might revive the digital asset market, boosting the prices.