For three days straight, Bitcoin has been going up to hit nearly $30,400 on Wednesday. As of writing, the largest cryptocurrency has been trading at around $30,100, recording 20.5% gains in the past week and 80.90% in 2023 so far.
It has been for the first time in two months that the price of Bitcoin surpassed $30k, hitting its highest level since mid-April. But with that, BTC is now facing key resistance at $32,500.
Amidst this, data provider Glassode noted that the illiquid supply of Bitcoin has reached a new all-time high (ATH) of 15.2M BTC this week, whilst, at 2.3M BTC, exchange balances have dropped to the lowest levels since Jan 2018.
In tandem with Bitcoin, Ether has also surged almost 59% year-to-date (YTD) to now trade around $1,900. This has the total crypto market cap sitting at $1.2 trillion, up from the June 13 low of $1.06 trillion after the US Securities and Exchange Commission (SEC) sued Coinbase and Binance for selling unregistered securities.
“Who needs regulatory clarity if you see BlackRock making a move?” said Edward Moya, a senior market analyst at OANDA.
This past week, the vote of confidence from traders and investors has returned in the market following the news of multiple spot Bitcoin ETF filings and a slew of announcements by institutional players, including BlackRock, Fidelity, Citadel, Charles Schwab, and Invesco.
While market sentiments have shifted, BTC is not yet totally divorced from the traditional market, and for the crypto asset to have a sustained rally, it needs the momentum to last longer. Not to mention, crypto has also been lagging behind the traditional equity markets for some time now, and this is BTC kind of catching up.
However, the re-establishment of institutional interest in the market and the upcoming bItcoin halving next year in April could very well propel the next bull run.
After Tokens, Regulators Targeting Stablecoins
This year, regulators in the US have amped up their efforts to crack down on the cryptocurrency market, which includes not only crypto exchanges and crypto assets but also stablecoins.
Amidst this, on Wednesday, Federal Reserve Chairman Jerome Powell acknowledged cryptocurrencies as a category of assets.
In a hearing with the House Financial Services Committee, which was about the Fed’s recent halt on interest rates, Powell shared his perspective, saying, “Crypto appears to have staying power as an asset class.” He also mentioned that the Fed personnel is actively participating in talks with lawmakers from both parties on the crypto legislation that committee members have been working on.
During the discussion, which is part of a twice-yearly event focusing on monetary policy, Powell also acknowledged stablecoins’ potential as a valid form of currency and emphasized the role of central banks in their regulation.
“We do see payment stablecoins as a form of money, and in all advanced economies, the ultimate source of credibility in money is the central bank,” said Powell during the hearing, adding, “We believe it would be appropriate to have quite a robust federal role.”
In response to Maxine Waters (D-CA) raising concerns that the Fed would be “severely hamstrung” to do anything if stablecoin issuers could register directly with states, Powell said, “leaving (the Fed) with a weak role and allowing a lot of private money creation at the state level would be a mistake.” This option is currently included in the draft legislation on stablecoins.
Back in 2021, Powell had said before Congress that stablecoins could be a worthy part of the “payments universe” and that they should be regulated much like money market mutual funds and bank deposits.
At the opening of the hearing, which was held by the Republican-led House Financial Services Committee, Chairman Patrick McHenry (R-NC), who was leading the discussion, said they will be marking up two crypto bills in late July.
Besides stablecoins, at this week’s hearing, Powell also brought up the subject of Central Bank Digital Currencies (CBDCs). While the central bank has introduced the payments service FedNow system, Powell said there’s much to do still and “we’re a long way from this.”
As for setting up a digital dollar, Powell said the central bank has no interest in managing individual (retail) accounts; rather, the banking system will be managing them.
The same day, former CFTC Chair Chris Giancarlo weighed in on the bill, saying all licensing authorities would have “the discretion to coerce stablecoin protocols to deny services to lawful but politically disfavored businesses.”
Calling it a “glaring omission,” he said, that could enable a government policy similar to the Obama administration’s Operation Choke Point.
“The simple fix to this problem is to provide that government licensing authorities have no discretion to pick and choose among otherwise lawful activities and condition licensure on the stablecoin’s denial of legal transactions,” said Giancarlo, adding, otherwise, “stablecoin transactions will be frighteningly beholden to the shifting political winds of Washington.”
Elsewhere, the investment bank Berenberg said in a research report on Tuesday that stablecoins and DeFi are likely to become the next targets in the SEC’s crackdown on the crypto industry.
If the regulator wants to mitigate the possibility of DeFi protocols serving as viable alternatives to regulated exchanges and lenders, the bank’s report says, the SEC could “target the stablecoins that serve as the lifeblood of (DeFi)” that may weaken its ecosystem.
Bitcoin, which is affirmed as a commodity by the SEC, is likely to be the ultimate beneficiary of the crackdown, analysts led by Mark Palmer wrote.
The Largest Stablecoin: USDT
Stablecoins are a cryptocurrency designed to minimize volatility by pegging to a more stable asset such as fiat currency. USD is the most popular fiat currency stablecoins track.
The combined market cap of stablecoins is currently $129.69 billion, and together they are seeing $47.97 billion in trading volume. Among all the stablecoins, Tether (USDT) is the largest one with a market cap of $83.2 billion that recorded a 16.4% jump in its volume from a day ago to $36.59 bln. In comparison, USDC only saw a 10.3% increase in its volume to $7.74 bln.
Most recently, stablecoin-issuer Tether published a response to reports by mainstream media outlets like Bloomberg that Tether once used to hold securities issued by Chinese state-owned firms, including the Industrial and Commercial Bank of China, China Construction Bank, and Agricultural Bank of China.
Tether called this a “haste” division done with “little attention to current events or facts” as the data is more than two years old. It further clarified that its exposure to Chinese commercial papers was liquid, rated A1 or better, and all of the issuers were stable. This exposure to commercial paper holdings was reduced to zero last year, said the stablecoin issuer.
Amidst all this, Tether has issued USDT on layer 1 blockchain Kava as it looks to enhance liquidity across multiple blockchains. USDT is currently supported on Ethereum, and Bitcoin via Omni, Tron, BSC, and Solana.
Besides the US, Hong Kong is also committed to introducing regulations for stablecoins by next year while reviewing rules on crypto derivatives, as the city strives to become a global crypto hub, reported South China Morning Post.
In January, the city’s de facto central bank, the Hong Kong Monetary Authority (HKMA), announced plans to implement a mandatory licensing regime for activities related to stablecoins. The regulator will also make it mandatory for platforms to hold fully backed reserves for stablecoins.
Christopher Hui Ching-yu, Secretary for Financial Services and the Treasury, also said at the SCMP’s China Conference: Hong Kong 2023 that regulators are working on a sustainable regulatory framework, which is expected to be implemented next year.
The Securities and Futures Commission (SFC), which enforces Hong Kong’s new virtual asset trading regime, is also formulating its own stablecoin policy and will collaborate with HKMA.
Click here to learn all about investing in Tether (USDT).
The Most Liquid Stablecoin: USDC
While USDT is the clear dominating stablecoin in the market, an analysis by crypto market data provider Kaiko revealed that the 2nd largest stablecoin with a $28.5 billion market cap USD Coin (USDC), is the most liquid stablecoin on centralized crypto exchanges (CEXs).
Kaiko noted that approximately $38 million bids in USDC are preventing a .1% price deviation of the asset. USDC’s liquidity is followed by that of Tether (USDT) with approximately $26 million bids which traded below the $1 price range during the week due to the ongoing Curve-Aave loan saga. These are then followed by Binance USD (BUSD), True USD (TUSD), and Dai (DAI).
However, while stablecoin issuers like Circle and Tether ensure their tokens maintain their parity, de-pegging could still occur on spot markets, said Kaiko adding this has made stablecoin spot markets essential for price discovery.
USDC actually lost its dollar parity towards the end of 1Q23 when a potential US banking crisis caused its value to drop by 13% below $0.88. However, the stablecoin has since stabilized and is mostly maintaining its $1 peg.
According to Kaiko, USDC, along with DAI, didn’t have much usage on CEXs at the beginning of this year and were mostly being traded within the DeFi ecosystem.
This development occurs as Coinbase said last week that it now offers 4% rewards on USDC, about doubling its previously offered returns. Coinbase is a member of the CENTRE consortium, which is behind USDC.
Amidst all this, USDC issuer Circle Internet Financial started buying U.S. Treasury bills as a reserve asset after ditching all holdings amid the U.S. debt ceiling standoff last month.
The Circle Reserve Fund, which is managed by asset management giant BlackRock, has started “building up our direct holdings of Treasuries,” said Jeremy Fox-Geen, the chief financial officer, during a company call. It will also keep repurchase agreements (repos) as part of the reserves, he added.
Earlier in May, CEO Jeremy Allaire had said that the firm would not hold bonds maturing beyond the end of the month, and by June, it had rotated all holdings into prominent banks such as Bank of America, Goldman Sachs, Royal Bank of Canada, and BNP Paribas.
According to BlackRock’s website, Circle has added $2.2 billion of T-bills to the fund as of June 20. The fund’s repos make up about 90% of the fund’s $24.7 billion in assets, while an additional $3.5 billion are being held in bank deposits, with the “vast majority” of it (over 90%) stored at the BNY Mellon.
Click here to learn all about investing in USD Coin (USDC).
Rank Shuffling: DAI and BUSD
Up until recently, BUSD used to be the 3rd largest stablecoin, but ever since Binance started facing regulatory scrutiny, it has slipped to the fourth spot with a market cap of $4.26 billion, down 29% from $5.54 billion over a month ago.
BUSD has been on a downtrend since Dec. 2022, when its market cap peaked at $23 billion. Since the beginning of the year, BUSD circulation is down more than 74%.
Binance USD is flipped by the decentralized stablecoin, DAI, which has a market cap of almost $4.43 billion. Interestingly, unlike USDT and USDC, DAI’s 24-hour volume dropped by 22% to $212 mln, while BUSD saw a 9.30% jump to $3 bln.
The stablecoin is issued by DeFi protocol MakerDAO, which recently voted to raise the savings rate of DAI from 1% to 3.49% starting June 19th. The new increase in the baseline yield, according to the DAO, “will redefine the landscape of decentralized finance.”
Meanwhile, this Wednesday, MakerDAO bought another $700 million U.S. Treasury that, pushed its DAI stablecoin reserve to $1.2 billion. This purchase is part of the project’s “Endgame Plan” to diversify the assets backing its stablecoin by increasing the role of traditional assets such as government bonds in reserve.
Back in March, the community approved a proposal to increase the upper limit of a real-world asset (RWA) vault that invests in short-term government bonds to $1.25 billion. The vault is managed by asset manager Monetalis and is one of the facilities that ensure DAI keeps its $1 price peg.
“Through the diversification of its collateral pool with this U.S. Treasury ladder strategy, Maker is taking advantage of the current yield environment and putting its assets to work,” said Allan Pedersen, Monetalis CEO, in a statement.
Click here to learn all about investing in Dai (DAI).
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