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Stablecoin supply has been on a downward trajectory since the TerraUSD collapse in 2022. And despite the crypto market’s bullish week, stablecoins remain flat.

The stablecoin market cap stayed relatively steady at $124 billion during bitcoin’s sudden upswing, failing to break the sector’s levels from early September, according to DeFiLlama.

Analysts say stablecoin supply is a lagging indicator, but the lack of a stablecoin resurgence could indicate that bitcoin’s bull run isn’t driving new liquidity into the crypto market.

Stablecoins are tokens pegged to a certain asset or value, like the US dollar. Importantly, stablecoins are popular as on and off-ramps for investors.

“[Stablecoins] are, I would say, the ultimate transacting currency of crypto markets,” Clara Medalie, head of research at Kaiko, said. “Right now, the vast majority of every crypto trade is done with a stablecoin, especially as fiat on-ramps [come] under regulatory pressure.”

The stablecoin market cap trended upwards until TerraUSD [UST]’s collapse. It has bled slowly ever since, down to today’s figure of $124 billion from the high around $188 billion, according to DeFiLlama.

A recent CoinGecko report found that the top 15 stablecoins shed $4.8 billion in market cap in Q3, with USDCoin [USDC] alone shrinking by $2.26 billion. Tether, which stayed flat in Q3, now makes up 67.86% of stablecoins’ market cap, per DeFiLlama.

Vaidya Pallasena, head of ratings at stablecoin rating agency Bluechip, offered two explanations for the decoupling of bitcoin’s [BTC] price from the stablecoin market cap.

“First, a significant share of overall BTC trading volumes was executed through the CME, wherein trades are settled in cash, not stablecoins,” Pallasena told Blockworks. “Second, BTC trading volumes on crypto exchanges also saw an uptick at the same time, but this has more to do with existing liquidity on exchanges/wallets being deployed to gain exposure in anticipation of an ETF approval, than with new retail participants entering the market.”

Medalie said the stablecoin market cap is a lagging indicator, and it may take a couple of months to see whether the market is ready to resume moving funds into crypto.

“An investor [is] not going to be like, ‘Okay, markets are increasing, let me go issue 500 million tether.’ They need more convincing price movements to be able to really reinvest in these markets,” Medalie said.

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