Published: September 28th, 2022
In a report published Monday, Bank of America (BoA) said that the volume of stablecoins flowing into exchanges reached USD 490 million last week, a 57 per cent increase over the previous seven days and the third consecutive week of net-positive inflows.
That could mean the crypto market is on the road to an eventual recovery, as it suggests more people are using stablecoins for practical applications like payments and remittances, rather than speculative investments.
Stablecoins are cryptocurrencies backed by a fiat, typically the US Dollar, though a few are backed by other real-world assets. Traders typically use them as a faster way to enter and exit trades in other cryptocurrencies, as they enable positions to be opened without having to convert to a ‘hard’ currency like the Greenback first.
In its report, the banks said that the extended trend of stablecoin inflows ‘indicates that investors may be shifting back to a footing of increased digital asset exposure after weeks of de-risking.’
Crypto markets have taken a beating in 2022, often in parallel with US equity markets, as investors and forex traders took flight into what are seen as safer assets like USD.
Despite a wave of institutional adoption last year, cryptocurrencies are still seen by the wider market as risk assets. Bitcoin, the largest digital asset by market cap, has mimicked the performance of a tech stock this year, which is very different to how crypto enthusiasts once believed it would behave. It’s been an article of faith amongst pro-crypto investors that cryptocurrencies would function as ‘uncorrelated asset,’ enabling them to be an effective hedge against inflation or fiat currency degradation.
At time of writing, BTC was down close to 72 per cent from its all-time high of USD 69,044, priced at USD 19,112, according to data from CoinGecko.
The BoA reports offers some hope to beleaguered crypto fans and traders, who’ve watched in dismay as the impressive gains achieved in 2021 have been steadily ground away.
On 11th January, BTC fell by 4.1 per cent over a 24-hour period, briefly settling at USD 39,866.68 before recovering slightly to just above what was th4e psychologically important USD 40k level. Twenty four hours later it had dropped 14 per cent from the start of the year. From the all-time high of USD 69,000 achieved in November 2021, the world's leading coin had sunk by an eye-watering 40 per cent.
Presaging BTC’s fall, ETH suffered a parallel slump the day before (10th January), falling below USD 3,000, a level not seen since September of 2021.
Data from CoinGecko showed that the second-largest cryptocurrency by market cap had shed 4.7 per cent of its value between Monday 10th January and Tuesday 11th January and lost as much as 21 per cent in the previous seven days.
After reaching a daily high of USD 3,200, Ethereum was changing hands at about USD 2,900 on Tuesday. Just two months ago, on 9th November, ETH hit an all-time high of USD 4,876. Since then, the coin has lost 37 per cent of its value.
By early February, the much-touted arrival of traditional finance into crypto markets, where major banks, corporates and hedge funds all built up hordes of BTC and other leading coins, seemed to come to a halt.
Analysts at Wall Street stalwart JP Morgan published on report on 2nd Febnruary said they saw 'notable challenges' in the coming months for cryptos two biggest coins by market cap. Bitcoin, they believed, would struggle to win over new institutional investors due to 2022’s price volatility. They also said Ethereum would face stiff competition from blockchain rivals like Solana as the year progressed.
Bitcoin's volatility makes it five times more prone to price swings than gold, and the raft of competitors lining up to take a chunk out of Ethereum's market share means its steady rise could be halted or even reversed.
They noted that BTC was currentky more than five times more volatile than gold, belying the claims of many cryptocurrency commentators that BTC had become the equivalent of 'digital gold,' a hedge against inflation that could push the yellow metal off its traditional safe haven perch.
Just as many were beginning to offload or diversify their crypto positions, Bitcoin suddenly surged past USD 43,00 in late February, making a dramatic leap that pulled other top coins up from their slumber.
On 28th February, Bitcoin shot past USD 43,000 while Ethereum was on the cusp of USD 3,000. That put it up nearly 15 per cent from the previous week when it closed the Friday session at USD 37,849.
Ethereum, meanwhile, moved back above USD 2,900 for the first time in a fortnight, with the price of ETH touching above USD 2,935 and heading back to the psychologically import USD 3,000 level.
The biggest winner of all however was Terra’s (LUNA), which rose by a stunning 25 per cent on 29th February to reach a price above USD 94. Solana (SOL) also jumped by 18 per cent to reach USD 104.
Any gains were short-lived however, as a combination of disrupted supply chains, which were still recovering from COVID lockdowns, met more disruption from the economic sanctions levied against Russia in response to the Ukraine war. A combination of inflation plus tightening fiscal policy has hammered Western economies and send investors looking to risk-off their holdings.
Even senior crypto leaders were suggesting it was time for all investors to head for safety. Binance CEO Changpeng Zhao told a Redditt AMA session in late May that it was ‘time for everyone to spread their risk’, though he made clear that he himself was ‘all in’ on crypto.