Cryptocurrency market value exceeds $3 trillion, and stablecoin supply hits new high under regulatory pressure

Original title: "The supply of the two major US dollar stablecoins hit a new high"
Written by: Jasmine

Glassnode data shows that as of November 7, the supply of the two major US dollar stablecoins USDT and USDC hit record highs, with USDT's circulating application volume exceeding US$72.186 billion and USDC's circulating supply exceeding US$34.291 billion.

The two largest and second largest USD stablecoins have also raised the size of the entire stablecoin market, behind which is the recent expansion of the total market value of the crypto asset market led by Bitcoin . Data collected by Coingecko shows that the total market value of crypto assets has exceeded 3 trillion US dollars, while the total market value of stablecoins pegged to international mainstream legal currencies such as the US dollar, euro, and pound has exceeded 142.9 billion US dollars.

The US dollar stablecoin still dominates the stablecoin market. A week before the market expanded further, on November 1, the US Treasury Department led relevant agencies to release the "Stablecoin Report", which summarized the systemic risks brought about by stablecoins and related activities, and urged the US Congress to legislate as soon as possible to develop a comprehensive stablecoin regulatory framework to ensure that payment-type stablecoin issuers can be regulated like banks.

The release of this report did not trigger a major backlash in the crypto industry. Instead, the market value of stablecoins has expanded as the crypto asset market has become active again. Industry insiders believe that this may be because the report did not emphasize the specific institutions that regulate stablecoins, but pointed to a more long-term path: congressional legislation.

$3 trillion crypto asset market value pushes up stablecoins

When the market size reached 142.9 billion US dollars, the overall market value of stablecoins generated from blockchain networks that are pegged to the legal currencies of various countries has expanded more than 6 times from 20 billion US dollars a year ago. The leading ones are the US dollar stablecoins USDT and USDC. The former is issued by Tether , which has reserve disputes, and the latter is issued by the regulated financial technology company Circle. The two parties have been in a competitive situation in market size.

According to Glassnode data, as of November 7, USDT's circulating supply exceeded $72.186 billion, breaking the $70 billion threshold. At the same time, USDC's circulating supply reached $34.291 billion after an additional $1 billion was issued. USDC's market value is close to half of USDT, and the circulation levels of the two largest USD stablecoins have once again hit a record high, which of course also lifted the market value of the entire stablecoin sector to a new high.

Coingecko data shows that the total market value of stablecoins exceeds 142.9 billion US dollars

Historically, huge price fluctuations in the crypto asset market often lead to the issuance of stablecoins. Since stablecoins form a price anchor with mainstream fiat currencies, they act as a payment tool and purchasing power in the crypto asset market. Their issuance usually means greater financing needs for crypto asset projects and more trading needs.

The further expansion of the total market value of crypto assets is an important driving force for the expansion of the stablecoin market. At present, the total market value of the crypto asset market led by Bitcoin has exceeded 3 trillion US dollars, far exceeding Microsoft (2.53 trillion) and Apple (2.47 trillion) listed on the US stock market.

In the past 24 hours, Bitcoin (BTC) rose by 6.4%, reaching a high of $66,500, close to the recent record high of $67,000; Ethereum (ETH), which ranks second in the crypto asset market by market value, also rose by nearly 3% in 24 hours, reaching a record high of $4,768. At the same time, BNB and SOL, which rank third and fourth in market value, have both risen by more than 20% in the past week.

Kyle Rodda, an analyst at crypto broker IG Markets, said in an interview with the media that the decline in the actual yield of traditional financial assets and the inflation expectations of the economy have increased the attractiveness of gold and crypto assets. Financial institutions want to participate in them, and the actual actions of regulators have not put too much pressure on the crypto asset market. "We have almost passed the inflection point. It (crypto assets) is becoming part of the entire financial system, and (investors are becoming) very, very difficult to extricate themselves from."

Regarding the stablecoin market, Morgan Stanley's chief cryptocurrency strategist, Shina Shah, said in a report that the banking industry is likely to try to take advantage of the market's demand for stablecoin deposits amid exponential market growth. Since the significant function of stablecoins is to provide access to crypto deposit rates and decentralized finance (DeFi), "crypto asset lenders are offering more than 5% interest on some of these tokens, which in turn will lead to responses from regulators and governments."

The US "Stablecoin Report" failed to have a market-suppressing effect?

At least, regulators under the US government have responded to the growing market size of stablecoins. On November 1, under the leadership of the US Treasury Department, the President's Working Group on Financial Markets (PWG) jointly with the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC) released a long-awaited "Stablecoin Report" (hereinafter referred to as the "Report") in the crypto industry.

The report recommends that the United States should formulate comprehensive federal legislation for stablecoins, including requiring stablecoin issuers to become "insured depository institutions (IDIs)" and be included in the regulatory system like banks. This will require stablecoin issuers to comply with requirements related to capital and liquidity standards and comply with the provisions of the Federal Deposit Insurance Act. In addition, in order to address the important role of digital wallets, the report recommends that Congress require federal regulators to supervise custodial wallet providers, supervise entities that play a vital role in the operation of stablecoins, and limit the affiliation of stablecoin issuers with commercial entities to encourage competition and interoperability between different stablecoins.

The report also summarizes the risks posed by stablecoins and related activities, including investors or buyers losing confidence in the value of stablecoins, the risks that stablecoins bring to traditional payment systems, and the systemic risks and economic power concentration it poses to the entire financial system. In addition, PWG and other institutions also pointed out in the report that stablecoins pose illegal risks to financial integrity, including problems that conflict with compliance with AML and CFT requirements. These risks have always been the focus of FinCEN, OFAC and the US Treasury Department.

Regarding this report that the U.S. Treasury Department has been urging to be released, the crypto industry is more concerned about the specific departments and enforcement basis for the regulation of stablecoins. Previously, there have been rumors that the U.S. SEC will become an important regulator of stablecoins.

However, judging from the content, the report does not give a clear answer, but rather describes the current regulatory enforcement dilemma. For example, the report highlights the significant gap in the authorities' supervision of stablecoins used for payment purposes - the enforcement of the U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) is limited to their respective jurisdictions. Within the jurisdiction of the SEC and CFTC, the report recommends that stablecoin activities need to comply with federal securities laws, commodity exchange laws, and related regulations.

In the view of some observers in the crypto industry, this regulatory scope and enforcement basis are somewhat old-fashioned, and recently major companies and leaders in the crypto industry have expressed the view that the current enforcement basis and enforcement actions of regulatory authorities are inappropriate and opaque in application of the law.

In this regard, the Report also made additional recommendations for regulation, namely that Congress should legislate comprehensively on the asset reserves, digital wallets, operational activities and commercial competition of stablecoin issuers. While waiting for Congress to enact legislation, PWG and other institutions recommend that federal financial institutions cooperate to address stablecoin risks within their respective jurisdictions. For example, the Consumer Financial Protection Bureau can take enforcement actions under laws such as the Electronic Funds Transfer Act and the Consumer Financial Protection Act; the Financial Stability Oversight Committee can consider taking measures within its authority to address stablecoin risks, such as designating certain activities in the operation of stablecoins as potential systemic payment, clearing and settlement behaviors, thereby incorporating these activities into the existing regulatory system.

The U.S. Treasury Department’s “Stablecoin Report” has been out for a week. Ironically, the stablecoin market has not stopped there, but has “risen with the tide” as the crypto asset market becomes more active. Of course, the report does not have legally binding attributes, and the guiding significance of its advisory content to regulators is difficult to assess.

Salman Banne, policy director at cryptocurrency intelligence firm Chainalysis, said in an interview with the media that the report may have instructed regulators such as the SEC or CFTC to use their existing powers to open up the situation, but this is not the case. Instead, it recommends a longer and more lasting path: congressional legislation. Banne is worried that if legislation fails, then "the PWG report will not prompt regulators to implement the necessary rules to fully address the risks detailed in the report," such as insufficient liquidity, inability to redeem or illegal financing, and will never realize that "opportunities have been released due to the widespread use of stablecoins."

Partners at Morrison & Foerster, a law firm that focuses on the crypto industry, believe that while the report leaves any major changes in stablecoin regulation to federal legislation, it makes clear that individual regulators exercise authority within their respective jurisdictions alongside the SEC and CFTC. “The report signals to cryptocurrency markets and industry participants that more and more scrutiny may be coming.”