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Monthly Market Review - August 2023

In this update, we will briefly look at stablecoins and their impact on the blockchain.



Price (1 August 2023)



Price (31 August 2023)



% Return



The digital asset market took another step down in August, while showing less intra-day volatility and trade volume than July. The volume and volatility figures may have been even lower if it wasn’t for two events that caused significant price movement (and momentary volatility increase). On the 18th, the market fell sharply after a liquidity cascade caused by traders who were overextended in their positions. On the 29th, there was positive news that Grayscale won its court case against the SEC, which cleared the way for a Bitcoin spot ETF. However, the gain was short lived as the price retracted its gains within two days.


The current market downturn (and negative sentiment) has left traders and investors searching for blockchain products that have found product-market fit. One of the most obvious (and the least talked about) sectors is stablecoins. These are digital assets that mirror a fiat asset such as USD; the biggest are Tether and USDC by Circle. Circle, which is audited and regulated, simply holds USD or T-bills in a bank and issues coupons equal to the value that they hold.

According to Brevan Howard, stablecoins settled $11 trillion in value during 2022, compared to the $11.6 trillion that the Visa network settled. Therefore, they appear to have found product market fit for easy, cheap and fast transfers of USD. Stablecoins have also settled significantly more value than Bitcoin since early 2021, showing that users prefer a non-volatile asset when settling value (See the graph above). The major benefit of USDC is that by accepting USDC, a user should have access to a blockchain-enabled wallet. So, once they’ve received funds using stablecoins, they are already setup to access the rest of the blockchain ecosystem and have funds in their account to interact with the broader ecosystem.

One of the challenges with USDT is the unclear nature of its regulatory status as well as its relatively unstable price action. It has a 0.1% cost to mint and redeem at source, so it can trade between 1.001 and 0.999. In August, Tether remained below 1 for much of the month; however, it bounced back towards the end of the month. One of the more curious market movements for the year is that in 2023, USDC has dropped from $44 billion to $26 billion, whereby USDT has risen from $66 billion to $83 billion. The difference has been surprising as one would expect these to move in sync (and USDC to outgrow USDT given its risk profile). We have a few ideas around why this is the case, and it is something that we are monitoring closely.

Stablecoins may seem irrelevant to a trading firm as they should be ‘stable’, but as the graph shows, they can have non-trivial price moments. Additionally, BTC/USDT is Bitcoin’s biggest trading pair and often leads price discovery, so it’s important that we have a full understanding of the small changes in the price of USDT. At tendex, we monitor all stablecoins closely as most of the trading volume in the digital asset industry involves stablecoins.


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