The stablecoin issued and managed by Circle, USD Coin (USDC), has lost nearly half its capitalization in the past 12 months.
Indeed, at the end of July 2022 it capitalized about $55 billion, while today it has fallen to just under $27 billion.
It peaked at the end of June last year, when it touched $56 billion, while the current level is similar to that of two years ago.
The trend over the long term
Although the market value of 1 USDC is always more or less than $1, its market capitalization varies.
Market capitalization trivially means the market value of 1 USDC multiplied by the total number of USDC in circulation.
USD Coin debuted in crypto markets in late 2018, which was during the bear-market of the previous cycle.
Its market capitalization at the time was only $24 million, but that figure does not carry much weight for several reasons. Indeed, as early as January 2019 it had touched $370 million. Taking the latter as a reference, the current capitalization level is very high indeed.
If we take the pre-bubble level, i.e., October 2020, as a reference, it was just under $3 billion, and again the comparison with the current 26 means a great deal of growth in the last three years.
This growth in 2021 turned into a real surge, rising in twelve months from $4 billion to $42 billion, which is a level well above even today’s level. The sustained growth continued until March 2022, when it exceeded $53 billion for the first time.
In May last year, with the collapse of the Terra/Luna ecosystem’s algorithmic stablecoin UST, its capitalization took a sharp leap upward, and with the bankruptcy of Celsius it made an all-time high at nearly $56 billion.
Circle: the decline of the USDC stablecoin
Looking at these numbers, the halving in the last twelve months does not look like a real collapse, but more like a “retracement” after the bubble burst.
In reality it is incorrect to speak of a retracement, since its price is always $1, but such a dynamic seems very similar to that of the prices of many cryptocurrencies.
In other words, USDC’s market capitalization during the 2021 speculative bubble rose from $4 billion to $42 billion and then continued to $56 with the implosion of Terra/Luna.
The decline began only in July last year, or just over 12 months ago.
However, this phase of decline should be distinguished into two parts.
The first ended only in early November 2022, with the failure of FTX, when USDC’s market capitalization had “retraced” only to about $43 billion. In other words, it had returned to late 2021 levels.
The real problem came later, specifically starting in March 2023.
Indeed with the failure of Silicon Valley Bank. USDC momentarily lost its peg with the dollar.
At that point, there was a real breakout, with capitalization falling from $43 billion to $32 billion in less than a month.
The decline has then continued again since then, albeit at a slower rate, to the current $26 billion.
The loss of the peg
It is worth mentioning that USDC’s loss of the peg to the dollar was only temporary, and not permanent as with UST.
Indeed, it was due precisely to the failure of Silicon Valley Bank, as Circle at that time was forced to disclose that it had $3.3 billion locked up in the bankrupt bank’s accounts.
At that point, it was thought that those funds might be lost forever, and thus the USDC manager would never be able to cover 100% of all the USDC issued.
Instead, the problem was eventually solved by the intervention of the US central bank (the Federal Reserve), which created hundreds of billions of dollars out of thin air to cover all the deposits of all the failed banks.
In this way Circle was able to recover the $3.3 billion it had on deposit on Silicon Valley Bank, although the bank failed anyway, and USDC returned to being 100% collateralized and pegged to the dollar.
However, it seems not to have recovered from that crisis.
For example in the same period its competitor USDT saw its capitalization increase from $71 billion to nearly $84 billion. In other words, in the same period, from March to the present, USDC lost $17 billion in capitalization, while USDT gained $13 billion.
USDC: The crisis of confidence in the stablecoin issued by Circle
Until March, it was USDT (Tether dollar) that suffered from a certain widespread crisis of confidence, as far as dollar collateralized stablecoins are concerned.
Instead during 2023 it was first BUSD that lost users’ confidence, and then to some extent USDC.
Add to that the fact that in 2022, UST literally imploded, and only DAI and TrueUSD (TUSD) remain among the major dollar-collateralized stablecoins.
Moreover, DAI is an algorithmic stablecoin, collateralized mostly in ETH, so much so that its market capitalization has shrunk significantly in the past twelve months.
Thus, the only one that has grown from this point of view, besides USDT, is TUSD, if we limit ourselves to the world’s major stablecoins pegged to the US dollar.
Overall, therefore, there has been a widespread loss of confidence in stablecoins, with the exception of USDT, which has instead somewhat recovered.
However, Tether in this respect started from what we might call a lower level, so paradoxically the recovery of confidence was easier.
TUSD, on the other hand, was not even included among the major stablecoins until 2022, so it makes no sense to compare its current situation with that of past years.
Overall, stablecoins also suffered during the bear-market of 2022, which in this particular case has largely carried over well into 2023.