Stablecoins Have Long Fueled Crypto Bull Runs By Injecting Liquidity into the Market

Stablecoins have long fueled crypto bull runs by injecting liquidity into the market, but their role is evolving beyond speculation.

Stablecoins have played a crucial role in injecting liquidity into the crypto market, often fueling bullish trends. As stablecoin adoption hits record highs, the question arises: how will this impact the next crypto cycle?

According to Allium and Ignas, the global stablecoin market capitalization reached an unexpected high of $190 billion in November 2024. This surpasses the previous all-time high of $188 billion, which was hit in April 2022.

Moreover, stablecoin trading volumes on centralized exchanges also surged, increasing by 77.5% month-over-month to $1.81 trillion as of November 25. Among the stablecoins, USDT remained dominant, accounting for 82.7% of the total volume across centralized exchanges. FDUSD followed with a 9.01% market share, and USDC had an 8.09% share.

The report highlights that FDUSD's rising dominance can be attributed to its strong adoption in Asian markets for cross-border payments. On the other hand, euro-denominated stablecoins saw a 52.9% surge in trading activity, reaching $657 million, indicating increased adoption among European users.

The Trump administration’s Stablecoin bill has opened several opportunities for both conventional investors and crypto investors, especially amid the gloomy days of the crypto market. As a result, major TradFi players like Bank of America, Standard Chartered, PayPal, and Stripe actively captured the bills through their actions.

With the government providing regulatory clarity on stablecoins and increasing trust and adoption, institutions utilized stablecoins for short-term trading liquidity, real-world utility, and even planned to launch their own stablecoins if regulations permitted.

Stablecoin Supply Growth & Crypto Liquidity

Since 2017, stablecoin supply growth (e.g., USDT, USDC) has been closely tied to crypto liquidity, enabling investors to buy Bitcoin, Ethereum, and altcoins. Such developments often led to price surges.

During the period of 2017 – 2018, Tether (USDT) minted large amounts of USDT on Ethereum and Tron to meet surging liquidity demand during the crypto bull run. USDT supply grew from a few billion USD in early 2017 to over $2 billion by year-end, continuing to rise in 2018 (CoinGecko, BeInCrypto).

The reason behind it is that USDT was used to buy BTC and ETH, fueling a price surge as investors avoided fiat volatility and traded easily on exchanges like Binance, Coinbase, and Bitfinex. Eventually, BTC hit $20,000 in December 2017, partly driven by USDT liquidity. However, in 2018, the market crashed, partly due to concerns over Tether’s transparency and allegations of unbacked USDT issuance.

Another case with USDC, it saw a significant supply increase in 2021, particularly on Ethereum. According to CoinMarketCap, its market cap surged from a few billion USD in early 2021 to over $50 billion by year-end. USDC provided liquidity for DeFi and major exchanges like Coinbase, so investors used it to buy BTC, ETH, and DeFi tokens, contributing to the price surge during this period.

As a result, BTC and ETH hit all-time highs, while DeFi protocols like Aave and Uniswap benefited from increased TVL (total value locked) driven by USDC growth.

Most recently, a continuous minting of USDT and USDC from March to September 2024 has been predicted as a precursor to a strong pump in late 2024 (November and December).

Therefore, stablecoin minting signals from whales toward the end of 2024 could indicate a bullish trend for crypto prices soon, particularly in the first half of 2025, amid the current market uncertainty and skepticism.