Less than $20 billion of stablecoins left on exchanges as capital continues to drain

Key Takeaways

• Nearly $24 billion of stablecoins have left exchanges since FTX collapsed last November
• The total marketcap of stablecoins has dipped $16 billion in that time
• Liquidity continues to fall in the crypto space, with capital moving elsewhere despite rising prices
• Strict regulatory climate in the US, high yields in trad-fi and uncertainty may be contributing to the pattern

Crypto prices have risen since the start of the year, but capital continues to flow out of the space. Last week brought the news that two prominent market makers, Jane Street and Jump Crypto, were scaling back operations in the US amid the continued regulatory crackdown on the sector. 

For markets that have already been suffering from thin liquidity since the Alameda insolvency last year, the news amounts to the latest blow. While rising prices may have brushed the problem under the carpet for the time being, Bitcoin markets getting drained of capital is undoubtedly a hurdle that needs to be overcome for an asset that has ambitions of establishing itself in the mainstream. 

Indeed, with liquidity so low, prices have been able to move up more rapidly, with less capital needed to shift the shallow order books on exchanges. In the short-term, this has been a boon. As inflation has come down and forecasts around the future path of interest rates have softened in the last six months, crypto has thus surged upward with less resistance in its way, Bitcoin expanding over 60% this year. 

In the long-term, however, this is not a bullish development. Thin liquidity means amplified moves downward as well as upward. And looking at the regulatory climate, things only seem to be getting worse for crypto firms based in the US, which happens to be the centre of the financial world. 

The SEC is on a warpath with the entire entire industry, clapping back at accusations that it is the lack of regulatory clarity that is causing so many issues, but rather “mass non-compliance” on the part of crypto firms. 

The money is talking. We have discussed the recent announcements of market makers, but a glance at the liquidity on exchanges also reveals the capital flight that is occurring. This week, the total balance of stablecoins on exchanges dipped below $20 billion. At the start of the year, that figure read $37.7 billion. When FTX fell in November, it was $43.5…