A Morgan Stanley research report said that last week was the first time since April that the market capitalization of stablecoins didn’t drop on a monthly basis.
Stablecoins are crypto coins with its value tied (pegged) to real-world currencies such as the US dollar, or other assets like gold.
The researchers detailed that the redemption of stablecoins by institutional investors has stopped and that there is even some sign that positions might be rebuilt. Although the market cap of the stablecoins is still 20% under its high, it looks safe to say that at least for now, “extreme institutional deleveraging” has paused.
According to Morgan Stanley analysts, redemptions of the tether (USDT) stablecoin have stopped, and its market issuance actually increased last week by $1.7 billion in 10 days. Nevertheless, the second-largest stablecoin, USD Coin (USDC) has dropped $2.6 billion since beginning of July. The bank said:
“The fall in USDC market cap started ahead of the regulatory change and looks similar to the decline seen earlier in the year between March and May.”
The also bank noted that the tightening of monetary policies by central banks across the globe has a negative effect on demand to borrow to finance investments in crypto assets. Numbers show that lending on decentralized finance (DeFi) platforms has taken a 70% plunge in 2022.
Diving deeper with its analysis, Morgan Stanley believe it will be almost impossible to bottom this crypto cycle without “fiat leverage growing or crypto leverage growing.” The research note said that demand for leverage in the crypto industry is subdued, and with a recent Ethereum (ETH) rally, margin calls on crypto borrowers have taken a break.
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