The number of stablecoins, or cryptocurrencies pegged to the price of the U.S. dollar, held in address linked to centralized exchanges has dropped to its lowest since May 2021. According to blockchain analytics firm Glassnode's data, the balance was 21.06 billion on Monday. This is a significant reduction from its record high of 44 billion in mid-December. The reason for the fall can be attributed to the de-pegging of U.S. Dollar Coin (USDC) in March, following the U.S. regulators' clampdown on Paxos' BUSD in February.

This means that investors are exhibiting signs of risk aversion towards stablecoins and are instead deploying their holdings into Bitcoin. As Bitcoin's market value has surged 70% this year, it indicates that the principal cause of its rise has been the transfer of money out of stablecoins and into Bitcoin. The true driver of Bitcoin's rally is yet to be ascertained as activity on Decentralized Finance (DeFi), Non-Fungible Tokens (NFTs) and GameFi remains depressed.

The diminishing appeal of the U.S. dollar is also one of the factors behind the reduction in the balance of stablecoins. U.S. Federal Reserve's ambitions to contain inflation with a rate hike last year had resulted in an urge to store value in USD or its equivalent. However, with the expectation of renewed liquidity easing, investors' sense of this motivation has weakened since late 2020.

Tether (USDT), the most valuable stablecoin, has profited from the shift away from USDC and BUSD. Therefore it has grown increasingly dominant. The ease of funds transfer has been cited as one of the reasons behind the choice of stablecoins. Bypassing the price volatility associated with other tokens, they provide ideal conditions to invest. Overall, it is clear that the dip in the exchange balance of stablecoins has been caused by an aversion to risk among investors, who have traded their holdings for Bitcoin.



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