It is becoming a lot harder for crypto companies to access dollars to buy digital assets as the network of payment providers shrink in the US.
(Bloomberg) — It is becoming a lot harder for crypto companies to access dollars to buy digital assets as the network of payment providers shrink in the US.
While the greenback and stablecoins with their value pegged to dollars remain the foundation of the crypto market, its dominance has been waning since the collapse of the FTX exchange, according to a report published by blockchain analytics firm Kaiko Monday. Measured by the trading volume of Bitcoin, the market share of dollar-denominated Bitcoin continues to drop, while euro-, Tether-, USDC-denominated Bitcoin trading pairs are gaining traction since November, its data show.
The decline of the dollar after FTX’s collapse could be linked to a drop “in institutional trading activities,” Clara Medalie, director of research at Kaiko, said. Institutional trading desks usually prefer settling their trades in dollars versus stablecoins such as Tether, she added.
While the crypto industry has long disliked banks, traditional lenders play an essential role as a reliable on-and-off ramp between their platforms and hard currencies. But crypto firms are increasingly being cut off in the US by banks.
Read more: Crypto Needs Banks More Than Banks Need Them: Bloomberg Crypto
With the shuttering of Silvergate Capital Corp.’s crypto payment network, stablecoins will likely become even more ubiquitous in the short term among traders, the report said. Stablecoins are digital tokens that aim to keep a one-to-one value with a fiat currency. However, stablecoins may not be a long-term solution, as many current issuers of stablecoins still need access to a crypto-friendly bank like Silvergate, Kaiko said. “So the risk is now further concentrated,” the report said.
Read more: Investors Shore Up Stablecoins as Silvergate Exodus Worsens
The number of new fiat trading pairs listed by exchanges has fallen with the rise of stablecoins, according to Kaiko.
In 2022, the number of new dollar-denominated trading pairs across all crypto exchanges fell to 326 from 400 a year ago, Kaiko’s data show. That number increased to 165 from 96 for euro-denominated trading pairs.
“An increasingly unfriendly U.S. regulatory and banking environment” could be an opportunity for European markets, the report said.
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