This article evaluates the growth of stablecoins, their collateral structures, and the effects of bitcoin price fluctuations on stablecoins from 2021 to 2025. It illustrates the significant increase in stablecoin market capitalisation and discusses changes in collateral backing various stablecoin types. The findings reveal that demand for stablecoins is influenced by overall market sentiment, shifting alongside bitcoin price movements.
Stablecoins are cryptocurrency assets pegged to traditional fiat currencies, predominantly the U.S. dollar. Following a notable analysis in previous posts, this article tracks the substantial growth of stablecoins since 2019 and evaluates their collateral structures. It also investigates the effects of significant increases in bitcoin prices on the stablecoin sector from 2021 to 2025, providing a broader context on market dynamics and investor behaviour during such price movements.
Stablecoins vary based on their collateral type, with the primary category being financial asset-backed stablecoins, which utilise traditional assets like U.S. Treasury securities. Other categories include crypto-backed stablecoins that rely on cryptocurrencies like Ether and algorithmic stablecoins that adjust their supply through programmed algorithms. As of March 2025, stablecoins amassed a market capitalisation of $232 billion, a forty-five-fold increase since late 2019, with Tether and USDCoin dominating the market at 86%.
The mixture of collateral supporting stablecoins has changed since 2022. Notably, various stablecoins like Binance-Peg and USDCoin shifted from U.S. Treasury securities towards reverse repurchase agreements and cash. Conversely, while Tether transitioned from higher-risk assets to U.S. Treasury securities, it still retains a portion of reserves—18% in less liquid assets—exposing some degree of risk.
This article also evaluates the response of stablecoins to positive bitcoin price shocks by analysing data from January 2021 to January 2025. Findings suggest that all types of stablecoins experienced capital inflows during significant bitcoin price surges, notably riskier stablecoins. In contrast, stablecoins viewed as less risky, primarily U.S.-based ones, saw negligible inflows, highlighting a pattern where riskier assets draw more investor interest in bullish conditions.
In conclusion, the findings underscore that stablecoin demand correlates with overall activities in the cryptocurrency ecosystem. Increased bitcoin prices appear to elevate stablecoin utilisation, potentially leading to greater leverage within crypto trading. Conversely, negative bitcoin market conditions cause a safety-seeking behaviour, prompting increased investment in less risky stablecoins, while riskier alternatives experience outflows. Overall, stablecoin demand is intricately linked to the performance and sentiment within the broader crypto market.
