Q9 Weekly | Balance & Stability

Q9 Capital
5 min readMay 25, 2023

25 May 2023

· Markets on track for worst month of the year

· HK to allow retail trading of crypto from June

· Stablecoin market cap declines for 14th straight month

Bitcoin nears $26k, leading a broader market decline as investors reacted to poor UK inflation figures and nerves over the US debt ceiling negotiations.

Late week jitters erased earlier gains seen on Tuesday when Hong Kong’s securities regulator announced it will allow retail trading of certain crypto assets starting June 1st. The new guidelines are part of a broader effort from the territory to become a global crypto hub. Although the upwards price move was small, the positive news comes at a time when the market is lacking in big catalysts and trading has hit a lull.

The market has become somewhat ‘boring’, with BTC trading in a small range throughout May, struggling to break above $30k but staying above $25k. This is the tightest price range in years.

BTC Trading Range Tightest in Years

Source: Glassnode

BTC and ETH are on pace for their worst month of 2023, down -10% and -4%, respectively so far in May. Furthermore, CoinDesk’s Bitcoin Trends Indicator (BTI) moved this week to signal a downtrend in direction and momentum.

CoinDesk BTI Signals Bearish Outlook

Source: CoinDesk Indices

Unstable Coins

The stablecoin market has shrunk for the 14th consecutive month — suggesting that the crypto market is still in its bear phase. In May, their aggregate market cap reached its lowest level since September 2021 — falling 0.45% to $130bn. The stablecoin supply has now been in a continuous decline since March 2022.

Stablecoin Market Cap Declines for 14th Consecutive Month

Source CCData

Volumes also fell 40.6% to $460bn, recording the lowest monthly trading volume since December 2022.

Stablecoin Trading Volume Drops to Yearly Lows

Source CCData

JPMorgan wrote last week in a report that cryptocurrency prices are unlikely to enjoy a sustained recovery until the stablecoin market stops shrinking. “Headwinds from the US regulatory crackdown on crypto, the unsettling of banking networks for the crypto ecosystem and the reverberations from last year’s FTX collapse are weighing on the stablecoin universe which continues to shrink,” analysts led by Nikolaos Panigirtzoglou wrote.

JPMorgan says the US debt ceiling issue drew attention to the reserves of major stablecoins and their holdings of US Treasury securities. “The share of US Treasury securities in the reserves of major stablecoins has been increasing over time, implying a big challenge by stablecoins to maintain their pegs in an adverse scenario of a US technical default,” the analysts wrote.

Tethers latest transparency report shows that its reserves in treasury bills rose 35.2% to $53.0bn. T-Bills now account for 64.8% of the USDT collateral. Bitcoin and Gold holdings in their collateral, amounting to $1.50bn and $3.39bn respectively in fair value — as they look to diversify from treasuries.

Tether is not the only one who has looked into alternative holdings as Circle announced that their reserve fund has moved $8.7bn of assets to cash and repo agreements amidst concerns over a potential debt default by the US Gov.

USDT Reserves

Source CCData

TrueUSD (TUSD) has bucked the trend and defied the market-wide slump in stablecoins. It has grown to become the fifth largest stablecoin by market cap and is now the second most traded stablecoin. Its trading volume increased to $29bn so far this month — overtaking USDC and BUSD in volumes.

TUSD Bucks Trend of Stablecoin Downturn

Source: CCData

Top 10 Stablecoins by Supply

Source: CCData

Balance and stability within the stablecoin market is crucial for the health of the digital asset ecosystem. The recent contraction of the stablecoin market poses headwinds for broad market prices, signalling deteriorating liquidity.

A report from Goldman Sachs said earlier this year that the shrinkage is equivalent to a sort of quantitative tightening for the crypto market, an indication of declining liquidity and leverage. Stablecoins are effectively the liquidity of the crypto ecosystem. The more liquidity, the more ability for investment and speculation. Despite the growing number of users and applications of stablecoins, the continued reduction of supply highlights that we are still not out of the woods for this secular bear market.

In the News…

· Hong Kong steps up crypto hub push in contrast with clampdowns in Asia

· Hong Kong CBDC pilot involves 16 banks, payment providers

· ZA Bank to launch crypto trading services for retail investors in HK

· Solana launches ChatGPT plug-in to help users interact with its network

· Crypto mogul Do Kwon’s bail is revoked in Montenegro

· Strike integrates Tether’s USDT for payments

· US lawmaker introduces bill to clarify digital assets classification

· Chinese labs are selling fentanyl ingredients for millions in crypto

· Bhutan turns to crypto in search of fast growth

· Coinbase L2 ‘Base’ readying for mainnet launch, timeline unclear

· Airstack rasies $7mn to build a web3 development engine

· Azteco has raised $6mn in a seed funding round, led by Jack Dorsey

· Animoca Brands: Digital ownership with blockchain gaming and education

· Pepe-themed ‘Bitcoin Frogs’ becomes most traded NFT amid Bitcoin Ordinals hype

· Pudgy Penguins smash Amazon debut, sells over 20,000 toys



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