Stablecoins are becoming a major force in Asia’s cryptocurrency scene. Michael Gronager, the CEO and co-founder of Chainalysis, believes that stablecoins will drive institutional adoption in the region, even if regulators are not happy about it. In an interview at Token2049 in Singapore, he said that despite regulatory concerns, the use of stablecoins is on the rise.
What Are Stablecoins and Why Are They Important?
Stablecoins are crypto tokens whose value is tied to real-world assets like the U.S. dollar or gold. They underpin the crypto trading system by providing a stable store of value and a medium of exchange. Unlike other cryptocurrencies that can be highly volatile, stablecoins offer a fixed value, making them useful for everyday transactions.
“Two-thirds of all transaction volume on blockchains are stablecoins,” Gronager noted. This shows how significant stablecoins have become in the crypto trading system. They are not just for traders but are also being used by regular people for remittances and other financial activities.
Regulators’ Concerns Over Stablecoins
Even though stablecoins are gaining popularity, regulators have some level of concern. Many things need to be ironed out before stablecoins can be fully accepted by financial authorities. Gronager mentioned that banks are slow to adopt stablecoins because they have to talk to regulators, which can delay the process.
“Why hasn’t it happened yet? Because banks are slow. They talk to the regulator,” he explained. Regulators worry about issues like money laundering and financial stability, which is why they are cautious about stablecoins.
Japanese Banks Planning U.S. Dollar-Backed Stablecoins
In Japan, there is growing interest among banks to launch U.S. dollar-backed stablecoins. Last year, one or two banks expressed this desire, but now, according to Gronager, ten banks are interested. However, regulatory hurdles are causing delays.
Japanese banks see the potential of stablecoins in competing with traditional remittance services. By using stablecoins, they can offer faster and cheaper transactions, which is attractive to customers. But until regulators give the green light, these plans remain on hold.
Competition in Remittances from Stablecoins
Stablecoins are presenting growing competition in the remittance market. People who send money across borders are finding stablecoins to be a convenient option. They offer lower fees and faster transaction times compared to traditional banking methods.
Banks are starting to notice this trend and are considering how to adapt. If they don’t embrace stablecoins, they risk losing customers to crypto-based services. This adds pressure on financial institutions to innovate and possibly push regulators for clearer guidelines.
Global Crypto Adoption: Asia Leading the Way
Asia is dominating in terms of crypto adoption. According to a report by Chainalysis, five Asian countries are in the top ten of the Global Adoption Index. India and Nigeria are leading in grassroots crypto adoption, with Indonesia climbing to the third spot as the fastest-growing country.
More users in the region have leaped into cryptocurrency than elsewhere. This shows a strong interest and willingness to embrace new financial technologies in Asia. The high number of crypto users per capita indicates that people are looking for alternatives to traditional financial systems.
U.S. Influence in the Crypto Industry
Despite Asia’s dominance in adoption, the United States remains the most influential region in the crypto industry. The U.S. ranks fourth in the Chainalysis report, but it’s where the big trading volumes come from. The crypto economy looks to institutions like the U.S. Congress and the Securities and Exchange Commission (SEC) for major signals.
“The real volume of crypto is tied to countries like the U.S. and others,” Gronager said. The U.S. has a significant impact because of its large financial markets and regulatory decisions that can affect the global crypto landscape.
Crypto Users Per Capita: India vs. U.S.
When it comes to crypto users per capita, countries like India have higher numbers than the U.S. Gronager pointed out that more average people in India are holding crypto compared to those in the U.S. This suggests that cryptocurrency is more integrated into everyday life in some countries.
In the U.S., while there is significant investment in crypto, it might not be as widespread among the general population. This difference highlights the varying levels of crypto adoption around the world.
Impact of U.S. Presidential Election on Crypto
There has been much discussion about how the U.S. presidential election might impact the crypto industry. However, Gronager believes that the election isn’t a big deal for crypto. “It won’t matter much,” he said, predicting that whether Donald Trump or Kamala Harris wins, getting past the election will be healthy for everyone.
Despite crypto influencers focusing on candidates’ positions, the industry is expected to continue evolving regardless of the election outcome. Regulatory policies might shift, but the overall trajectory of crypto adoption is likely to stay on course.
Financial Assets Soaring Due to Liquidity and Money Supply
On September 24, financial assets soared to record levels. The S&P 500 reached a record high of 5,735, and gold prices climbed to $2,670 an ounce. Gold has increased by 30% year-to-date, making 2024 the best-performing year for gold this century.
But what is driving these continual rallies in financial markets? A closer look reveals that liquidity and money supply are key factors. Central bank policies have significantly contributed to injecting liquidity into the global economy.
Central Bank Policies and Global Liquidity
As of September 25, the combined balance sheets of the top 15 central banks worldwide exceeded $31 trillion. This level was last seen in April 2024. The figure has been rising since July, reflecting substantial monetary stimulus in response to economic challenges and uncertainties.
China’s commitment to substantial monetary easing, combined with the U.S. Federal Reserve’s aggressive 50 basis point rate cut, has further fueled market momentum. The CME FedWatch Tool predicts a 60% chance of another 50 basis point cut at the November 7 meeting, which would lower the fed funds rate range to 4.25-4.50%.
M2 Money Supply and Asset Price Appreciation
Another key indicator of liquidity is the M2 money supply. This includes physical currency in circulation, savings and time deposits, and money market mutual funds. According to Trading Economics data, the M2 money supply has shown consistent month-on-month growth since February 2024.
In August alone, the M2 money supply increased by nearly 1% month-on-month. This ongoing monetary expansion has been crucial in supporting asset prices. There is a strong correlation between the S&P 500 and the M2 money supply, with both moving in tandem over the past five years.
Bitcoin’s Growth Compared to Traditional Assets
The compound annual growth rate (CAGR) of the M2 money supply has been 7%, while the S&P 500 has achieved a CAGR of 14% over the past five years. However, bitcoin has outperformed both with an impressive CAGR of 50% during the same period.
Despite its volatility, bitcoin’s higher growth rate reflects its increasing prominence as an asset class. It often benefits from the same liquidity dynamics that drive traditional markets. Investors are seeing bitcoin as a potential hedge against inflation and as a high-growth asset.
Liquidity as the Key Driver of Asset Performance
Central banks’ expansionary policies, combined with a rising money supply, are fueling asset price appreciation across the board. Whether it’s gold, the S&P 500, or bitcoin, the correlation with monetary measures like M2 highlights how liquidity remains a key driver of asset performance in today’s economy.
As long as central banks continue to provide support, financial markets may well continue to push higher. However, the sustainability of this trend remains a question for the future. Some experts worry that too much liquidity could lead to asset bubbles or inflation.
Sustainability of Current Market Trends
While the current market trends are positive, there are questions about their sustainability. Relying heavily on central bank policies and increased money supply may not be a long-term solution. Investors and policymakers alike are watching closely to see how these factors will impact the global economy in the coming years.
Stablecoins and liquidity are playing significant roles in the financial markets today. From driving institutional adoption in Asia to influencing asset prices worldwide, these factors are shaping the future of finance.
