Citibank Finds Crypto Market Volatility Stalling User Adoption

Citibank's recent report highlights the negative impact of crypto market volatility on user adoption, as evidenced by a decline in trading volumes and active addresses. Concerns about stablecoins, particularly following the collapse of TerraUSD, have led to outflows from Tether, with some investors shifting to more transparent stablecoins like USDC or exiting the market entirely.

Crypto Market Volatility Hinders User Adoption, Citibank Reports

New York, June 8, 2022 - Citibank (C) has issued a report highlighting the significant impact of cryptocurrency market volatility on user adoption and overall market sentiment.

The report notes that cryptocurrencies are currently trading well below their peak values, and concerns surrounding stablecoins, particularly in the wake of the collapse of terraUSD (UST), have led to a decline in the value of the largest stablecoin, tether (USDT). These concerns have likely contributed to the ongoing decline in the crypto markets.

"Volatility has had a detrimental effect on user adoption," Citibank observes, indicating that trading volumes and active addresses experienced a spike around the time of the luna (LUNC) collapse, suggesting increased user engagement. However, these increases have since dwindled to previous levels or even below.

Despite the decline in trading volumes and futures positions, Citibank suggests that there is evidence of sustained investor interest in the cryptocurrency space. "Tentative evidence indicates a reduction in trading volumes and futures positions, but not wholesale declines in investor interest in the space," the report states.

Following the collapse of LUNC, concerns emerged regarding outflows from USDT, but these have since slowed down. Some USDT flows shifted to the more "transparent and centralized" USD coin (USDC) stablecoin, while others exited the market entirely.

According to the report, the Total Value Locked (TVL) in DeFi has decreased in U.S. dollar terms but has remained relatively stable when measured in ether (ETH), particularly considering the losses incurred by the Anchor protocol following the collapse of UST and LUNC.

DeFi, an umbrella term for financial activities conducted on a blockchain without intermediaries, has witnessed a decline in TVL, mirroring the broader market trend.

Meanwhile, Morgan Stanley (MS) issued a report on Tuesday, highlighting the weakness in crypto markets, the failure of a dollar stablecoin, and the reduction in leverage in DeFi, leading to the "crypto equivalent of quantitative tightening."