Key Points
- Bitwise Asset Management foresees stablecoins becoming mainstream, according to its CIO.
- Ethereum and Solana are suggested as potential investment points for stablecoins.
Bitwise Asset Management, a prominent asset manager, believes that the flourishing $159.5 billion stablecoin market is a crypto frontier that investors should consider.
In the first quarter of 2024, Tether [USDT], the top stablecoin issuer in terms of market cap, reported a record profit of $4.5 billion. This raises the question of how others can profit from this subsector if they do not issue stablecoins.
Stablecoins and Investment Opportunities
Bitwise suggests that the key lies in examining the concentration of stablecoins. Matt Hougan, Bitwise’s CIO, stated in a memo to investment professionals that while you can’t expect appreciation from holding stablecoins directly, you can invest in Layer 1 blockchains like Ethereum and Solana, which host both stablecoins and the DeFi apps that interact with them.
Bitwise’s inclination towards these investments is driven by the high probability of the US passing stablecoin legislation in late 2024 or early 2025. This could potentially lead to the “mainstreaming of stablecoins,” according to Hougan.
Stablecoins and the US Economy
Backing his arguments, Hougan stated that stablecoins are beneficial for the US since they are pegged to the US dollar and are among the largest buyers of US Treasuries. He pointed out that stablecoins are already the 16th largest “sovereign holder” of Treasuries globally, a position that could be enhanced by a mainstream push.
Bitwise’s preference for Ethereum, Solana, and their respective DeFi ecosystems is based on stablecoin dominance and usage. Data from DeFiLlama revealed that the Ethereum chain has the highest stablecoin dominance, controlling 50.75% of the market share. It is followed by Tron [TRX], BSC, Arbitrum [ARB], Solana, and others in that order.
The executive did not provide extensive details on how to navigate the dominant stablecoin chains and DeFi platforms. It can be inferred that the executive was suggesting the accumulation of native tokens of the dominant L1 chains and platforms. However, as with all things in crypto, Bitwise’s advice should not be taken as financial guidance unless thorough due diligence has been conducted.
