The digital currency ecosystem has continued to experience volatility, with a declining market capitalization sweeping across the board.

While the combined cryptocurrency market capitalization is down by 1.58% to $1.01 trillion, with Bitcoin (BTC) leading the losses.

Considering the state of the digital currency ecosystem, Morgan Stanley’s analyst, Sheena Shah, revealed in a note to clients on Monday that the nascent crypto market is still very much subjected to the Federal Reserve’s continuous quantitative tightening expectations. 

According to Shah, the fact that the stablecoin’s market capitalization has stopped falling is a very positive sign that institutional crypto deleveraging appears to have paused. 

“Stablecoin availability is a sign of liquidity within the crypto world and demand for crypto leverage. In early June, Tether (USDT), the largest stablecoin, saw its market capitalization fall 20% in about a month, causing the crypto equivalent of quantitative tightening,” Shah said in a note to clients.

“Around the same time, bitcoin fell 45% and traded below $30k. This week marked the first time since April that stablecoin market capitalisation has stopped falling on a monthly basis. The market cap is still down 20% from the peak (12% excluding TerraUSD), but this may be a sign that the extreme institutional deleveraging appears to have paused for now.”

Shah also pointed out that the price of Bitcoin typically weakened in Asian trading hours in June. The Morgan Stanley analyst noted this decline to align with their observation that U.S. treasury yields were rising most during the U.S. hours, a representation of Fed tightening expectations.

“We do not think that bitcoin weakening most during U.S. hours necessarily tells us that it was U.S. investors selling bitcoin as crypto traders could trade 24 hours a day. However, it does suggest that U.S. central bank monetary policy tightening expectations have been an important driver of the crypto bear market this year,” the note reads.

The digital currency ecosystem is expected to react in a very significant swing over the next few months until both the US and the global economy remain steady.

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