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Stablecoins Thrive Amid Investors’ Uncertainty Over Mainstream Crypto

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Stablecoins have come a long way in the crypto space, with more investors buying their pitch of providing a merge of the stability in fiat currencies and the speed of cryptocurrencies. 

However, the adoption of these assets has especially ramped up in the past few weeks, and reports have now confirmed that the assets now represent a growing percentage of the crypto market’s entire value. 

Hedging Against Market Volatility 

Earlier this week, data from blockchain analytics platform Coin metrics confirmed that the entire market value of stablecoins had crossed $9 billion for the first time. 

True, they still account for slightly less than 5 percent of the crypto market’s current $201 market cap. However, when you consider that their value was $6 billion less than two months ago, you’ll find that investors appear to be more sold on stablecoins as the days go by. 

So far, the prevalent opinion has been that the rise in stablecoin adoption could mean even more gains for large-cap cryptocurrencies like bitcoin and Ether. However, this could also be proven wrong. 

As stated earlier, stablecoins’ appeal rests on two foundations – the stability that they provide (which mirrors their underlying fiat assets), and their transaction speed (which they get from being cryptocurrencies). This recent adoption spike could simply mean that investors are more enamored with the former than the latter. If that’s the case, then it could spell trouble for other non-stablecoin cryptos. 

Last month, news source Finance Magnates ran a report showing how stablecoins have been able to weather the coronavirus storm and hold strong, while most of the mainstream crypto market caved. 

At the time, Steve Ehrlich, the chief executive at crypto trading platform Voyager Digital, explained to the news source that investors appeared disillusioned with the mainstream market and were simply looking for something stable with which to hedge their assets. 

Supply Catching Up to Demand 

“This unfortunate crisis has created extreme market volatility across global markets, both legacy and digital, causing many to move their assets into the U.S. dollar to de-risk. We’ve seen similar behavior in crypto, as many are using the 1:1 stable coin peg as a risk-protection tool.”

He added that by holding stablecoins, investors had found a suitable asset for them to maintain their wealth and stay on the sidelines, while they waited for the next course of action when stability returns to the market.

Stablecoin operators have also responded to this surge in demand by creating more supply. Last week, Tether Limited minted $120 million worth of its asset. Huobi also minted $4.2 million worth of its HUSD stablecoin earlier this week. 

While the mainstream crypto market appears stable and has rebounded from the lows of mid-March, investors seem to be skeptical, as experts have also warned of a possible return to such lows. 

However, Bitcoin could still gain from this. Ryan Selkis, the founder of crypto research firm Messari, pointed out that about $3 billion worth of stablecoins sits on exchanges. As he explained, this could mean investors are waiting to plow back into Bitcoin when normalcy returns. 

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