Cryptocurrency Investors Seek Low Volatility in Stablecoins to Avoid Losses
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Cryptocurrency Investors Seek Low Volatility in Stablecoins to Avoid Losses

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The coronavirus is inflicting a significant economic impact — on traditional investments, global economies, supply chains, and of course, the cryptocurrency market. With trading prices dropping sharply, crypto investors are now turning to stablecoins as a low-volatility safe haven.


How Crypto Investors are Reacting to Coronavirus

With over 236,000 confirmed cases at the time of this writing, the coronavirus has had a brutal impact. Though most consider health and well-being as the primary victims of the virus, economic implications are continuing to surface — at alarming rates.

While the stock market crash is just one factor, many people are beginning to lose their jobs. With unemployment increasing by the day, Americans are wondering if the US will follow Italy in cancelling mortgage payments.

The onslaught has reached the crypto space as well. One month ago, Bitcoin (BTC) was trading above $10,000, according to data from CoinMarketCap. 30 days later — today — BTC is starting to break the $6,000 mark, but was under $4,500 just one week ago.

While virtually all cryptocurrency market capitalizations have suffered similar cuts, crypto investors are now turning to stablecoins as a safe haven.

Finding Low Volatility in Stablecoins

With cryptocurrencies dropping, investors are seeking low volatility. Stablecoins aim to peg their value to a real-world asset. This asset could be a commodity, such as gold, or a currency, such as the USD.

The idea is such that owning a stablecoin is essentially owning the real-world asset — through a digital proof of ownership. Cryptocurrencies are infamously known for their volatility. Stablecoins were designed to provide low volatility without forcing investors to actually convert their digital assets for cash or commodities — as this comes with hefty taxes in most jurisdictions.

Tether is currently the fourth largest cryptocurrency by market cap. At the time of writing, it features a market cap of over $4.65 billion. A little more than one month ago, Tether ranked seventh by market cap.

USDC, the popular stablecoin launched by Circle, is now the 18th largest cryptocurrency by market cap, at almost $630 million. Earlier this year, Circle announced it would focus its efforts on USDC. One month ago, its market cap was at just $430 million.

Paxos has also seen a spike. Over the past 30 days, its market cap has jumped from $209 million to $230 million. Paxos now constitutes the 32nd largest cryptocurrency by market cap.

When Will the Coronavirus Crash End?

Traditional investing — the purchase of stocks which is commonly done today through stock trading apps —  is also suffering losses. Amid the coronavirus impact, Wall Street recently experienced its worst day since 1987.

With stocks plunging, opportunistic investors are contemplating jumping in. Many are trying to find the bottom, wondering if the coronavirus is creating an opportunity for investors.

Will the markets eventually recover? When we look at how traditional financial markets recovered from past epidemics, the research suggests yes.

Whether that’s the case with the coronavirus — for both crypto and traditional assets — is yet to be seen.

What do you think about crypto investors seeking low volatility through stablecoins? When will crypto markets see gains — and what will be the cause of such activity? We want to know what you think in the comments section below.


 Image courtesy of SteemKr.

March 19, 2020

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Tim Fries Tim Fries is the cofounder of The Tokenist. He has a B. Sc. in Mechanical Engineering from the University of Michigan, and an MBA from the University of Chicago Booth School of Business. Tim served as a Senior Associate on the investment team at RW Baird's US Private Equity division, and is also the co-founder of Protective Technologies Capital, an investment firms specializing in sensing, protection and control solutions (IoT).