Stablecoins are becoming increasingly important on the global cryptomarkets. This has now made Tether (USDT) the number three crypto currency by market capitalization. Meanwhile, Ripple (XRP) is losing market share.
The crypto year 2020 confirms a trend that began after the all-time high of Bitcoin (BTC) in December 2017. Traders and investors increasingly prefer to settle their transactions in stablecoins. Previously, BTC and Ethereum (ETH) dominated trading in Altcoins as the units with which currency pairs are formed. This development is now becoming apparent as Tether (USDT), the first and still most important stablecoin, has moved up to number three in the largest cryptocurrencies by market capitalization. For years, this was the home of Ripple (XRP), an old coin that is already struggling with problems on many fronts.
Stablecoins, Tether and the crypto market
In total, Stablecoins now holds more than 10 billion US dollars. Tether in its USDT variant accounts for the lion’s share with a market capitalisation of almost USD 9 billion, followed by USD Coin (USDC) with a good USD 700 million, Paxos Standard (PAX) with around USD 250 million and others such as TrueUSD (TUSDT), Gemini Dollar (GUSD) or Stablecoins from Binance. What they all have in common is that they are supposed to represent Fiat as a crypto currency in a ratio of 1:1 and are theoretically covered by Fiat reserves.
Tether experienced an abrupt rise with the crypto boom in 2017/8, when new market participants began to get involved in the crypto exchanges. With the US dollar as a reference value, it was and is easier for these traders to handle and document their profits or losses than with currency pairs, where both reference values are subject to considerable fluctuations in some cases. This desire for accounting stability is also expressed, for example, in the design of Bitcoin Futures, which are normally quoted in US dollars and have reached classic exchanges through Bakkt.
It is therefore hardly surprising that tether in daily turnover has now outstripped BTC on many trading days, because USDT ensures liquidity without major price fluctuations. But it is equally clear that Bitcoin as a store of value with a market capitalization of more than USD 160 billion is in a completely different league to Tether. Even compared to ETH, which currently has a market capitalization of 22 billion US dollars, the capitalization path for USDT is still a long way off.
Five lessons from the shifts in the cryptomarket
1 Stablecoins, and especially Tether, are winners in the trend that more and more citizens and institutional investors are taking advantage of the opportunities offered by Bitcoin and Co. Offsetting against the usual fiat currency makes it much easier for them to shape their strategies. What they ignore is the fact that currency fluctuations offer additional profit opportunities. Anyone who calculates in euros but invests in US dollars in tech stocks such as Google, Facebook, Amazon or Apple is familiar with this phenomenon.
2 The big loser in this development is XRP. Ripple even started to serve as a bridge currency at one point. But this vision is not coming true. Instead, legal problems in the USA and reports of artificially inflated sales are further weakening confidence in XRP. The prestigious podium place on the three largest global crypto currencies is something Ripple will have to get rid of.
3rd Bitcoin remains the leading currency among the crypto currencies, without any ifs and buts. Tether is mainly used to trade with BTC and Altcoins like ETH. The increase in importance of USDT simply shows that the demand for Bitcoin is unbroken and that the new generation of traders appreciate US dollars as a benchmark.
4. you should also not forget in this context: Tether itself now relies partly on reserves in BTC for its stability and is under observation by US courts because there are considerable doubts about business practices.
5 Stablecoins with Tether as figurehead have become so important that mistrust in their protection by Fiat reserves would probably have an immediate and negative impact on the crypto markets. It is not without reason that the G20 states already recommend internationally coordinated regulation of stablecoins; they have been identified as systemically relevant.
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