- Stable coins are cryptocurrencies which are not subjected to any volatility.
- Their price remains more or less same relative to the benchmark currency, USD.
- Experts say that stablecoins may be losing their grip over investors to altcoins.
What do you need to know about stable coins?
Stablecoins such as Tether (USDT) and USDC are cryptocurrencies whose value remains stable throughout. For example, the value of Tether remains between the range of $1 to $1.005. Here’s a snapshot of the coin’s chart which gives a better understanding of its stability.
Stablecoins have the stability equivalent to any existing currency such as the USD or INR. They are still cryptocurrencies and perform similar functions, however they are distinguished due to the absence of volatility. The value of other cryptocurrencies such as Dogecoin fluctuates by 10 to 20% due to tweets. However, the price of stable coins remains more or less the same, irrespective of the external factors.
Thus, many investors have invested heavily in stablecoins as a hedge against volatility while also gaining exposure to the crypto asset class. Their investments are protected even during market fluctuations such as the May crash. While altcoins dropped by roughly 80%, the value of stable coins hardly moved. Thus, investors prefer stablecoin investments during times of uncertainty.
Why do investors invest in Stablecoins?
- Many investors tend to wonder why others park their money in stablecoins such as tether or USDC when the dollar performs the same functions.
- There are various factors which distinguish stablecoins from the US dollar per se.
- Many exchanges levy higher transaction costs when trades are executed using the USD. On the other hand, trades done using stable coin pairs are charged less by various exchanges.
- Some exchanges do not accept fiat currencies at all. They only accept trades done through the stablecoin pairs.
- Stablecoins enjoy higher autonomy and cross-transactions across popular crypto exchanges.
Are altcoins stealing stablecoin’s show?
Due to the recent rally witnessed in almost all altcoins such as XRP, Cardano, Solana and many others, investors are evaluating their investments in stablecoins. Almost all stablecoins have doubled or tripled investors’ money. At the same time, due to its attributes, stablecoins such as Tether and USDC have hardly moved from their mean value.
The market capitalization of Tether has fallen from the third place to the fifth place in August 2021. Meanwhile, the market capitalization of USDC has fallen from seventh place to ninth place. Solana’s rally has driven its market capitalization with it and outpaced the stablecoin’s capitalization.
Analysts are of the opinion that the fall in market capitalization does not necessarily mean that they are losing their importance in the cryptocurrency market. Stablecoins’ value is linked to an underlying asset, in this case, the US dollar. Thus, their market capitalization does not appreciate as fast as other coins which witness bull rallies.
Stablecoins are used as a hedge against bear markets. Due to the optimism and hope for a possible bull-run, investors seemed to have pulled their money from stablecoins. Instead, they have invested heavily in altcoins which have seen an unprecedented rally in a month. Thus, experts say that stablecoins have not lost their attractiveness. It is a mere shift of trend that has compelled investors to re-allocate their funds in order to maximize profits.
When the bull-run reaches its peak and signs of reversals are seen, stablecoins such as Tether and USDC will be the most popular investments in the new asset class. This is so because they are free of volatility and offer up to 10% interest on an annual basis.