The rise of the stablecoin market does not seem to get a rest.
With Tether, USD Coin, True USD, PAX and DAI pegged to the dollar and Stasis to the Euro, just to name a few, there’s soon to be a new addition to the market by stablecoin prominent supporter Binance.
We have already written about their new cryptocurrency BGBP that will be backed by the British Sterling Pound and will launch soon.
We now want to look at why stablecoins are important, are rising, and what purpose they serve in the cryptocurrency market.
One of the main reasons why Bitcoin is not getting mass adoption is its high fluctuation. We’ve witnessed the top cryptocurrency going from the high of $20K to a low of $3200 within the range of only 11 months.
How can we even consider paying or getting paid with money that is worth a certain value today but we don’t know what its value will be next month, next week or even tomorrow?
Speculation finds the perfect situation in the cryptocurrency market and sure, people that know how to take advantage of such volatility can get wealthy but all the others might get rekt easily too.
Enter stablecoins. Exactly for the reasons just mentioned. They offer price stability and steady valuation. By denomination they are stable, pegged to a fiat currency but by no means stuck to it, meaning that if one day the dollar collapses, for example, the stablecoin does not follow suit as their value in terms of fiat is only used as a reference.
Simply looking at coinmarketcap for a few days, it stands out how stablecoins go up in value when the market crashes and go down when the market rallies. Although the coins never fluctuate that much, they are used by traders to secure their gains when the crypto market crashes. Meaning they can then revert into cryptos as soon as the market picks up again, quickly, and inexpensively.
If you wonder why one should secure their assets in USDT and not the US dollar, the reason is that stablecoins are still cryptocurrencies with all the advantages that they carry: they are fast to transfer at very low fees if none, are recorded in the public blockchain, are borderless, and not controlled by any central bank or authority.
Although one main feature distinguishes and separates them from cryptocurrencies like Bitcoin and makes them resemble the good old fiat currency, their circulation can be increased at any time which means they may become inclined to inflation easily, just like their fiat counterparts.
This might be the reason why traders like to go back to their cryptos once they gain back value. Let’s just say they are a good asset to balance and secure one’s money easily and without encountering the high fees that exchanging back into fiat money would incur.