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It’s noticeable that COVID-19 has brought challenging times in the cryptocurrency world. Speaking of cryptocurrencies, Bitcoin, Ethereum, and Ripple are some of the major players in this arena. Little did you know, stablecoins are also part of the competition. Although we will highlight everything you need to know regarding stablecoin investments in a pandemic era, many people are wondering what stablecoins are upon reading this article.
Ever since Bitcoin has been introduced to the general public, the concept of decentralized cryptocurrencies substituting and circulating fiat currencies is solely a dream. Difficult user experience and high volatility help demonstrate why no cryptocurrencies have become mainstream to the public. The development of stablecoins has addressed one of the challenges i.e. volatility, and they’ve become recognized in the world of cryptocurrency.
In March 2020, stablecoins demonstrated tremendous growth and became an unusual “beneficiary” of COVID-19 in the cryptocurrency aspect. Are you wondering how stablecoins took advantage of the global health crisis? Does it mean stablecoins have been accepted by the general public? Perhaps, is it only a temporary safe-haven for global capital?
Here’s every must-know regarding Stablecoins’ stability as cryptocurrency investment.
Investing Stablecoins Wisely
There’s a growing list to be created that the booming cryptocurrency market can make adequate platforms for profitable investments. This indicates that financial investors can utilize falling values of major cryptocurrencies, such as Ethereum and Bitcoin, to make worthy investments as a method of a comeback for digital currencies. Hence, if you believe in the falling value of major cryptocurrencies in the market, you can switch to other appropriate alternatives such as stablecoins.
Although cryptocurrencies won’t recover easily from the COVID-19 pandemic, its comeback will likely be associated with China’s return to productivity, and its massive population of miners. Along with the United States and Europe, the country will undergo a long recovery process. As a result, it can take a longer period before Bitcoin is back to its usual $10,000 in value. Hence, many investors should consider finding reputable alternatives to get back in the cryptocurrency arena.
That said, stablecoins become a worthy investment. With stablecoins’ values similar to traditional assets, such as gold and the U.S. dollar, there’s a slim possibility of investors experiencing the negative drops that major cryptocurrencies are undergoing due to high levels of volatility associated with the COVID-19 pandemic.
During uncertain times, it’s a wise decision to temporarily get away from traditional markets, and invest in short-term assets. To become a strategic investor, the safest option for many investors is to own assets in the stablecoins market. That said, they remain connected in the cryptocurrency market but secure their assets with pegged currencies. When there’s adequate proof that traditional markets have depleted, many opportunities and potentials become available as prices recover.
On A Positive Note
Despite fears and uncertainties, the Dollar-supported stablecoin market has demonstrated solidity. In early 2020, stablecoins, such as Timvi, Paxos, and Tether, have portrayed strong trading volume and strong prices. Specifically, stablecoins have exceeded a total market capitalization of $6B in the early months of COVID-19.
Many investors became interested in stablecoins, rapidly gaining popularity during the COVID-19 pandemic. Hence, stablecoins are now considered reasonably stable based on the traditional assets they’re associated with.
Because of stablecoins’ stability, many investors regained confidence in investing in digital currencies. As a result, a growing number of investors have considered stablecoins as an excellent alternative for storing assets and wealth. Aside from that, stablecoins is also a stable mode of payment outside of distressed fiat currencies.
State of Play
In March 2020, Bitcoin was worth under $5,000. Hence, the world’s most popular cryptocurrency had fallen by 27% within a day. With the emergence of the COVID-19 pandemic in the earlier months of 2020, Bitcoin had dropped almost 50% within seven days. Its dominance remains approximately at 66%, with the cryptocurrency’s cap below $91B. In the last week of March 2020, approximately $60B had been offered. In that period, many investors liquidated their cryptocurrency position to alleviate their losses.
While unprecedented changes and uncertainties ruled the market, stablecoins have become a platform for many investors to seek refuge. In mid-March 2020, six stablecoins gained spots in the Top 50 cryptocurrencies based on their profit. With MakerDao Dai, its flagship stablecoin has initiated a third asset to the company’s DeFi decentralized platform to maintain the cryptocurrency moving above its dollar peg.
Bottomline
Since March 2020, stablecoins have consistently achieved new heights according to TokenAnalyst. Hence, it definitely suggests it is reputable in market demand. However, it’s too early to tell. Is this a temporary demand for stablecoins? Perhaps, does it portray a growing acceptance of cryptocurrencies in the general public? According to TokenAnalyst, the data suggests that many investors are considering storing stablecoins in their cryptocurrency wallets as an alternative.
According to the data provided by Coin Metrics, the significant amount of stablecoins shifted on-chain has progressively grown since 2018. As a result, many financial investors are now trading stablecoins more than they are in other major cryptocurrencies, such as Ethereum.
As mentioned, stablecoins offer a reasonably safe haven when compared to other cryptos. Aside from that, they can be easily converted into a coin, such as Bitcoin, when many investors want to trade in the market again.
Evaluating from Bitcoin’s fluctuation of prices in March 2020, and the increasing number of stablecoins being transferred, is it safe to say that some investors are converting their Bitcoin assets to stablecoins? On the other hand, is the rising stablecoins investment offered adequate proof that investors will eventually return to Bitcoin once things go back to normal? The possibilities are definitely limitless; however, it’s too early to conclude its stability.
And while stablecoins’ momentum is still in progress, hindering its progress is never a wise decision. It’s progressively scaling; hence, many things can happen in a digitally-connected era. For example, Argentina is slowly adopting stablecoins like Dai as part of their search for a safe alternative to safeguard their assets or wealth. In case you didn’t know, the South American country is heavily suffering from inflation. Hence, you’ll never know what stablecoins can bring to the table in the foreseeable future.
Disclaimer
The views and opinions expressed in this article are solely those of the authors and do not reflect the views of Bitcoin Insider. Every investment and trading move involves risk - this is especially true for cryptocurrencies given their volatility. We strongly advise our readers to conduct their own research when making a decision.