Stablecoins could save the cryptocurrency market

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Stablecoins could save the cryptocurrency market

With the recent fall of the prices in the crypto market, very few investors venture to expose their capital in this sector, except maybe in the futures market.

However, not all digital coins are stumbling. Among the hundreds of virtual currencies available, there is a small group that is resisting the negative trend: Stablecoins.

Unlike most cryptocurrencies _ which don’t have a value on their own _ stablecoins maintain their value by being redeemable for something else of tangible value, such as regular fiat currencies like the US dollar, or even gold.

The cryptocurrency sector is, without a doubt, the most volatile financial market of the last year. However, during this period of high volatility, stablecoins have become a delight for many crypto investors, since they offer a low volatility option to invest in digital currencies.

As the term ‘Blockchain’ and ‘Bitcoin’ became massively popular in 2017, so is the term ‘Stablecoins’ this year. Currencies such as Tether (USDT) and Dai (DAI) have become a popular option of investment following the wild swings experienced across the cryptocurrency market.

Now, stablecoins _ also known as fiat tokens _ might present a solution to short-term volatility, but that will always depend on the fiat currency backing their value remaining stable in worth.

However, they won’t fix confidence losses, especially if the value of the stablecoin’s reserved assets is questioned. If the ability to redeem this currency is at risk, the stablecoin’s price will likely fall.

That said, investors have to be careful on the type of stable currencies they invest in. Recently, one of the those stablecoins collapsed from the set value of $1 USD to less than $0.04 a few hours after reports emerged the company had not enough reserves backing the token.

But despite all this, some of the experts in the sector seem to have confidence that the recent instability is part of the industry’s growing process.

During a Crypto Summit held last week in London by financial outlet Bloomberg, a series of panelists suggested that, while there’s no denying the immediate outlook for cryptocurrency is shaky, the industry is just experiencing a temporary setback that will eventually see the market back on the expectation-shattering pace that characterized the end of 2017.

“While no one forecast an immediate rebound in crypto prices, they cast the current downturn as more like growing pains than rigor mortis. In fact, two areas of growth for the industry will come from low-volatility tokens known as stable coins and so-called security tokens, digital contracts that represent ownership of assets such as real estate or stocks,” said during the Summit James Bevan, Chief Investment Officer at CCL Investment Management.

 

By Alejandro Cortés

Source: Bloomberg

  • Alejandro Cortés

    Alejandro Cortés

    Egresado de la Escuela Mexicana de Periodismo Carlos Septién García. Ha trabajado para varios periódicos en México y los Estados Unidos desde 2002.

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