Why are Stablecoins on the Rise? How is it Affecting the Market?

Stablecoins are newly launched cryptos and yet have shown exponential growth.

Cryptocurrencies have gained the reputation of being extremely volatile. If we take the example of Bitcoin, after institutional and national currency adoption, the crypto has entered into a deep slumber that made its market value dive down lower than US$50,000. Stablecoins are cryptocurrencies but without volatility. They share a lot of the same powers as cryptos, but their value is steady, more like a traditional currency, like the US dollar, or Indian Rupee, and others.

To economists, the benefits of stablecoins include lower cost, secure, real-time, and competitive payments, compared to what consumers and businesses experience today. The currencies could rapidly make payments cheaper for businesses to accept payments and easier for governments to run conditional cash transfer programs.

Recent corporate activities indicate a hype in the crypto space. In December 2020, Visa announced its partnership with Circle, the blockchain unicorn that is backing USDC stablecoin, which is pegged to the US dollar. Also, in January 2021, the US treasury OCC published new guidelines for banks to use public blockchains and stable coins for bank functions. And then, quite recently, JP Morgan Chase introduced its stablecoin, as well as crypto exchanges like Gemini and Paxos also launched stablecoins respectively.

How do stablecoins impact the crypto market?

The main reason behind the creation of stablecoins was to mitigate the risks associated with regular cryptos and to create a usable fiat currency. The volatility of cryptos is both a driver and a result of the lack of public trust in cryptocurrency. Poor and obscure regulations also play a huge role in adding to this mistrust. Given the high levels of distrust in traditional cryptos, people choose safer means, which are stablecoins.

The crypto whales also play a significant role in influencing the prices of cryptocurrencies. If these people wish to convert their crypto assets into stablecoins, the prices of traditional cryptocurrencies will enter a downtrend and vice versa. Stablecoins impact the crypto market in a variety of ways and will continue to do so in the future.