Stable coins, which include Tether, USD Coin, and Binance USD, are tied to a fiat currency like the U.S. dollar. Because of this, their prices vary less, and investors are rushing in amid geopolitical turmoil.
This fluctuation was especially evident Thursday as markets were rattled following Russia’s invasion of Ukraine. The prices of Bitcoin and Ethereum, the most popular cryptocurrencies, dropped 7% and 9%, respectively. Both have lost about half their value since they reached record highs last November, according to CoinMarketCap.
On the other hand, Tether and USD Coin, the largest stablecoins by market capitalization, have stayed at around $1 since last November. The stablecoins maintain their value by holding reserves of commercial paper or treasuries, according to Bloomberg.
“There’s risk aversion, which creates flight to relative safety,” said Malcolm. “You park your money temporarily without taking it out of the ecosystem, and all the cost and hassle that involves.”
Although Tether is the largest stablecoin, with a market capitalization of $79 billion, the second-largest stablecoin, USDC, is quickly increasing from its market cap of $53 billion.
If USDC continues its growth, it will overtake Tether as the most popular stablecoin in 2022, according to a report by Arcane Research, which tracks the crypto industry. The increased popularity of stablecoins has already brought regulatory scrutiny to the category.
This scrutiny will likely continue in 2022 as their popularity increases, according to the Arcane Research report.
Cumulatively, the total value of all stable coins, or their market capitalization, is nearly $180 billion, compared to $38 billion at the same time last year, according to Coin Metrics data compiled by crypto news outlet The Block.
Although the most popular stablecoins held their price at a dollar on Thursday, Tether was down 0.02% Thursday morning and USD coin was up 0.06%.
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