Cryptocurrencies have endured an underwhelming year so far as some of the top digital assets recording substantial declines in their valuation. The virtual currencies were greatly affected by the March 12 selloff in which close to $100 billion was wiped off the entire crypto market capitalization. The crypto market fell victim to the mainstream financial markets turmoil brought about by the Covid19 crisis. The virtual assets performance showed some great correlation to the conventional assets performance thus putting into question their ability to act as safe haven assets. However, the crypto market performance did not cut across all the digital currencies as stablecoins held their own in the face of adverse market conditions.
The stablecoins have lived up to their expectations this year as their performance has shown strong signs of stability during great market turbulence. The asset-backed cryptocurrencies have for long been touted as the ideal replacement to government-backed currencies due to their ability to retain value over differing market conditions. However, stablecoins have never faced a serious test to their credentials until now. The ongoing coronavirus driven economic crisis has decimated various sectors of the global economy following the adoption of a series of interventions by multiple governments. Subsequently, the financial markets have tumbled and taken the crypto market down with it.
The digital assets market experienced huge volatility in the first quarter of 2020 as investors capitulated under growing fear, uncertainty, and doubt (FUD). The FUD triggered massive asset liquidation with crypto market investors choosing stablecoins as their preferred tool for holding their wealth. As the coronavirus pandemic grew rapidly so did the conversion of some highly volatile digital assets like Bitcoin, Ethereum, and XRP. Investors saw the asset-backed stablecoins as the preferable medium for keeping their funds safe. This huge shift resulted in a ballooning of the stablecoins market capitalization as their creators moved to generate more to meet the growing demand.
The transaction volume for stablecoins grew by 8% in the first quarter of 2020 from the previous period at the end of last year. Remarkably, the stablecoin transaction volume surpassed $90 billion for the first time ever showing a surge in use of the asset-backed digital currencies. Comparatively, stablecoins are on course to outgrow last year’s transaction volume that totaled to $250 billion. Their growing adoption also pushed their use closer to mainstream financial application numbers as PayPal transaction volume for 2019 was $712 billion. Further dissection of the figures paint a positive picture of the stablecoin’s future as the volume not only emanated from trading activities on exchanges. A significant proportion of the transactions were made on-chain showing that people were moving value to each other indicated by the flow between addresses across the blockchain.
The positive performance cut across the various stablecoins as they surged against a backdrop of falling cryptocurrencies prices. However, one stablecoins accounted for a huge proportion of this volume. Dollar-pegged cryptocurrencies Tether (USDT) dominated the stablecoins sector in terms of both trading volume and total market capitalization. According to research conducted by crypto publication The Block, the USDT/ETH trading pair constituted 62% of all the stablecoins transactions in the first quarter of 2020. However, this was a massive decline of 36% from the previous quarter with transaction volume falling from $12.7 billion to $8.1 billion.
Other stablecoins recorded huge surges in transaction volumes in the first quarter of 2020. MarkerDAO’s DAI stablecoin and Coinbase’s USDC had the greatest surge as their usage grew by 344% and 54% respectively. Paxos Standard (PAX), True USD (TUSD) and Gemini USD (GUSD) had similarly impressive growth in transaction volumes of 32%, 14% and 6% respectively.
Stablecoins laso had an impressive first quarter of 2020 in terms of growth in their market capitalization. The total supply of stablecoins increased by more than 30% in the period. Unlike other decentralised cryptocurrencies like Bitcoins that are mined, stablecoins are usually issued by crypto exchanges. Crypto traders and investors consequently use them to shield their digital assets holdings against the market volatility. As such, the demand of stablecoins grows as volatility and instability increases in the crypto market. The exchanges and other creators therefore generate more new coins that are backed by a real asset in the real world.
The first quarter of 2020 has experienced great volatility occasioned by the coronavirus pandemic. This has subsequently fueled a demand for the stablecoins as crypto traders and investors look for a hedge against their cryptocurrency holdings. The creators have responded by increasing the stablecoin supply by 32.1% with USDT dominating this increase. By the end of the first quarter of 2020 USDT accounted for 84.4% of the total stabelcoin market cap. The total stablecoin supply volume surged from $5.7 billion to $7.5 billion with USDT alone rising by $1.6 billion. This huge dominance is rightful as USDT alone constituted 94.16% of the entire stablecoin trading volume across the period.
The other stablecoins followed USDT at a distance with Coinbase issued USDC coming second in terms of market capitalization at around $700 million valuation. PAX, Binance USD (BUSD), and True USD (TUSD) completed the first quarter of 2020 in the top five stablecoins in terms of market capitalization with with $245 million, $190 million, and $136 million valuations respectively.
The demand for stablecoins grew in the first quarter of 2020 as the market sentiment turned fearful against crypto assets like Bitcoin, Ethereum and XRP. The transaction volume rose sharply as usages for hedging purposes and peer to peer payments increased over the period. In turn, their total market capitalization surged sommensurate with the increased demand as their creators responded to the market conditions. So far, the use of stablecoins looks set to grow as they offer great value to users as well as providing a closer representation of the mainstream fiat currencies. With the Covid19 crisis set to continue in the foreseeable future, there is great likelihood that stablecoins volumes and market capitalization will grow further throughout 2020.
Image courtesy of Pixabay
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