Stablecoins Prosper as Bitcoin Crashes—A Sign of Crypto Maturity?
Image Courtesy of Unsplash (Piret Ilver)

Stablecoins Prosper as Bitcoin Crashes—A Sign of Crypto Maturity?

Stablecoin volatility is down, and adoption appears to be up - things are looking up after the crypto crash.
Neither the author, Kai Morris, nor this website, The Tokenist, provide financial advice. Please consult our website policy prior to making financial decisions.

Recent statistics from CryptoSlate reveal that during Bitcoin’s downward turn in May, stablecoins performed well, with USD Coin (USDC) seeing net deposits increase by 155.5% and Tether (USDT) deposits increasing by 15.5%.

This shows that stablecoins do not conform to the same patterns as other cryptocurrencies, as most usually follow Bitcoin’s activity. These results also suggest that during times of distress in the markets, people turn to stablecoins as a form of safe haven from volatility. 

Stablecoins are Not Like Other Cryptos

It goes without saying, but stablecoins function in a different way than other cryptocurrencies. People do not exactly invest in stablecoins (unless they are attempting to yield farm) but rather they use them as a means of staying in the crypto market without having to face volatility and uncertainty. 

The recent statistics indicate that during bearish times, traders lean closer to stablecoins. This makes sense as many traders, especially day-traders, are likely to prefer keeping their money in crypto rather than withdrawing it to fiat during market crashes, as full fiat withdrawals often take longer and can cost more.

The data does not show whether stablecoins have always been viewed this way, or whether it is a new occurrence only seen in the last few months. If this is a new revelation, then it is a huge positive for the market, as it indicates that traders have a greater trust towards crypto-technologies.

One interesting result of traders transferring funds over to stablecoins is that it displays the sheer diversity of the crypto markets when it comes to their movements. The media often portrays the crypto markets as synonymous with the Bitcoin market, implying that whatever Bitcoin does, every other coin does.

But stablecoins fly in the face of that. They act as a reminder that the crypto industry is not some monolithic structure where all coins act in accordance with Bitcoin.

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Stablecoins Have Matured This Year

This news is a positive sign for stablecoins, as it shows that people are trustworthy of them even in times of hardship. This will likely aid in further adoption of the crypto industry as a whole. 

One reason for this increased trust may be due to how far stablecoins have matured. As a sub-field of coins and tokens, stablecoins have undergone some fascinating developments. For starters, the market is no longer ruled by Tether (USDT), the first stablecoin in existence.

Alternatives such as Dai (DAI) and USD Coin (USDC) have gained popularity. They have also reduced in volatility. Take a look at their price charts:

USDC/USD price chart showing decreasing price fluctuations over time. Image by TradingView.

USDC has had a rocky road, but from late 2020 onwards, it has been an extremely stable currency, this is a huge sign of both adoption and maturity, as it shows that it is on the path of fulfilling its duty of being sufficiently pegged to the dollar.

DAI/USD price chart
DAI lifetime price chart. Image by TradingView.

Dai has undergone the same movements, where in late 2020 it became less volatile. This means that both coins have become more functional and appealing, which has, in turn, encouraged people to adopt them during market crashes.

Stablecoins Have Gotten Experimental

Not only have stablecoins matured, but the industry has seen greater adoption of more experimental projects. In particular, algorithmic stablecoins have been gaining traction. These are coins that maintain a certain price by using algorithms to mathematically force their worth to stay at a certain number.

In late 2020, AgeUSD was announced for Cardano. Not only will this be the first stablecoin to launch on the Cardano network, but it will also be an algorithmic stablecoin. And in April 2021, the governance token for AmpleForth’s algorithmic stablecoin was also launched. These might not seem like much, but both projects are pushing the boundaries of what is economically and technologically possible with stablecoins.

With fascinating new developments, increased maturity, and resilience against bearish behavior, the future of the stablecoin industry is looking bright. As an instrumental element of crypto adoption, positive news for stablecoins is positive news for the entire crypto sphere.

Why do you think stablecoins saw more deposits during Bitcoin’s crash? Let us know in the comments