Crypto Market Accumulating ‘Dry Powder’ Amidst Fresh Bout of Risk Aversion
The US Dollar Index is trading at around 100, a level last seen in 2002. After dropping just under 95 momentarily, the dollar index surged to 103 the day the stock market experienced a violent sell-off.
While the dollar index climbed to its highest in two weeks, both Japanese yen and British pound weakened along with won and ruble with little change in the euro.
Meanwhile, the US stocks had its worst day in three weeks and Treasury bonds surged as turmoil in the crude oil market triggered a fresh bout of risk aversion. The market also shrugged off a new deal for a relief package worth $484 billion to lend extra support to the US economy.
Just like the dollar, in the crypto market stablecoins are enjoying record growth. In recent days, they have grown by about $3 billion.
There's a lot of dry powder in the market with the popular stablecoin Tether’s (USDT) market cap surging to $7 billion.
— Hsaka (@HsakaTrades) April 22, 2020
“Anecdotally I've heard a lot of it is for non-bank dollar-equivalents in EM for normal working capital purposes. not all dry powder for crypto,” said Nic Carter of Coin Metrics about this development.
Since the massive sell-off in mid-March, stablecoins have been acting as a shield in opposition of crypto volatility and a connection for exchanges.
Flight to Stablecoins in 2020
Currently, stablecoins are being used as a safe haven from from the volatile nature of crypto and a link for values moving amongst exchanges, noted Coinbase in its latest report “Flight to Stablecoins in 2020”. Their use in worldwide trading between businesses, conventional financial settlements, and as guaranties for DeFi since it too is moving upwards.
While the volatility of ETH and BTC prices have been historical recently, the bigger stablecoin environments have climbed to all-time highs of over the nine billion dollar market cap.
Coinbase and Circle issued USDC which is “fully backed and redeemable for the U.S. dollar on a one to one ratio,” accounting for over seven hundred million dollars of this.
As we saw last month, global investors were selling everything possible to obtain reassurances for the safety of the US dollar and these same global investors paid a steep price to exchange their own regions currencies into US dollars.
Historically, USD market has gained amid the financial crisis to a “flight to safety,” as seen in the DXY Dollar Index rises to multi-year highs.
Now, USD-pegged stablecoins are seen as “innovative mechanisms for global investors seeking U.S. dollar exposure.”
Talking of their own stablecoin, Coinbase reported that since the beginning of March, USDC’s market cap has soared from over four hundred million to an ATH of over seven million. Its on-chain value transfers also reached all-time-highs of nearly four hundred million per day. Since its creation, USDC has also transferred over twenty six billion for on-chain.
Overall, in March stablecoin reached about 40% of daily value transferred compared to BTC and ETH.
When it comes to daily active addresses, USDT leads with 50k with Sai, USDC, Dai, and PAX hovering around 3k per day.
As for stablecoins use in global commerce, the US-based exchange reports that Coinbase Commerce completed over two hundred million dollars in transactions. And because of the “fundamental advantages over traditional payment systems, stablecoins may become increasingly viable for global commerce.”
Also, crypto wallets are easier to access and the set of up than setting up a bank account and may even prove valuable for “banking the unbanked” of the world, argued Coinbase.
New financial services such as DeFi are gaining ground and allows stablecoins to”be programmatically borrowed, lent, and used as collateral. Smart contract lending protocols like Compound, dYdX, Nuo, and Aave currently offer an APY range of 0.44–2.36% for USDC.” since the beginning of April 2020.