The US dollar is not having a good start in the second half of 2020.
The dollar index, which measures the greenback against a basket of leading currencies, has fallen 9.5% since the March high. July was the currency’s weakest monthly performance in a decade after USD fell to a two-year low.
This weakness has been tied to the market, expecting further easing of US monetary policy, a lack of agreement among lawmakers on further fiscal stimulus, and falling bond yields.
Dollar’s loss, however, has been turning out to be good for other asset classes. Gold has hit a new all-time high at above $2,000. Bitcoin is also up 58% YTD at around $11,400, and this could be the time to stack more sats. Trader Scott Melker said,
“This is arguably the most pivotal moment we have seen for the United States Dollar since it bottomed in 2008. This channel has been intact for over 10 years. If it breaks down, hide yo' kids and buy a metric ton of Bitcoin.”
Bitcoin’s gains have also been attributed to the dollar's fall, and the digital asset is further expected to benefit from USD weakness.
“If the dollar continues to depreciate, there is a high probability that Bitcoin will continue to rise,” said Jay Hao, CEO of OKEx.
Crypto also addresses frictions such as settlement and transparency, which were “assumed” to be “very hard to solve before,” said Ripple CEO Brad Garlinghouse. “Crypto is up 80% while USD is down 3% YTD.”
Fueling the Rise of Stablecoins
Another interesting facet seen in the crypto market while USD continues to lose its value is the increase in the demand of USD-pegged cryptos.
Stablecoins have had a rapid rise following the crypto crash in March, which was spurred by a massive sell-off in the global equity markets, which led to a huge rush into cash and a global shortage of dollars. Coin Metrics in its joint report with Bitstamp says,
“Moving into stablecoins allows investors to effectively keep money parked on the sideline without having to completely cash out into fiat currency and incurring fees. This rush to safety likely accounted for a significant portion of the increased stablecoin demand following March 12th.”
Stablecoins are back on the rise, with Tether in the lead, which added more than 400 million to its supply in just three days, to a total of over 11.5 billion.
Another driver behind this growth is the use of stablecoins as a medium of exchange, given their ease of international transfer. An increase in these types of payments could be due to hyperinflation in many fiat currencies following the March crash.
The transfer value of these fiat-pegged cryptos reached over $5 billion on July 27th, led by USDT-ETH, USDC, and DAI.
According to Coin Metrics, this continued rise in stablecoins is likely to help introduce more new users into the crypto ecosystem.
“Stablecoins could be the gateway that helps spur crypto’s global adoption, and boost usage of BTC and other crypto assets along the way.”