NEW YORK, July 14, 2020 (GLOBE NEWSWIRE) — The supply of stablecoins is growing at its fastest pace ever since the March 12 cryptocurrency crash, according to a new report titled The Rise of Stablecoins from Bitstamp and Coin Metrics. While it took five years for stablecoins to reach a supply of 6 billion, it took just four months this year, from March to July, for that supply to double to 12 billion. The report looks at the impact that this explosive growth may have on the overall cryptocurrency market.
Increased demand since March 12
During times of volatility, Coin Metrics notes that the demand for stablecoins increases as investors seek safe-haven assets. On March 12, 2020, the cryptocurrency market crashed, spurred in part, by a large sell-off in the global markets due to fears over COVID-19. During this rush to cash-out, Bitcoin prices dropped by 50 percent – the largest one-day price drop since 2013.
After March 12, demand for stablecoins increased dramatically as investors sought safety and wanted to keep money parked on the sideline without incurring fees associated with trading into fiat currency.
Stablecoin opportunities after the crash
In March, most stablecoins increased above their typical $1 price range due to demand, including USDC, USDT, PAX, BUSD, and HUSD. All except USDT’s price returned to their $1 pegs within days. USDT remained higher through May, creating arbitrage opportunities.
“We saw USDT_ETH supply, in particular, explode when the price rose above $1 in March,” said Coin Metrics Senior Research Analyst, Nate Maddrey. “Using our free float metric, we can see that new USDT_ETH supply diminished in May as the price dipped back toward $1.”
The new report also illustrates that the vast majority of the amount of USDT_ETH held by large addresses increased by a huge amount in late March and April, which suggests exchanges began holding larger amounts of stablecoins. This could also account for exchanges converting fiat into stablecoins.
The benefits of stablecoins moving forward
Compared to Bitcoin (BTC) and Ether (ETH), stablecoins are being exchanged relatively frequently. Stablecoins are exchanged 5-10 times as frequently as BTC and ETH. While BTC and ETH velocities are between 4 and 6, stablecoin velocities mostly range between 25 and 50. For the first time, in June 2020, the amount of value transferred using stablecoins exceeded the amount transferred using BTC.
As the use of stablecoins continues to increase, Coin Metrics’ analysts believe they could serve as a gateway for more crypto users, especially in countries with restrictive policies on crypto asset trading.
Stablecoins are easy to move globally, allowing for use as cross-border payments. Stablecoins offer a way to transfer money between exchanges and to offer settlement functionality without relying on traditional wire transfers. For many exchanges, stablecoins are used as a quote currency in crypto asset trading pairs far more than fiat…