The Rise of Crypto ‘Stablecoins’ (pt 2)

Posted by Matteo Poole on Dec. 13, 2018, 12:41 p.m.

The Rise of Crypto ‘Stablecoins’(2)


Stablecoins could be ideal for governments/companies

Stablecoins have a feature that most other cryptocurrencies, if not all, lack: stability. By being relatively stable, stablecoins can be ideal for institutions and governments as a true electronic means of payment. Their technology would enable them to benefit from the advantages of cryptocurrencies as well as being used as a payment method.

If a government/company were to issue a Stablecoin, while holding the equivalent in fiat (or any other collateral equivalent), as previously done by Circle and others, it would be 100% legitimate virtual cash.

The advantages of utilising Stablecoins could include but not be limited to, semi-instant transactions, cheaper than the current traditional methods, as well as full transparency, something that all industries, in particular the financial one, are moving towards.


Rising New Opportunities: Market Inefficiency Arbitrage

The interesting fact about Stablecoin is that their ‘face value’ should be equivalent to $1. However, it does not always appear to be the case.

In previous months we saw USDT being worth as low as $0.84 against other Stablecoin USDC, as well as TUSD being worth more than $1.03 against USDT. But how is this possible if all these coins are meant to be worth $1?

The simple answer is market prices inefficiencies. Bitcoin is traded against all different stablecoins that should all have a value of $1, but as in all markets, it happens that there is a price discrepancy between stablecoins/bitcoin pairs.

For example on one exchange USDT/BTC could be trading at £3800, while on another the USDC/BTC pair could be trading aa $4000.

The different in prices creates a low-risk arbitrage opportunity: USDC/USDT; although the two coins should be worth intrinsically the same value of $1.


Stablecoins as a bitcoin-hedge

Stablecoins could be an ideal asset for the traditional investor’s portfolio, to hedge against bitcoin. As bitcoin price plunges the investor can convert his funds into a Stablecoin, and start trading a ‘stable-pair’, such as USDT-USDC. By doing so he can still profit, while bitcoin price falls. As price recovers he can then switch back his funds into bitcoin and trade as he wishes. But even in general, a stable-pair could be an ideal hedge for the portfolio as it is usually not affected by bitcoin’s prices.

To improve your trading results, see Profiting from Automated Trading.


Written and Edited by - Matteo Poole - Markets and Strategy Analyst at Yanda



Disclaimer: Please keep in mind this is not financial advice, but just an augmented opinion, so don’t treat it as such.

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