Stablecoins like Tether are starting to gain traction in the crypto markets. Given the extreme turbulence suffered by the likes of Bitcoin in 2021, more investors are turning to so-called stablecoins as a way of avoiding market volatility.
Tether is just one of the many stablecoins that are backed back a fiat currency. But other stablecoins have had their market value pegged to everything from exchange-traded commodities to other cryptocurrencies.
Such measures have been introduced as a way of making cryptocurrencies a more attractive investment option. While meme-based cryptos like Dogecoin are capable of significant short-term gains, they are far from being considered a serious asset.
However, stablecoins have gradually grown to become a viable investment option. This was seen in 2019 when Tether exceeded Bitcoin in its trading volume and, for a time, surpassed all other cryptocurrencies. Similar stablecoins such as USD Coin have seen a rapid growth in circulation from four billion to over 23 billion since the start of 2021 alone.
Regulators to examine the stablecoin success story
Like most digital tokens, stablecoins have increasingly fallen under the scrutiny of financial regulators. Last week saw the Bank of England declaring that it had yet to decide on how to regulate such cryptocurrencies.
The main concern is that whoever issues the stablecoin would need to be able to prove that it had reserves of the asset that is linked to the crypto. This would mean that anyone who decided to cash in a stablecoin would be able to receive the asset on a one-to-one basis.
As such, it’s expected that any issuer of stablecoins will soon be facing the same regulatory rules as traditional banks. It’s widely expected that regulators in the US would follow suit in what promises to be a bruising summer for cryptocurrencies.
Tether leading the stablecoin revolution
June 2021 saw the stablecoin Tether breaking the $60 billion market capitalization mark. This was a hugely important moment in the rise of the crypto and it once again validated stablecoins as a viable investment opportunity.
Tether was one of the first stablecoins to come on the scene. It was launched in July 2014 and it was notable for the fact that it had its value tied to that of the US dollar. This marked a trend for cryptocurrencies to tie their market value to a fiat currency. As such, there have been a wave of fiat-backed stablecoins such as TrueUSD, USD Coin and Diem that have attempted to follow the success of Tether.
While Tether has continued to grow in popularity, there remain significant concerns about whether the crypto was the subject of price manipulation. Plus Tether has yet to produce an audit to show that it holds all of the required USD in reserve to meet customer withdrawals. While these remain valid concerns, there can be little doubt that Tether and stablecoins are here to stay.