Which stablecoins were truly ‘stable’ during this week’s unexpected Bitcoin price drop?

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During Tuesday’s market fall, cryptocurrency traders flocked to the protection of stablecoins.

The cryptocurrency market suffered a significant sell-off on Tuesday, with leading tokens Bitcoin (BTC), Ether (ETH), Cardano (ADA), and Solana (SOL) all falling by double-digit percentages, creating an opportunity for stablecoins to prove their worth.

The fixed-price cryptocurrencies provided traders with temporary relief from the famed crypto price volatility. They achieved it by nearly preserving their one-dollar peg and providing adequate liquidity to traders looking for a safety nett throughout the market’s fall.

CryptoQuant, a blockchain analytics business, observed huge increases in stablecoin transfers on Tuesday, while the cryptocurrency market capitalisation decreased from $2.38 trillion to $2.103 trillion.

Tether (USDT), the leading stablecoin by volume, handled $10.51 billion in transactions on Tuesday, up from $4.02 billion on Monday.

 

The mean of all stablecoins transfer. Source: CryptoQuant

Similarly, the second-largest stablecoin USD Coin (USDC), backed by Circle, reported $5.728 billion in transfers on Tuesday, compared to $3.27 billion the previous session, a 74% increase.

At the same time, the nett stablecoin supply in circulation remained relatively quiet, hovering around $67 billion, demonstrating ample liquidity against demand despite a harsh crypto market fall. As a result, despite slight price fluctuations, many top stablecoins retained their one-to-one dollar peg.

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Centralized stablecoin more dependable

Among the top 10 stablecoins that showed minimal average deviation from their one dollar peg included six centralized, two mixed and two algorithmic projects.

USDC demand pushed its average valuation by about $0.00196 above a dollar, closely followed by Paxos (PAX), which traded $0.00203 above the same peg.

Top 10 stablecoins ranked according to their average deviation from the U.S. dollar. Source: Larry Engineer’s stablecoin tracker

Similarly, Binance USD (BUSD), the native stablecoin of the Binance exchange, and MakerDAO’s Dai maintained their stability through a dynamic system of collateralized debt positions, autonomous feedback systems, and a variety of user incentive structures.

Tether’s increased demand across the cryptocurrency spectrum has also increased its average variance by $0.00244.

Meanwhile, the dollar valuations of TrustToken’s TUSD, Stable Universal’s HUSD, and Terra’s UST have shifted by $0.00249–0.00385. FRAX and FEI both decoupled from their respective dollar pegs, rising $0.00404 and $0.00474 above it, respectively.

The data snapshot was collected 24 hours following the crypto market fall on Tuesday.

Is a stablecoin collapse good for Bitcoin?

But potential stablecoin risks have also attracted the attention of top United States officials, including Treasury Secretary Janet Yellen and Federal Reserve Bank of Boston President Eric Rosengren.

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In a meeting with the heads of the Federal Reserve, the Securities and Exchange Commission, the Commodity Futures Trading Commission, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation in July, Yellen “emphasised the need to act quickly to ensure there is an appropriate U.S. regulatory framework in place.”

Tether, on the other hand, has been described as a potential threat to financial stability by Rosengren.

In July, Fitch Ratings published a study warning that collateralized stablecoins could cause short-term credit market contagion:

“A sudden mass redemption of [tether] could affect the stability of short-term credit markets […] particularly if associated with wider redemptions of other stablecoins that hold reserves in similar assets.”

But what would a collapse of the stablecoin market mean for Bitcoin and other digital assets? Bloomberg Intelligence’s senior commodity strategist, Mike McGlone, believes it will boost Bitcoin in particular.

“If the whole market collapse, there is only one safe store of value left: Bitcoin.”

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