The hot talk around the market this week has been the big increase of bitcoin over the weekend and its subsequent decrease due to some FUD regarding Bitfinex and Tether potentially running into solvency issues as well as a fake email that announced the delisting of Tether from Binance. There is a saying in Spanish that says “ Si el rio suena, agua trae” which means if you can hear the river, water is coming so despite the fact that this is a the typical exaggerated FUD from the markets, we should also be careful where we put our cryptos and how we can properly safeguard them. While my intent here is to do some analysis, I will remind you that you should never keep a material amount of cryptocurrency on exchanges as you can only control your fate by controlling your private keys.
I have found that this latest round of Tether FUD has come when many new stablecoin projects have been announced such as Gemini and Circle both creating their own regulated stablecoin. The fact is that these new entrants as well as others have gotten the attention from the markets and provide great alternatives for transparency and security due to their integration with blockchain technology. However, I believe that Tether continues to dominate the market and this should be a concern for most investors given the concentration risk behind the amount of assets controlled by that coin. We already saw what a weekend rush to move assets can do to the likes of bitcoin and other stablecoins so we should pay more attention to this as the implications can be wide for the market in general.
Data exported from #CoinGecko Website
The top stablecoins as shown above (included Gemini’s due to the recent attention) now hold about $3 billion in value which is under 2% of total market value. However, given the accessibility of these assets to the top cryptocurrencies through their trading pairs, it demonstrates the amount of money on the sidelines available to invest into others. This is important as Tether, the leader in market cap, is now a Top 10 Cryptocurrency given the fall in prices this year. However, these stablecoins could hold the potential key to indicating the next market trend as it serves as an indicator of risk appetite for investors already in the market. However, despite the recent “run” on Tether, it continues to hold over 90% of the market share of stablecoins! That signals that what happened this past weekend is only a portion of what could happen if a true run on Tether occurs.
Screenshot from Trading View
Reviewing the moves experienced in stablecoins this week demonstrates the risk to 90% of the holders of Stablecoins. There were quoted prices demonstrating Tether trading at $0.85 which would represent a 15% loss on an asset that should be stable. However, this shift only had an impact of moving the market share of Tether from about 94% to 92% this week. We also saw the impact it had on bitcoin prices and cannot know for sure if those people have remained in bitcoin or have since moved on to other assets but the reality is that Tether continues to have dominance among cryptocurrencies in general and could imply more volatility ahead for the market.
Data exported from #CoinGecko Website
Volume is another interesting metric to see as it also shows the dominance of Tether in transactions where it account for over 80% of stablecoin volumes with the exception of the weekend when DAI and TrueUSD made up more of the volumes. This could be a results of many investors moving from Tether to these alternatives. However, Tether continues to be the main source of stablecoin liquidity which is why its moves have large impacts to the price of other assets like the one saw this weekend in bitcoin. When comparing these volumes to their market caps you can see that despite the volatility over the weekend, the turnover of assets among the stablecoins were not large which also signals the potential for larger moves in the top cryptocurrencies if diversification out of stablecoins or among them are seen in the future.
What other implications do you see in the evolution of the stablecoins? Are you using stablecoins to wait for an opportunity to get back into the market or for some other reason? If so, what are the best one to use? I think there are a number of new projects looking to find a way to crack into Tether’s market share so let me know if I missed one. I look forward to you feedback and thoughts in the comments below.
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