As Bitcoin edges ever closer to the critical $4000 mark, with the majority of the crypto markets holding on to their gains from this past week’s price rally, a new report has shed light on the growing impact of stablecoins.
Stablecoins, which have continued to become popular over the last year in response to the severe price volatility of traditional cryptocurrencies, offer a solution for merchants and developers looking to avoid daily value fluctuation. Compared to most digital assets, which function similar to investment vehicles and change with price appreciation, stablecoins peg their value to an external source. In most cases, the chosen value has been a demonstrably stable currency, such as the case for Tether USDT being pegged to the U.S. Dollar. Other stablecoins have found benefit in tying themselves to the value of precious metals, such as gold.
The more recent announcement by JPMorgan Chase to create a JPMCoin for client transactions came with the tidbit that the currency would be pegged to the U.S. dollar. Stablecoins have become a way for large banks and companies to capitalize on the innovation of blockchain and cryptocurrency without being exposed to the massive price volatility.
According to a report published on Feb. 20 by California-based startup Reserve, which is a stablecoin company, the increased interest in stablecoins will play a large role in growing mainstream adoption for cryptocurrency. Data was compiled from forty cryptocurrency and stablecoin firms, with lead author and blockchain advisor George Samman coming to the conclusion that stablecoins will contribute to the mass, mainstream adoption for cryptocurrency,
““The development of stablecoins, price-stable cryptocurrencies, asset-backed cryptocurrencies etc. is likely to play a critical role in how this new economy achieves mainstream adoption.”
(Disclosure: Samman was commissioned by Reserve to research the stablecoin industry but report his findings independently).
In particular, Samman’s report found beneficial use for stablecoins in developing countries and those experiencing hyperinflation, such as the crisis in Venezuela. According to Samman, citizens of these countries will likely be the earliest mass adopters for stablecoins, giving them access to currencies th at are pegged to values outside of their less reliable national fiat.
Citing the example of Facebook and rumors of a stablecoin being developed for the WhatsApp messaging service, the report finds that the stablecoin market will experience some of the most rapid and exponential growth of the next two years, making the claim stablecoins will be,
“The most tokenized liquid asset in the cryptocurrency space in the next 12 to 24 months.”
While long time proponents of cryptocurrency and investors looking to trade digital assets like stock may be less enthused with the rise of stablecoins–particularly as they provide little in the way of appreciative gain–the market dos provide an outlet for companies looking to deal in cryptocurrency without price volatility.
In the end growth for cryptocurrency, whether through stablecoin adoption or otherwise, brings more development and utility to the field. Facebook and JPMorgan supporting stablecoins may present competitors for Bitcoin in terms of taking away transactional potential, but ultimately drives more interest to the industry of cryptocurrency.