Exploring Stablecoins as a Potential Hedge Against Cryptocurrency Volatility - Insights
As Bitcoin drops below USD 42,000 in early January, questions are being raised if the coin is a good measure of anything about its extremely high volatility.
Stablecoins Are designed to be “linked” to traditional Fiat Currency. For example, USDC for United States Dollar Coin is a cryptocurrency that is not affiliated with the United States Government but claims to keep its value tied to the USD.
“USDC is fully backed by cash and equivalents and short-duration U.S. Treasuries, so that it is always redeemable 1:1 for U.S. dollars. Each month, we publish attestation reports by Grant Thornton regarding the reserve balances backing USDC.” (Circle.com)
While USDC asserts that its assets are backed by US Treasury securities, skepticism remains due to past controversies in the crypto sector regarding the actual backing of such investments. This leads to a question: why wouldn’t investors simply choose traditional government-backed investments instead? For a US citizen, there might be reasons beyond the apparent to prefer holding assets in USDC over conventional options.
Moreover, the United States government has initiated research into the feasibility of a government-issued digital currency, known as a central bank digital currency (CBDC). As we progress through 2022, the evolving role of the U.S. economy in the global post-COVID recovery landscape could significantly highlight the true value of stablecoins in the cryptocurrency market.
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