Are crypto traders getting ready to pounce?
It sure looks that way, based on new data showing a rapid increase in the outstanding value of dollar-linked tokens, many of them amassing on cryptocurrency exchanges.
These “stablecoins” – digital tokens whose value is linked to government-issued currencies like U.S. dollars – have become the de facto form of cash in fast-evolving cryptocurrency markets. Unlike actual dollars, they can easily be held or moved around within the digital ecosystem, between exchanges, wallets and lenders that are willing to pay juicy interest rates of 8 percent or more for the deposits.
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In the past month, the outstanding value of the top six dollar-linked tokens has surged by more than 25 percent to about $8 billion, according to CoinDesk Research.
Traders and individuals might have bought the stablecoins in the digital-market equivalent of a flight to cash as the coronavirus wreaked havoc on the global economy – similar to the way traditional investors rushed to liquidate everything from stocks to bonds, choosing to park the proceeds in U.S. dollars until markets stabilize.
But traders also might be flocking to stablecoins as an intermediary step before betting big on cryptocurrencies: First use dollars or other government-issued currencies to buy stablecoins; next, move those stablecoins onto cryptocurrency exchanges; then, when the price is right, trade the digital cash for bitcoin, ether or other tokens.
“The ones that are on exchanges, in theory, are going to be deployed back into cryptocurrency when sentiment changes,” Ryan Watkins,…