Are Stablecoins Fanning the Flames of the Crypto Fire Sale?
- Cryptocurrency markets are sustaining a harsh sell-off that began on November 14th, 2018 and have continued since.
- Could stablecoins be exacerbating the cryptocurrency sell-off?
- Stablecoin holdings are liquid and relatively safe alternative to holding cryptocurrencies amid a bear market without leaving the asset class in favor of fiat holdings. Amid this past week’s cryptocurrency sell-offs, stablecoin volumes surged, indicating that investors rotated into stablecoin holdings in favor of falling cryptocurrencies -- this has worked to intensify the cryptocurrency sell-offs relative to historical market downturns.
- Investors that continue to hold stablecoins are likely waiting for a re-entry point. Had these investors sold cryptocurrencies in exchange for fiat currencies, the possibility would remain that they will not re-invest in cryptocurrencies. As cryptocurrency prices continue to search for support levels, stablecoin holders may soon sell in favor of attractive cryptocurrency prices relative to 2018’s historical levels. Once this trend begins, it is possible that cryptocurrency prices may strongly rebound.