The volatility of cryptocurrencies has fallen back to the previous level from the recent highs after the global financial markets stabilized in response to the monetary policy tools used to inject liquidity used by central banks all over the world.
Some of the market participants believe it to be so because of the increased need for these stablecoins to ride out market volatility, some to the continued growth in the lending market for them while others point to the increased retail activity and users buying the dip.
According to crypto data tracker Coin Metrics, it could also be because of the “global shortage of US dollars.”
The global reserve currency is the center point of a vast majority of global commerce and commodities are also priced and transacted in USD. Moreover, foreign companies and governments issue large amounts of US-dollar denominated foreign debt.
During the past few months, the demand and supply of global trade were affected and the flow of the US dollar declined to a small stream.
“On the margin, stablecoins should benefit from the global shortage of dollars,” wrote coin Metrics.
This shortage in the dollar, especially on March 10 when it became severe and the USD index jumped about 8%, the supply of second-largest stablecoin USD Coin, a joint effort of Circle and Coinbase, increased by over 50%.
However, since then the dollar has given up some of these gains after the Federal Reserve started dollar swap lines with major central banks. The issuance of USD Coin also saw slower growth in response.
These fiat-backed cryptos have been actually surging ever since the price of Bitcoin crashed to $3,850 in mid-March. Companies have been printing these fiat substitutes in the crypto market like crazy.
During this time, Binance’s stablecoin BUSD recorded the biggest surge of 85% in its market cap followed by USDC’s 55%. The market cap of Paxos and USDT (Tether) also increased by 20% and 40% respectively.
“The Fed isn’t the only institution that’s been printing away. Crypto finds its Jerome Powell in the form of stablecoins, which have been going BRRR since the BTC lows,” said trader Hsaka.
Over the past few months, Tether has moved onto other blockchains as well viz. Tron, EOS, Liquid, Algorand, and Ethereum. However, Ethereum-based Tether (USDT-ETH) remains the most popular as it’s usage continues to climb.
Ethereum-based Tether’s daily transactions spiked on April 7th to its highest daily total at 143.32k since Sept. 2019. Omni Tether (USDT) and Tron Tether (USDT-TRX) are still significantly fewer daily transactions than USDT-ETH.
According to the data shared by JGZ.com and Jin Guo Zi APP, Huobi dominates the USDT transactions followed by Binance, OKEx, and Bitfinex.