14 DEC 2020 • 5 minute read
Stablecoins have enjoyed a huge increase in popularity over the past year, with transaction volumes hitting a new all-time high in June of $54.9 billion and a market capitalisation of around $25 billion. But what exactly are they, why are people starting to use them, and why should you care?
What are stablecoins?
Stablecoins are a contemporary class of cryptocurrency whereby the value is pegged to either one external, relatively “stable” asset such as the US dollar or gold. They can even be pegged to a ‘basket’ of stable assets.
Unlike traditional cryptocurrencies, their price is not set by supply and demand. Rather, they employ a range of different mechanisms to ensure the price remains pegged to that asset. For example, in the case of USD Coin (USDC), for every token that’s created, one US dollar is held in reserve as collateral. This guarantees that every USDC token is backed by a US dollar and it’s redeemable on a 1:1 basis.
Stablecoins first arrived on the scene in 2014. The first was BitUSD, a crypto-backed stablecoin that was issued on the BitShares blockchain. BitUSD was founded by, among others, Charles Hoskinson of Cardano fame. BitUSD was collateralized by crypto and backed by the BitShares core token BTS, which was locked in a smart contract to act as collateral.
Since then, a number of stablecoins have been created – including USDC and, perhaps more famously, Tether (USDT). These have gained a great deal of traction in recent months and now have market caps in the billions. This is the result of a number of factors, with commentators crediting their rise to the current economic climate, the DeFi craze, and headlines around Facebook’s Libra project, among other things.
How do they work?
There are three main types of stablecoins: fiat-collateralised, crypto-collateralised, and non-collateralised (algorithmic).
Fiat-collateralised stablecoins maintain a fiat currency reserve, like the US dollar, as collateral to issue a suitable number of coins. There are also those backed by a commodity, like gold, silver or oil, but most present-day fiat-collateralised stablecoins use dollar reserves.
These reserves are maintained by independent custodians and are regularly audited to ensure the necessary compliance measures are being followed.
Crypto-collateralised stablecoins are backed by other cryptocurrencies. Since the reserve currency may also fall prey to high volatility, these types of stablecoins are typically over-collateralised. This means a larger number of cryptocurrency tokens are reserved for issuing a lower number of stablecoins.
For example, $200 worth of ether may be held as reserves for issuing $100 worth of crypto-backed stablecoins, accomodating for up to 50% of swings in the reserve currency.
Non-collateralised (algorithmic) stablecoins don’t use any reserves but employ a working mechanism, similar to central banks, to retain a stable price. These tokens rely on a mechanically-generated algorithm to adjust the supply if needs be, so as to maintain the token’s pegged-asset price.
This class of stablecoins typically uses smart contracts to sell tokens if the price falls below the peg or to supply tokens to the market if the value increases.
Benefits and use cases
The value proposition is simple. Stablecoins combine the instant processing capabilities, functionality, adaptability, and security of cryptocurrencies with the stability and trust enjoyed by fiat currencies.
Fighting currency devaluation and democratising money
Stablecoins’ inherent stability is a serious attraction for those living in countries where currencies are extremely unstable and volatile – even more so than regular cryptocurrencies. High levels of inflation are destructive, often leaving people struggling to pay for basic necessities like food and medicine.
In theory, stablecoins offer an escape from the effects of unstable local currencies, without people having to resort to illegal or unsustainable methods like using currencies from other countries or bartering. A currency is generally only as stable as the government that issues it, and this offers those living under unstable political regimes usable money. This is subject to the laws of a specific country, so although this may seem like a great solution to a serious issue, it’s unproven whether or not it would be viable in each specific context.
Remittances
Ever tried sending someone money from a different country? It can be an incredibly slow and expensive process, and it typically affects the people who can least afford to deal with exorbitant third-party fees, never mind the paperwork or the significant wait-time.
In 2018, annual global remittance flows to low- and middle-income countries reached $529 billion, an increase of 9.6% from the previous year. However, the global cost of sending money home is unjustifiably high. For example, sending $200 costs around 6.8%. Sub-Saharan Africa continues to have the highest average cost at around 9% despite the fact intra-regional migrants in Sub-Saharan Africa comprise over two-thirds of all international migration from the region.
Stablecoins provide a way to bypass the high costs associated with legacy institutions, to send and receive money faster, and to retain most of the monetary value.
Trading
At the moment, temporary hedging is a big motivator for individuals to use stablecoins. For example, a cryptocurrency investor might split their portfolio between stablecoins and regular cryptocurrencies, so they have a hedge against volatility and won’t lose as much during market dips. Additionally, fiat onramps and offramps fees make stablecoins a viable solution for exchanges and institutional traders looking to reduce their crypto exposure without fully cashing out and having to pay withdrawal fees.
Decentralised apps
2020 has seen the rise of easy-to-use DApps and intuitive interfaces. Ethereum-based stablecoins, which constitute roughly half of all stablecoins in existence and have a total value of over $11.3 billion, are performing even better than traditional finance applications like PayPal due to DeFi apps that use them to facilitate value transfers.
Keeping up with the technological revolution
The existing financial system has its fair share of inefficiencies – notably its reliance on third parties to facilitate transfers. And everyone takes their cut. Stablecoins, and blockchain technology, in particular, allow payments to occur directly between buyers and sellers, thereby reducing the costs for both parties. Automating the transaction verification process will also result in much faster settlement times.
Stablecoin adoption
There are over 200 privately-developed stablecoins in existence today, and we’re seeing more and more financial institutions creating their own versions as a cheaper and faster means of settlement. JPMorgan, for instance, announced the creation of their very own JPM coin earlier this year.
While it took around five years for stablecoins to reach a supply of $6 billion, it took only four months from March to July this year for that supply to double to $12 billion. The demand comes at a time in which we’re facing extreme global market turbulence, leading many to seek greener pastures.
A Coinmetrics and Bitstamp report on the rise of stablecoins also likened the increase in stablecoin usage to the hyperinflation plaguing many fiat currencies since March this year.
The future
In July, the Financial Action Task Force (FATF) said that stablecoins need to comply with standards to prevent against money laundering and the financing of terrorism. This would mean exchanges, OTC desks and companies creating stablecoins would need to create and follow processes to monitor transactions and be KYC (know-your-customer) compliant.
Tether still retains its monopoly on the market, but questions around its legality have opened the door to rivals such as USDC. USDC has gained a fair amount of traction since March and is increasingly being used in DApps. If Facebook’s Libra project ever comes to fruition, it too will likely shake up the market.
As the cryptocurrency industry matures, we can expect to see a significant increase in stablecoin usage. Continued adoption from traditional finance entities will also undoubtedly bolster and normalise stablecoins’ place in our everyday lives. In November 2019, the World Economic Forum (WEF) discussed the true value of stablecoins highlighting the potential to create an inclusive and fairer financial system.
Author: Minion
Daily market update: Bitcoin back over $19,000 again
14 DEC 2020 • 4 minute read
An unpredictable and chaotic year is coming to an end. With the price of bitcoin closing its fifteenth straight day above $18,000 yesterday, it’s a positive sea of tranquility. Will it stay that way this week? Will we hit $20,000?
Here’s today’s market report. If you’re new to the world of crypto, take a look through our beginner’s guide to crypto trading series to get a better idea of all these indicators, starring in-depth explorations of common strategies, market analysis techniques, and more.
The content of this article is for information purposes only and is not investment advice or any form of recommendation or invitation. Luno always advises you to obtain your own independent financial advice before investing or trading in cryptocurrency.
All information is correct as of 09.30am GMT
Bitcoin price
We closed yesterday, 13 December, 2020, at a price of $19,142.38 – up from $18,803.66 the day before. The price has now closed over $18,000 for 15 consecutive days.
The daily high yesterday was $19,381.54. The daily low was $18,734.33. This time last year, the price of bitcoin closed the day at $7,269.68 and in 2018 it was $3,313.68.
We’re 4.71% below bitcoin‘s all-time high on CoinMarketCap of $20,089 (17 December 2017).
As of today, buying bitcoin has been profitable for…
99.4% of all days since 2013-04-28.
Bitcoin volume
The volume traded yesterday was $25,450,468,637, up from $21,752,580,802 the day before. High volumes can indicate that a significant price movement has stronger support and is more likely to be sustained.
Market capitalisation
Bitcoin’s market capitalisation as of yesterday was $355,479,173,806, up from $349,170,613,899 the day before.
Fear and Greed Index
The sentiment remains in Extreme Greed territory at 95. It’s important to remember that the index doesn’t stay this high very often and a correction could be on the cards.
Bitcoin’s market dominance
Bitcoin’s market dominance stands at 64.41. Its lowest recorded dominance was 37.09 on 8 January, 2018.
Relative Strength Index (RSI)
The daily RSI is currently 58.60. Values of 70 or above indicate that an asset is becoming overbought and may be primed for a trend reversal or experience a correction in price – an RSI reading of 30 or below indicates an oversold or undervalued condition.
Google trends
The trend in Google searches over the last 90 days. Google shows this chart on a relative basis with a max score of 100 on the day that had the most Google searches for that keyword. Today’s score is 56.
Charts provided by IntoTheBlock.com
In/Out of the money
For any address with a balance of tokens, ITB identifies the average price (cost) at which those tokens were purchased and compares it with the current price. If the current price is higher than average cost, address is ‘In the Money’. If the current price is lower than the average cost, the address is ‘Out of the Money’.
Mt. Gox Users Prepare to Get Back $2.6 Billion of Bitcoin
In one week, the Mt. Gox exchange saga may finally conclude. On Dec. 15, an estimated allocation of 137,891 BTC will be distributed to users who lost funds following Mt. Gox’s shutdown in 2014.
Long-Awaited Mt. Gox Payout
The Mt. Gox shutdown is one of the most infamous events in the history of blockchain and cryptocurrencies. The Japanese exchange abruptly ceased operations in February 2014, announcing that it had lost 850,000 BTC in various attacks.
Bitcoin was one of just a few established cryptocurrencies at the time, and Mt. Gox was responsible for handling around 70% of its transactions.
The event caused several early Bitcoin investors to lose their holdings. It remains central to the crypto community’s often-repeated “not your keys, not your coins” mantra, which advises investors not to store their funds on a centralized exchange.
Concerns Over Market Reaction
The upcoming distribution event will see the stash of recovered Bitcoin worth $2.6 billion go to a number of former Mt. Gox users. Bitcoin was only trading at around $700 when Mt. Gox halted all withdrawals in February 2014. It’s seen an increase in value of roughly 2600% since then, which could be a windfall for recipients.
Due to the significant increase in value since 2014, it’s possible that a number of recipients could sell their newly-received Bitcoin on the open market. That could create a bearish landscape if sentiment suddenly changes as a result of the distribution. Members of “Crypto Twitter” have aired concerns over the pending deadline.
Plenty of Anticipation
A number of crypto followers have been monitoring accounts suspected to be controlled by the Mt. Gox directors, no doubt with increased scrutiny as the Dec. 15 deadline looms. Discussions are taking place on a subreddit called /r/mtgoxinsolvency, and one website is specifically dedicated to tracking relevant transactions. So far, though, activity is dormant.
In any case, the event will provide closure, as the date for Mt. Gox’s rehabilitation plan has been pushed back a number of times. The Dec. 15 date was first confirmed last October.
Stellar-Based Euro Stablecoin Issued by One of Oldest European Banks
Stellar-Based Euro Stablecoin Issued by One of Oldest European Banks
Bankhaus von der Heydt, one of the oldest banks in Europe, has launched a euro-pegged stablecoin powered by Stellar, according to a Dec. 9 press release.
The new digital asset was rolled out in partnership with Berlin-based blockchain startup Bitbond.
Bridging traditional banking and crypto
Stellar Development Foundation CEO Denelle Dixon claims that the “high-quality” regulated euro stablecoin serves as a testament to the promise of close cooperation between traditional finance and the blockchain industry:
“Adding a high-quality, bank-issued euro asset to Stellar is meaningful for our users and builders on our network, powering a new wave of financial innovation, leveraged immediately by Stellar-based apps including DSTOQ, Vibrant, and Lobstr.”
Munich-based Bankhaus von der Heydt — which was founded back in 1754 — became the first banking institution to directly issue a stablecoin on the Stellar blockchain.
The bank first announces the plan to issue the euro-pegged cryptocurrency in July when it unveiled its tokenization strategy.
According to Philipp Doppelhammer, managing director at Bankhaus von der Heydt, the stablecoin has been already adopted by crypto payments firm SatoshiPay:
In our first use-case, SatoshiPay, a blockchain payments company and one of the earliest members of the Stellar network, will implement our EURB into its service DTransfer.
USD Coin on Stellar
Stellar, the most direct rival to XRP, has made major inroads in the stablecoin industry as of recently.
Back in October, Circle, the issuer of the USD Coin (USDC) stablecoin, announced that it would launch a Stellar-based version of the second-largest dollar-pegged cryptocurrency in early 2021.
What is key to Bitcoin Futures, Options markets’ recovery?
After hitting a high of $19,918 on 1 December, Bitcoin has completely stagnated to consolidate between the ranges of $18k and $20k. Yesterday, a low of $17,610 was registered, but a quick bounce back above $18,000 was soon recorded on the charts. With respect to its price, CME’s derivatives market is now going through a period of disarray.
SEARCH
AMBCrypto
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BITCOINWhat is key to Bitcoin Futures, Options markets’ recovery?Biraajmaan TamulyPublished 1 day agoon December 11, 2020By Biraajmaan Tamuly
Source: Unsplash
SHARETWEET
After hitting a high of $19,918 on 1 December, Bitcoin has completely stagnated to consolidate between the ranges of $18k and $20k. Yesterday, a low of $17,610 was registered, but a quick bounce back above $18,000 was soon recorded on the charts. With respect to its price, CME’s derivatives market is now going through a period of disarray.
CME Open Interest flat since ATH
CME‘s Open Interest for its cash-settled Futures has completely flatlined since the 24th of November. After its OI climbed to nearly $1 billion on the charts, the Open Interest consolidated in the current range, while trading volumes suggested a drop in activity after the contract expiry in November.
Additionally, it was also observed that retail traders have been dropping their short positions as well. The drop in shorts did not suggest a rising bullish trend since these positions were possibly only arbitrage between the spot and the Futures market.
Similarly, the CME Bitcoin Options market seemed to be losing momentum as well. According to data, half of the calls were already in the money for the month. The surprising fact was that despite the returns, traders were unwilling to take more risk on the charts.
To understand the difference, last month, only 30% of the positions were towards the near end of the month, but in December, 74% of the positions were already on the near month
SEARCH
AMBCrypto
AMBCrypto
BITCOINWhat is key to Bitcoin Futures, Options markets’ recovery?Biraajmaan TamulyPublished 1 day agoon December 11, 2020By Biraajmaan Tamuly
Source: Unsplash
SHARETWEET
After hitting a high of $19,918 on 1 December, Bitcoin has completely stagnated to consolidate between the ranges of $18k and $20k. Yesterday, a low of $17,610 was registered, but a quick bounce back above $18,000 was soon recorded on the charts. With respect to its price, CME’s derivatives market is now going through a period of disarray.
CME Open Interest flat since ATH
Source: Ecoinometrics
CME‘s Open Interest for its cash-settled Futures has completely flatlined since the 24th of November. After its OI climbed to nearly $1 billion on the charts, the Open Interest consolidated in the current range, while trading volumes suggested a drop in activity after the contract expiry in November.
Additionally, it was also observed that retail traders have been dropping their short positions as well. The drop in shorts did not suggest a rising bullish trend since these positions were possibly only arbitrage between the spot and the Futures market.
Similarly, the CME Bitcoin Options market seemed to be losing momentum as well. According to data, half of the calls were already in the money for the month. The surprising fact was that despite the returns, traders were unwilling to take more risk on the charts.
To understand the difference, last month, only 30% of the positions were towards the near end of the month, but in December, 74% of the positions were already on the near month.
Source: Ecoinometrics
Is Spot trading currently taking Leverage Trades’ spotlight?
While the bull run lasted, leverage trades were extremely profitable. However, since the last week of November, the rally has somewhat slowed down. With leverage activity on a decline, spot activity with respect to Bitcoin has picked up the market share.
Accumulation by institutions and hodling have been common traits in the market, but now there is also a sentiment of holding Bitcoin for a long time off exchanges. So, now people are keener on holding Bitcoin for a long period since an envelope of trust is around it, regarding the absence of massive decline.
For the revival of the leverage market, Bitcoin will possibly need to break the threshold of $20,000. A new all-time high valuation would place the asset at an unseen trading region, one where traders would try to push the valuation as high as possible.
Any recovery of Futures and Options is reliant on such a situation, or else another massive slump would need to manifest in the next few weeks.
WordPress Users Can Earn Ethereum as Ad Revenue
A newly-released WordPress plugin called EthereumAds allows content creators to auction ad space and receive ETH in return.
ETH-Based Ad Placement
EthereumAds works like many other auction-based ad services; it automatically allocates ad space to the highest bidder for two weeks. But, unlike other systems, it handles payments via Ethereum.
WordPress has had a fleeting relationship with cryptocurrency. The site was one of the first online businesses to accept Bitcoin payments in 2012. However, WordPress discontinued the payment option in 2016 due to an increase in Bitcoin fees.
Since then, several more cryptocurrency plugins have been introduced to WordPress, including price tickers, payment buttons, and donation buttons. At least 300 cryptocurrency extensions exist.
The new EthereumAds plugin is compatible with independently hosted websites as well as WordPress blogs.
Ethereum vs. Google Adsense
Currently, Google Adsense is the leading tool for embedding advertisements on WordPress and other sites. However, Adsense has faced criticism around demonetization over the past few years. AdSense payments are handled via traditional banking methods, which can be blocked by Google and other parties.
By contrast, EthereumAds is decentralized thanks to cryptocurrency-based payments. Other crypto-based monetization systems such as Brave and Coil have similar strategies. This approach should prevent transactions from being blocked, and these plugins could make it easier for advertisers and publishers to transact freely.
However, the fact that cryptocurrency is a niche payment method makes it unlikely that these cryptocurrency extensions will overtake their traditional counterparts any time soon.
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