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Are Stablecoins Fanning the Flames of This Week's Cryptocurrency Fire Sale?

Nov 21, 2018


Cryptocurrency markets are sustaining a harsh sell-off that began on November 14th, 2018 and continued through November 20th, 2018. Altogether, the sell-off of cryptocurrencies drove the price of Bitcoin (BTC) lower by 28.69% to USD$4,535.14 while shedding about USD$60bn from total cryptocurrency market capitalization, which now sits at USD$149bn. The recent cryptocurrency sell-off may be exacerbated by the rising popularity of stablecoins. To assess this, we analyze trading volumes of the two largest stablecoins available to cryptocurrency traders: Tether (USDT) and TrueUSD (USDT). 

Stablecoin Volume

As can be seen in the charts below, trading volume for both USDT and TUSD spiked in-line with cryptocurrency sell-offs that began on November 14th, 2018 and November 19th, 2018. Amid the November 14th, 2018 cryptocurrency sell-off, USDT trading volume surged 85.0% to USD$4.86bn while TUSD trading volume spiked 189.7% to USD$47.77mm. The November 19th, 2018 cryptocurrency sell-off saw trading volume of USDT jump 94.6% to USD$5.9bn and trading volume of TUSD soar 490.5% to USD$86.2mm.


Interpreting Stablecoin Volume

This and last week’s cryptocurrency sell-off may have been intensified by the readily available option for investors to rotate into stablecoins. Prior to the popularity of stablecoins, crypto investors were left with only two options when faced with a downturn in cryptocurrency prices: hold cryptocurrency assets or sell cryptocurrency assets in favor of fiat currencies. Now that most cryptocurrency exchanges offer stablecoin trading options, however, investors have a third option when faced with a cryptocurrency downturn: sell their crypto assets for stablecoins. 

Stablecoins 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.

Stablecoin Holders are Likely Practicing Patience 

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.