After Falling 65% This Year in Bitcoin Terms, Do 'Stablecoins' Need a Rebranding?

In a thought exercise, imagine how volatile dollars would be if denominated in bitcoin

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August 11, 2020 Sponsored by By the CoinDesk Markets Team Edited by Bradley Keoun If you were forwarded this newsletter and would like to receive it, sign up here.  TODAY: Prices: Bitcoin (BTC) $11,770 (-1.3%) | Ether (ETH) $392 (-1.08%) Turn your brain around and imagine that U.S. dollars were priced in bitcoin. At that point, stablecoins suddenly cease to look stable. They're really just crypto-dollars, and lately they've been tanking, in bitcoin terms.  What's Hot: The co-creator of the Libra project is to head a new Facebook payments initiative, and what does Ethereum Classic's awful week mean for its community?  MARKET MOVES Imagine a future where bitcoin has taken over from the U.S. dollar as the world's de facto reserve currency. Assuming bitcoin's notorious price volatility continued to that day, major currencies would be considered volatile assets. Here's a chart of how foreign-exchange rates would have looked over the past few months had the dollar, euro, yen and British pound been denominated in bitcoin:  Inverted-scale chart of bitcoin's price denominated in U.S. dollars, euros, British pounds and Japanese yen. (TradingView)  Such a mental exercise is one of the points highlighted in a recent report on "stablecoins" by Matt Walsh and Nic Carter of the cryptocurrency investment firm Castle Island Ventures.  In the taxonomy of digital assets, stablecoins are a category of tokens whose value is linked to dollars or other major currencies or assets. The idea is that their prices are more stable than those of bitcoin and other cryptocurrencies.  But Walsh and Carter refer to dollar-backed stablecoins as "crypto-dollars." Stability, in other words, is in the eye of the beholder.  "Though initially dubbed 'stablecoins,' due to their emergence as a response to volatile 'native' cryptocurrencies, they are increasingly being referred to as crypto-dollars," the report reads.  Such a rebranding could gain traction as dollar-linked stablecoins grow in popularity – even though they've been a pretty lousy investment option in recent months compared with bitcoin. As detailed in First Mover last week, every digital asset in the CoinDesk 20 gained in July, except for dollar-linked stablecoins, whose prices were, by definition, unchanged in dollar terms. That's partly a reflection of how weak the dollar has been trading in foreign-exchange markets lately, which in turn is a reflection of investors' pessimistic views on the dollar's value as the coronavirus-induced recession drags on.  The total outstanding amount of these "crypto-dollars" has more than doubled in the past four months to about $13 billion, according to Coin Metrics, a cryptocurrency data firm.  Chart showing outstanding amount of stablecoins, in dollars. (Coin Metrics)  Crypto traders use the tokens as a form of liquidity, transferring funds easily between digital-asset exchanges.   The tokens are essentially privately issued digital money, and Castle Island points out that they might someday figure in a "global patchwork of crypto-dollar issuers." Already, a group of 16 of the dollar-linked stablecoins collectively has a broad monetary base greater than that of 72 countries. There's a "growing acceptance of crypto-dollars in commerce," according to the report, as well as a "recognition that these assets are not merely tokens for inter-exchange settlement but have begun to see usage as non-bank dollar substitutes." Jump Capital, an investment firm, wrote in an op-ed for The Block last week that, at least for now, "people want dollars."  "Despite potential concerns about U.S. monetary policy and debt levels, for billions of people around the world, the U.S. dollar is more stable than their local currency," according to the piece. They predicted that the market value of stablecoins could eventually outstrip that of bitcoin, currently at $218 billion.  "We believe U.S. dollar stablecoins, or crypto-dollars, may very well end up being the 'killer app' for crypto," the authors wrote. "We may very well end up hearing calls for 'Stablecoins not bitcoin' in the same way we heard 'Blockchain not bitcoin' a few years ago."  Such an outlook assumes people continue to want stability in dollar terms. After all, prices for the oldest and largest cryptocurrency are up 65% this year against the dollar. Which means those crypto-dollars are down 65% this year, in bitcoin terms.    – Bradley Keoun, Editor, First Mover SPONSORED BY BITSTAMP Enjoy zero fee trading on all XLM, PAX and GBP pairs through September 1st! Now is the best time to join over four million traders and financial institutions that trust Bitstamp’s powerful platform, intuitive mobile app and industry-leading APIs. Bitstamp gives you all the trading tools to effectively execute your strategy: Unmatched order execution, powered by Nasdaq: Cutting-edge Nasdaq matching engine delivers optimal trading speed and efficiency in all market conditions. 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Buyers pushed prices to a high of $12,070 on Monday,  but the breakout was again short-lived and prices printed a UTC close below $11,800.  Bitcoin's failure to establish a foothold above the psychological $12K hurdle validates uptrend exhaustion signaled by lower highs on the daily chart MACD histogram, an indicator used to identify trend changes and trend strength. Further, the 10-day moving average is no longer sloping upwards – also a sign of ebbing of bullish momentum.  As such, some chart-driven traders may start to sell, yielding a deeper pullback. Immediate support is located near $11,670 at the ascending trendline on the 4-hour chart. A breach there would expose the higher low of $11,219 created on the 4-hour chart on Aug. 7.  However, if the ascending trendline holds firm, a bounce to $12,000 may be seen. That said, the greater short-term pressure may be to the downside, as gold has fallen back below $2,000 per ounce. Bitcoin generally rallied in tandem with gold in the second half of July.  – Omkar Godbole, Markets Reporter   WHAT'S HOT? Ethereum Classic’s Terrible, Horrible, No Good, Very Bad Week (CoinDesk) Ethereum Classic suffered two 51% attacks in the same week. Now, exchanges, investors and developers are split on the implications. Facebook Taps David Marcus to Lead Payments Initiatives (CoinDesk) Facebook formed a new payments group called “Facebook Financial” on Monday and put Libra co-creator David Marcus at the helm. Public Fascination with Bitcoin Price is Slowing the Adoption of Bitcoin (Hacker Noon) With so many traditional investments lacking attractive avenues for profit, cryptocurrencies would seem the perfect fit for investors in search of a solid ROI, but one thing's stopping them from diving in, writes Hacker Noon. Messaging Firm LINE Makes Own Token Available to Japanese Traders for First Time (CoinDesk) The blockchain subsidiary of messaging app giant LINE has made its native token available to Japan-based traders for the first time. – Sebastian Sinclair, Reporter   Disclaimer: The information presented in this message is intended as a news item that provides a brief summary of various events and developments that affect, or that might in the future affect, the value of one or more of the cryptocurrencies described above. The information contained in this message, and any information liked through the items contained herein, is not intended to provide sufficient information to form the basis for an investment decision. The information presented herein is accurate only as of its date, and it was not prepared by a research analyst or other investment professional. You should seek additional information regarding the merits and risks of investing in any cryptocurrency before deciding to purchase or sell any such instruments. First Mover A newsletter from CoinDesk See previous editions Copyright © 2020 CoinDesk, All rights reserved.  Our mailing address is:  250 Park Avenue South New York, NY, 10003, US  Want to change how you receive these emails? You can update your preferences here.