Defiant stability: How stablecoins could help investors to overcome COVID-19 jitters

Businesses and consumers alike have found themselves in the midst of a global scramble for liquidity as the world’s economic outlook continues to lack a tangible silver lining. For companies, it’s vital to have access to a reliable and liquid source of funds to help manage payrolls and deliver on invoices. Essentially, there’s a profound need for cash at a time when cash is losing its value. 

As fiat currencies and traditional stocks take a battering from the uncertainty of COVID-19, there’s speculation that the crisis could serve to make more businesses and individuals alike take notice of the abundance of alternatives available in our global payment options. According to some, the age of “crypto dollarization” may have gathered some momentum. 

The Scramble for Stability

The Coronavirus pandemic has led to an international economic crisis. As lockdown measures continue to take hold, the financial landscape is beginning to resemble that of the Great Depression. Widespread unemployment and the inability for businesses to operate in physical locations means that there’s no easy path to recovery and the fight for Dollarization has taken hold as liquidity becomes imperative. 

The state of finance has been underlined by Goldman Sachs forecasting 34% contraction in the USA’s GDP over the first quarter of 2020. The International Monetary Fund compounded the misery by stating that this year is set to be the worst on record since the Great Depression of the early 1930s. Despite some levels of forewarning, it’s inevitable that the coming months and years will be littered with bankruptcies across the world. 

How can businesses stay as protected as possible against such uncertain times? It’s impossible to withdraw cash to hoard when banknotes are rarely used for modern transactions. But an increasingly appealing option can be found in the adoption of dollar-backed stablecoins. 

Stablecoins offer the bearer the same qualities as holding cash, where values are capable of being transferred on a peer-to-peer basis without the need for an intermediary. However, they’re also capable of being used for secure international transfers with no security risks associated with traditional banking systems. As the token issuer commits to hold the full equivalent in reserves for all tokens issued, the fractional reserve system’s perennial question about deposit assurance is no longer a hurdle. 

In light of the Coronavirus crisis, a significant 40% increase in market capitalization of the four largest dollar-backed stablecoins - Tether, Centre, Binance and PAX - has been reported by CoinMarketCap, while other coins like Qtum and Timvi DAO have experienced steady growth in recent weeks. 

Despite clear evidence of businesses and investors looking to keep their finances safe in stablecoins, could cryptocurrencies really offer a safe route away from the COVID-19 market crash?

The Best of Both Worlds

“Stablecoins seem to offer the best of both worlds: utilizing blockchain technology and offering stable value,” explains Andy Cheung, founder of ACDX. “I see it merely as a branch of cryptocurrency and is developed to cope with regulations. The most successful model is fiat-backed stablecoin, yet it failed to align with the vision of Bitcoin — to liberate money from banks and giants. That said, it plays a crucial role in the mass adoption of cryptocurrency and bridges the gap between crypto and fiat,” he said. 

As the wider crypto market continues to be hampered by volatility, the anchored values of stablecoins means that they’re less susceptible to market jitters, yet carry all of the same decentralized perks in many cases. 

For businesses looking to show agility while making their return to ‘normality’ following COVID-19, it’s vital to trade around the world with confidence, using a monetary format that’s unhampered by widespread economic turmoil. In the coming months and beyond, the stablecoin markets may be the only place that can be truly depended on for maintaining a consistent value while staying accessible. 

Do Stablecoins Have a Bright Future in Store?

Prior to the rise of COVID-19, stablecoins were certainly heading towards a bright future. Modern branded stablecoin projects driven by industry behemoths like Facebook and Amazon are just around the corner, and will make the usage of tethered coins much more commonplace in the coming years. 

There’s also the coming prospect of governmental stablecoins to process for businesses and consumers alike. The Bank of Canada governor listed stablecoins as part of the country’s vision for the coming decade. 

Naturally, there’s set to be hurdles to overcome, and any long-term visions will no-doubt be affected by the emergence of 2020’s pandemic. But stablecoins have offered a solution for many in a financial landscape where silver linings are hard to come by. 

With wider adoption already underway, and a prosperous future in store, stablecoins could be one of the most convenient and practical solutions for businesses and investors alike in escaping the burdens of the economic downturn.