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USD Coin, Tether: 2 stable coins that track the US dollar; Which one will survive?

This article was written exclusively for Investing.com

  • A retreat in the digital asset class; Gravity is a powerful force
  • The US and Europe are not crypto-friendly. Rather, they are enemies
  • Is Tether Really Backed by the US Dollar?
  • Tokenization of US dollars with USD coin
  • USD Coin versus Tether: Which are more likely to survive?

If you asked Warren Buffett or his partner Charlie Munger what they think of the recent correction in and around the other digital currencies, they would say the asset class equates to a modern day tulip bulb bubble. While the two investor principles at Berkshire Hathaway (NYSE :)) are in their nineties and have been consistent in their opinions about the crypto world, other former reviewers have been very quiet lately or have moved towards subdued acceptance.

A few years ago, Jamie Dimon, CEO of JP Morgan Chase (NYSE :), called Bitcoin a “scam” and used the tulip bulb analogy directly for the asset class. He said any trader in his bank who caught cryptocurrency trading would be fired:

“I’d fire them in a second for two reasons: It’s against our rules, and they’re stupid and both are dangerous.”

It appears that the rules have changed at the leading US banking institution. JP Morgan now says investors can allocate 1% of portfolios to Bitcoin.

In addition to Bitcoin, there are over 8600 other cryptocurrencies in circulation. The top 12 have market caps in excess of $ 8.5 billion. Two of the top dozen are and. Both are referred to as “stable coins”.

That’s because Tether and USD Coin are cryptos that track the world’s leading reserve currency, the US dollar. This connection makes them both much less volatile than their crypto counterparts. However, they do not affect the money supply or the US Treasury Department’s control over traditional flows.

A retreat in the digital asset class; Gravity is a powerful force

After trading up to a high of $ 58,610 on the nearby futures contract on February 22, Bitcoin fell below the $ 50,000 level but was back near the high on Wednesday, March 10.

Source: CQG

The daily chart for highlights the correction from the recent record high and rebound above $ 56,000. The digital currency appears ready to challenge the $ 60,000 per token level.

is the other digital currency that is traded in the futures space.

Source: CQG

The chart of the newly minted products shows that the excitement over the listing in early February brought the price to a high of $ 2012 per token on February 19. On March 10, after a recovery of around USD 1,400, the price had fallen back below the USD 1,800 level at the end of February.

After parabolic rallies, gravity is a powerful force. However, the parabolic price action threatened a comeback on March 10th.

The US and Europe are not crypto-friendly. Rather, they are enemies

It is impossible to choose spikes in parabolic markets as these tend to rise to levels that defy logic, reason, and rational fundamental analysis. Meanwhile, cryptocurrencies are a disruptive technology. In addition, they pose a direct challenge to government control of the global money supply.

The higher the price of tokens and the market capitalization of the entire asset class, the more calls we will hear for regulation. We have already heard from the President of the European Central Bank, Christine Lagarde, and the US Treasury Secretary, Janet Yellen. Both continue to emphasize the nefarious usefulness of digital currencies. However, they fail to mention that the main problem is the threat to their control over the global payments system.

Companies like Tesla (NASDAQ :), Square (NYSE :), and others not only invest in digital currencies, but also accept cryptocurrency as a means of payment for their products and services. The main obstacle to the rise of the asset class is the governments they see as a threat.

The old adage, “If you can’t beat them, join them” might be the result. China is already working hard on its version of a crypto token. The US and Europe are likely to develop digital dollars and stay in the game for years to come.

Blockchain is now widespread. The tokens are the next. The tokens that survive, however, have to go a fine line with the many interests of the global economy.

Is Tether Really Backed by the US Dollar?

Tether was originally called Realcoin in 2014. In contrast to Bitcoin and many other cryptocurrencies, a company owns, mints and manages the Tether supply, which limits transparency.

When Tether burst into the digital currency scene, many market participants in the burgeoning asset class believed that each token was backed by one US dollar. On March 14, 2019, the company changed support to include borrowing from affiliates.

Tether (USDT) is the fourth largest digital currency made by market capitalization companies Bitcoin, Ethereum, and.

Tether leaderboard

Source: Investing.com

As of March 10, USDT had a market cap of $ 37.088 billion, or 2.19% of the value of the entire asset class.

Tether diagram

Source: Münzmarktkappe

The graph shows that while the US dollar does not support USDT, it trades around one dollar per token.

Tokenization of US dollars with USD coin

Meanwhile, USD Coin (USDC) is pegged to the US dollar and runs on the Ethereum blockchain. Each USDC is backed by a dollar held in reserve. USDC launched in September 2018.

USDC was the thirteenth cryptocurrency by market capitalization on March 10th.

USDC ranking

Source: Investing.com

The market capitalization of $ 9.025 billion is 0.53% of the total asset class.

USD coin table

Source: Münzmarktkappe

USDC has also traded around $ 1 per token since it began trading in late 2018.

Tether and USD coins are “stablecoins”. These cryptocurrencies minimize the volatility of the stablecoin price by tying them to a cryptocurrency, fiat money, or exchange-traded goods.

USD Coin vs Tether: Which are more likely to survive?

Reddit is a social media platform that has gained a lot of notoriety over the past few weeks and months. I believe in the principle of the wisdom of the crowd, which is that the masses make better decisions than even the top experts.

In markets, prices are a function of herd behavior. When it comes to USDT versus USDC, the jury was on Reddit two years ago. Even after the incredible rise of the asset class, many of the opinions expressed on this website are still true today.

Tether remains more liquid than USD Coin. However, USD Coin is pegged to the US dollar using a more transparent methodology than Tether.

Regardless of the liquidity problem, USDC offers real tests for me to prove solvency. USDT not. One of the main advantages of cryptocurrencies is that they take control of the money supply out of control in a transparent environment that depends on mining and offers and offers where buyers and sellers set prices at equilibrium levels.

In the stablecoin world, USDC appears to adhere to these principles, while USDT carries an additional risk created by opaque management.

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