Stablecoins’ Connection to Financial Institutions Keeps Fed on Toes

Read Time:2 Minute, 26 Second

Stabelcoins gained hype since their debut as a means to link digital assets to major financial institutions. However, the biggest strength of the token is now posing a dilemma for regulators and government institutions. According to a Bloomberg report, the Fed is still concerned about crypto stablecoins due to their volatility.

US Fed has concerns about Stablecoins

According to Bloomberg, Stablecoins have been a little sore eye for the US Federal Reserve. Because stablecoins link erratic digital asset trade to the broader financial community, there are worries that they may eventually upend established markets.

The report helps explain this with the example of Circle. According to a Bloomberg report, the cryptocurrency startup Circle Internet Financial Ltd. had $3.3 billion in cash reserves backing its USD when Silicon Valley Bank failed.  A bankrupt bank held roughly 8% of USDC’s holdings, causing the stablecoin to go through its panic. During the tumultuous weekend when regulators were trying to figure out what to do about SVB, traders rushed to get out, driving its price down below $1. The USDC price recovered after the government intervened to compensate all of the bank’s depositors.

The main concerns of the volatility seem to spark from the fact that turmoil in the stablecoin market can also potentially see people dumping money back into regulated markets, which could cause issues for the Fed and its rate decision trajectory.

Stablecoin’s waning demand dents investor sentiments

Stablecoins saw a steady rise, with TerraClassicUSD being a number three market participant for a while. However, due to market events like the collapse of Terra UST, the FTX crisis, regulatory enforcement measures, and recent security breaches on DeFi protocols, stablecoins have lost their pegs to reference assets many times.

According to Moody’s, due in part to the lack of transparency surrounding the underlying reserves that underpin many stablecoins, a large number of investors have opted to sell their stablecoin holdings.  The cumulative market value of stablecoins has steadily declined from a peak of over $180 billion in 2022 to over $120 billion in 2023, reflecting the shift in investor attitude.

Will Stablecoins rise again?

The fall of stablecoins has yet again dented investor sentiments, creating a hawkish tone for crypto investments. With this, the future of the most renowned stablecoin still lies in the doldrums. According to Techopedia, by the end of 2024, TerraClassicUSD token price prediction is expected to reach a maximum of $0.05437. Although there are still opportunities to trade USTC, price swings are unlikely to go much beyond the 2024 projection, which is between $0.03169 and $0.05437. But trading volume will unavoidably rise, and this could bring the token closer to $0.1. In light of this, the projected  TerraClassicUSD Price is anticipated to range from $0.04869 to $0.07600 for 2025.

The post Stablecoins’ Connection to Financial Institutions Keeps Fed on Toes appeared first on CoinGape.

Leave a Reply

Your email address will not be published. Required fields are marked *