Stablecoins, to many crypto enthusiasts, seemed like a port in the storm in the cryptoverse because they are levered to real-world assets. However, in the May 2022 crypto crash, stablecoins such as terra and luna were all but obliterated. Although popular stablecoin tether weathered the storm, crypto users may now be asking how stable are stablecoins? Could central bank digital currencies (CBDCs) be the answer?
Not-So-Stablecoins Get a Beating in the Crypto Crash
The conventional wisdom was that stablecoin terra and luna would be immune for selloff, or at least experience only minimal losses. Terra usually was consistently holding its valuation at around a dollar and was backed by luna. However, when terra dipped below the $1 mark, luna also stumbled, and by the end of the selloff, the valuations were mere pennies.
Tether, the most trusted stablecoin, only lost a nickel in the selloff, dipping to $0.95 before returning to the dollar mark. However, it’s uncertain whether even tether can stay steady in future selloffs. Many point to the fact that this stablecoin is backed by cash or cash-like assets, but in reality, only $3.8 billion of tether’s total $75.7 billion market cap is backed by actual cash, and the rest, by US treasuries and commercial paper.
This could spell a serious problem for tether given the number of holders selling their positions. It is estimated that the tether selloff could reach $7 billion, almost double its US dollar backing.
If tether is the most steady of all the stablecoins and if it doesn’t have enough liquid reserves to withstand an upcoming selloff, what does this mean for the cryptocurrency market in general?
Will CBDCs Be the Antidote to Crypto Volatility?
Crypto fanciers have experienced a wild ride, but one thing is clear-for better or worse, crypto is here to stay. Both crypto bulls and crypto bears point to the devastating dot.com selloff in 2000 to characterize the crypto market.
The bears predict pain for cryptocurrencies and the bulls view these as growing pains. Just as tech stocks eventually recovered, cryptocurrency is going to stay with us. It’s a question of when crypto users and traders feel safe once again.
The lack of regulation can make cryptocurrencies appealing to some segments of society–those that embrace radical freedom and see regulations and a hindrance. However, it unfortunately can take a crash to cause crypto cowboys to flee the wild, wild west for a sanctuary.
This sanctuary may be central banks. However this doesn’t mean a mere retreat to purely conventional banking. Commercial banks and central banks have realized that they need to broaden their services to include digital money. Credit card companies are offering crypto services and central banks in the US and the EU are already developing their own digital currencies or CBDCs.
These CBDCs should provide the convenience of digital currency with stable reserves, regulation and transparency that will make consumers feel secure. Since the issuance of these CBDCs are several years off, governments are discussing policies to regulate cryptocurrencies and prevent consumers from being financially harmed by sudden crashes and fraudulent crypto brokers that proliferate on the blockchain.
If you buy, sell, save and trade cryptocurrencies, you need to use caution. You also need to know where to turn if you have lost money to suspicious bitcoin transactions, a scam crypto broker or if someone has hacked your bitcoin wallet.
MyChargeBack experts are adept at crypto create reports, trace technology and methods that reveal blockchain patterns and reveal identities behind crypto frauds. Consult with us, and we’ll get started tracking down your funds. We will create a crypto investigation report that you can take to law enforcement and authorities. These reports will improve your chances of a successful outcome for your crypto claim.
MyChargeBack Will Help You Find Your Funds on the Blockchain
If you have lost money to a cryptocurrency scheme, seek fund recovery assistance right away. Consult with MyChargeBack experts and get started with your fund recovery claim. We have extensive knowledge and working relationships with regulators and more than 450 law enforcement agencies around the world, as well as the solutions that can improve your prospects of getting your cryptocurrency back.