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Rise of the Stablecoins?

Cryptocurrency prices are in free fall as any buying support seems to be trumped by capitulation selling. At this point, the downward price vector appears to be very strong and the vicious cycle of panic selling might accelerate the price decline further. Rumours of collusion among some profit-seeking whales through some coordinated short selling is not helping, and combined with the BCH situation, the market does seem to be in free fall for now. It is never a wise thing to do to call an inflection point and that is best left to the chartists, but we do expect some sort of a run up before the end of the year, just as with last year.

If there’s any silver lining to this persistent and nasty bloodbath, it’s that stablecoin adoption is steadily increasing as investors are taking shelter in price-stable digital assets in the face of steep price declines. BTC’s sharp price declines have a strong correlation with the rise in stablecoin trading volumes as shown in the images below. As a trader a stablecoin is a great to way to park crypto for a while in, to see out market turbulence.

Source: Coinmarketcap (DAI Price vs Volume Chart)

Source: Coinmarketcap (USDT Price vs Volume Chart)

These sudden flash crashes are also a rigorous and necessary examination of the robustness of crypto-collateralized stablecoin projects, as the collateral loses value very quickly. We looked at the data available on MakerDAO’s website to analyze the health of the overall ecosystem and our analysis shows the amount of DAI that is issued from CDPs that are deemed as risky (collateralization ratio below 175%) is about $9m (or roughly ~14% of DAI outstanding). DAI liquidates a CDP (a smart contract where the collateral is held) when the collateralization ratio drops to 150%. When a CDP is liquidated, the collateral is sold to cover the stability debt by buying DAI and burning it, in addition to a 13% liquidation penalty charge. Absent recapitalization of the collateral, a 25% further decline in ETH prices will liquidate roughly 236k Ether.

Meanwhile in Crypto Wonderland….

“KPMG’s Bullish Case for Crypto” A new report by KPMG presents a highly bullish case for crypto, while also outlining some of the challenges faced by the crypto market. The report states that crypto is a “big deal” and explains that despite the markets still being nascent and small, waves of new entrants and increased public interest have led their parabolic upwards rise over the past several years, and their growth has made them “impossible to ignore”.

“Rosenstein Talks Crypto at Interpol Meet” At the Interpol’s annual meeting on Sunday, U.S. Deputy Attorney General Rod Rosenstein asked for international regulators to look into crimes involving digital currencies. Rosenstein appealed to those present, saying that we must not allow cybercriminals to hide behind cryptocurrencies. He also said that, despite positive use cases for digital currency, there is an underside.

“Crypto Mining Okay for Election Contribution” The US Federal Election Commission (FEC) issued an advisory opinion that would allow individuals to contribute to political campaigns by donating their computer power to mine crypto for their favorite candidates. The decision comes as politicians gear up for the 2020 US presidential election. However, the commission underscored that the act counts as a campaign “contribution” – and is not considered “volunteering”.

“Indian Startup CEO Appeals to Jaitley”The CEO of an Indian crypto exchange has reached out to a top lawmaker to look into the regulation of Bitcoin and similar digital assets. The blockchain entrepreneur requested India’s finance minister Arun Jaitley to focus more on crypto’s potential benefits than its minimalistic misuses. Saying that every industry is prone to have its own set of problems, he said he believed they should not become the reason to hamper innovation that could benefit the nation.

Crypto Twitter Pick

What We’re Reading
 / Listening To

How can Bitcoin Stabilize if it’s a Keynesian Beauty Contest by Tony Sheng

Crypto Derivatives 101 featuring Juthica Chou

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