True USD re-launched on Binance yesterday...
True USD, a "stable coin", launched a few days ago on Binance to a little too much fanfare. Crypto traders were so enthused with the new coin that its price was ironically driven up to about $1.30 USD - it should remain pegged at $1 USD. Binance was forced to put a hold on the launch and re-launched TUSD yesterday.
A stable coin is handy when trading crypto. If you anticipate a negative movement in the market (that's the hard part), you can quickly swap your BTC, ETH, etc. into a stable coin, sit back, watch prices fall, and then re-buy in at a lower price with your stable money.
Say, for example, you hold $1 000 worth of Ethereum on Binance. You see it is trending down. You trade it for True USD or Tether (USDT) and now hold $1 000 worth of what basically equates to USD fiat, which really doesn't change value very quickly at all. Once prices hit a basement (again, this part is impossible to really know, so you guess based on what you see in patterns and volumes) - say it drops 20% - you then re-buy your Ethereum with your $1 000, now at a 20% discount. Now you have more ETH than you started with. Then you wait for it to climb back up and repeat the process. You can imagine how profitable this might be for those trading in large numbers.
Here's the thing. What happens when a whole bunch of traders decide to do this at the same time when they see the market trending up or down? It amplifies the movement, causing more devaluation when things are heading down, and when fiat-paired currency re-enters the market buying crypto, causes more of a jump than would otherwise happen. It's a bit of a tricky problem that gets a little more complicated by human behaviour and market peer pressure.
The most popular stable currency, USDT, or Tether, has been around for some time but has been mired in controversy due to its lack of transparency when it comes to proving that the same amount of USD is held as there is USDT in circulation. True USD, on the other hand, uses a smart contract system that theoretically (you never really know, do you?), should prove to be more transparent and trustworthy. Tether's 24 hour volume at the time of this writing was around $2.4 billion USD. True USD, on the other hand, being the new kid on the block, only has a 24 hour volume around a hundredth of that at about $26 million USD. That really doesn't seem like it would be enough to make much difference in a $300-400 billion market.
Still, Tether has in the past had a significant effect on the market, despite its relatively small proportion of the whole. This is because there is limited liquidity in the market - not all Bitcoin for example, are trading hands in a given day. Most of them are tucked away nicely in storage somewhere and are not being traded. This is true of pretty much all currencies on the market. So a little more "stable" money being bought can cause a slight drain on the crypto value, even though it's not a massive quantity.
Over time, this should balance out and more stable currencies will likely, in the end, give the entire market more stability. In the meantime, crowd behaviour, panic and exuberance will keep this ride fluctuating like a roller-coaster for some time.
*This is not professional trading advice - it's just my opinion!
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image source:
https://bitcoinmagazine.com/articles/stablecoin-trueusd-now-trading-bittrex/
Interesting article. Deserves an upvote!