The Merriam-Wester Dictionary defines complacency as “self-satisfaction especially when accompanied by unawareness of actual dangers or deficiencies”.
At present, US dollar stable coins are 99% of the market value of the overall stable coin market, a concentration level representing both dangers and deficiencies, complacency at its best.
In investing, diversification is healthy and spreads out risk. At 99%, risk is not spread out. A crisis would be painful.
Second, just because something is call ‘stable” does not mean it is free from danger. As example, in 2008 The Reserve Primary Fund, a money market fund, broke the “buck”, meaning the value fell below $1. Money market funds at that time were not hard currency, rather a combination of hard currency and cash “equivalents”. US dollar stable coins are backed by US dollars and US dollar “equivalents”.
Here, the key word is “equivalents”.
Third, the US dollar fiat is structurally challenged. It is down over 8% versus major currencies year-to-date and almost 4% down in the last month. The reasons for dollar weakness are clear 1) inconsistent tariff policies that may boost inflation 2) talk of US debt restructuring through things like the Mara Lago Accord 3) a potential US debt problem 4) upsetting the US’s second biggest debt holder, China. The list goes on.
But above all else, the mere mention of President Trump curtailing Fed Independence through the ouster of Fed President Powell really causes concern.
To make matters worse, there have been multiple days when all US denominated assets, such as US dollar, US bonds, and US stocks fell in tandem. Is the occurence of more mini-meltdowns a sign of things to come?
This is not a call to abandon US dollar stable coins. They are key to the future of currency investing. Rather, it is a call for investors and policy makers to pay attention to mitigate concentration risk, rein in excessive dollarization.
How can this be done?
Investors can buy other stable coins. Latin America has stable coins. Europe and Asia have stable coins. Companies like Etherfuse have a robust offering of stable coins in Mexico, Brazil, Europe and the UK. Increasing exposure to these will take from the concentration risk of US dollar.
If you can buy non-US dollar stable coins, you should do it.
Governments can get going and allow for more stable coins and diversifying vehicles to be approved. Both the US House and Senate are debating bills that would provide a regulatory framework for stable coins to allow easier trading of different crypto currencies.
Great solution but do something legislatures. The clock is ticking.
In the end, if governments and investors remain complacent about the issues impacting stable coins and the US dollar, crypto is at risk. Crypto has already been tainted by scandals like Terra USD, meme coins, Binance, and FTX to name a few. A failure of the US dollar stable coin to hold its value in a meltdown could kill crypto for a long time.
This blog is for educational and informational purposes only, covering general market trends, industry developments, and asset features. Nothing herein is investment advice, a solicitation, or a recommendation to buy or sell any assets. Etherfuse and its guests may hold stakes in some or all of the assets discussed.
This blog is for educational and informational purposes only, covering general market trends, industry developments, and asset features. Nothing herein is investment advice, a solicitation, or a recommendation to buy or sell any assets. Etherfuse and its guests may hold stakes in some or all of the assets discussed.
