Currently, the cryptocurrency market is undergoing a situation of volatility. Stablecoins like BUSD can become a safe haven in the face of sudden price changes.
Those who participate in the crypto market are aware that cryptocurrencies are undergoing a volatile situation. They constantly see big increases and sharp drops in the price of virtual currencies like Bitcoin. This is one of the reasons why many people decide not to enter the world of crypto assets. Fortunately, stablecoins appear as a safe haven against cryptocurrency volatility through projects like Tether and BUSD.
Many analysts consider that the main feature of the cryptocurrency market is the volatility in its price. Being a relatively young market, the price of virtual currencies like Bitcoin is vulnerable to mass buying or selling movements.
This occurs due to the size of the cryptocurrency market. Despite a capitalization of hundreds of millions of dollars, this aspect is still not enough to prevent the actions of the main investors in cryptocurrencies from affecting its price. This allows the investment decisions of a small number of users, known as whales, to strongly affect the price of cryptocurrencies.
For that reason, it is logical that many people think twice before investing their capital in cryptocurrencies. After all, when seeking protection for the value of money, a currency that may drop by as much as 50% in price in a single day is not a safe haven.
Besides, this would cause problems when buying goods and paying for services. At any given time, people may not have enough money to pay for the merchandise they want to acquire.
Stablecoins and Cryptocurrency Stability
Stablecoins are virtual currencies whose value is based on the reserve fund of a financial asset not belonging to the crypto world, be it fiat money or natural resources. In this way, the price of stablecoins would not undergo the constant changes that cryptocurrencies such as Bitcoin are subject to. On the contrary, its price would be pegged to that of the asset that constitutes the reserve fund that gives it its value.
Of course, stablecoins give rise to a new problem. While cryptocurrencies emerged to decentralize the financial world, stablecoins would be a step towards greater centralization. The latter needs an administrative organization in charge of comprising the reserve fund that ensures the value of the stablecoin.
Consequently, the confidence that this stablecoin administrative organization generates is critical to the future of the crypto asset. The most successful cases so far are Tether (with a fixed price of 1 USDT = 1 USD) and Binance’s stablecoins BUSD (based on the US dollar) and BGBP (based on the British pound).
In the case of Binance, its stablecoins also have an additional feature: they run on two blockchains at the same time, on Ethereum as ERC-20 tokens and Binance Chain as BEP-2 tokens. This gives its virtual currencies greater flexibility, making them the perfect safe haven in the face of the volatility of cryptocurrencies.
By Alexander Salazar
