Stablecoins have gained attention since their introduction as a method to connect digital assets to major financial institutions. However, the primary advantage of the token is now causing a dilemma for regulators and government bodies. According to a report by Bloomberg, the Fed is still worried about crypto stablecoins due to their unpredictability.
US Fed and Stablecoins
As per Bloomberg, Stablecoins have been a bit of a concern for the US Federal Reserve. Because stablecoins tie volatile digital asset trading to the broader financial sector, there are concerns that they might eventually disrupt established markets.
The report illustrates this with the example of Circle. According to Bloomberg, the cryptocurrency startup Circle Internet Financial Ltd. had $3.3 billion in cash reserves backing its USD when Silicon Valley Bank collapsed. Approximately 8% of USDC’s holdings were held by a bankrupt bank, causing the stablecoin to experience a panic. During the turbulent weekend when regulators were deliberating on what to do about SVB, traders rushed to exit, pushing its price below $1. The USDC price recovered after government intervention to reimburse all of the bank’s depositors.
The main worries about volatility seem to arise from the fact that instability in the stablecoin market could potentially lead to people moving money back into regulated markets, which could pose challenges for the Fed and its rate decision trajectory.
Declining Demand Affects Investor Sentiments
Stablecoins experienced a steady ascent, with TerraClassicUSD being a top-three market participant for some time. However, due to market events like the collapse of Terra UST, the FTX crisis, regulatory enforcement actions, and recent security breaches on DeFi protocols, stablecoins have lost their pegs to reference assets multiple times.
Partly due to the lack of transparency surrounding the underlying reserves that support many stablecoins, a significant number of investors have chosen to offload their stablecoin holdings. The combined market value of stablecoins has steadily dropped from a peak of over $180 billion in 2022 to over $120 billion in 2023, reflecting the shift in investor sentiment.
Will Stablecoins Rebound?
The decline of stablecoins has once again impacted investor sentiments, setting a cautious tone for crypto investments. With this, the fate of the most well-known stablecoin still remains uncertain. According to Techopedia, by the end of 2024, TerraClassicUSD token price prediction is expected to reach a maximum of $0.05437. Although there are still opportunities to trade USTC, price fluctuations are unlikely to exceed the 2024 projection, which ranges between $0.03169 and $0.05437. However, trading volume will inevitably increase, potentially pushing the token closer to $0.1. In light of this, the projected TerraClassicUSD Price is anticipated to range from $0.04869 to $0.07600 for 2025.