A recent article argues that stablecoins, like TerraUSD, are less volatile than cryptocurrencies. The article also argues that the “enormous liquidity” that has inflated Cryptoassets has now drained away, prompting a sharp decline in their prices. In a recent article, Nordea Asset Administration said that as central banks tighten their policies, more investors will abandon Cryptoassets.

TerraUSD loses a third of its worth on Tuesday

In a matter of days, the 4th largest stablecoin, TerraUSD, has lost nearly 50 percent of its value. Earlier this week, bitcoin fell below the $30,000 mark, and now the stablecoin has dropped even further. While TerraUSD’s market cap is still relatively low, it is important to note that Bitcoin’s price is largely impacted by this market. It is now possible to buy and sell TerraUSD for as little as $0.45, but the price may drop even further.

The fall in value is especially jarring for traders. The stablecoins, such as Terra USD, are a safe haven, as their value is pegged to a traditional asset, like the U.S. dollar. Traders have increasingly been using them to move money and speculate on other cryptocurrencies. However, this recent gyration may signal the end of TerraUSD’s peg.

Stablecoins are more secure than stablecoins

There are several advantages of stablecoins over traditional fiat currencies. These digital assets are designed to be more secure and transparent than fiat currencies. Unlike traditional currencies, stablecoins are cheaper and easier to work with in the blockchain ecosystem. They also serve as a convenient way to make payments and take out loans backed by coins. They can also be used to purchase insurance for crypto assets.

The value of stablecoins is not affected by market fluctuations. This makes them an excellent option for passive income. They can also be used to perform yield farming, a practice that rewards investors with a percentage of the exchange fee for locking assets into a liquidity pool. Stablecoins rely on people trusting the company holding the collateralized reserve asset. If the company behind the stablecoins goes out of business, the value of the coin will decline.

Cryptoassets have been inflated by an “enormous amount” of liquidity

The amount of liquidity backing crypto-assets has gotten out of control, leading some investors to sell their investments. The market cap for crypto is about $2 trillion, calculated by multiplying all existing coins by the current spot price. However, this figure is meaningless unless you know the exact figures and if you can cash out your entire investment before it crashes. That’s why the future of cryptocurrencies is largely dependent on what the Federal Reserve decides to do.

One way to mitigate this problem is to consider a bitcoin hedge. This digital asset thrives in environments with high liquidity. It has increased more than 800% since March 2020, but inflation is sure to hurt bitcoin. It’s currently down 28% since November 8 at $48,000. But it remains an excellent hedge against inflation. While it may have inflated in price, it remains highly correlated with high-growth stocks.

Also Read: Why Bitcoin Drops Below $30000