This article explores the potential collapse of fiat currencies, focusing on the U.S. dollar. We delve into the inherent vulnerabilities of fiat money, the implications of a possible collapse, and how changes in the global financial system may signal an impending crisis. The analysis will include an assessment of what to own when the dollar collapses
With the uncertainties in the growing economy, preparing for a potential devaluation is crucial. This preparation involves understanding the strategic steps that can be taken to mitigate the risks of a currency collapse. We discuss the importance of diversified investments, including real estate, precious metals, and cryptocurrencies, as potential hedges against the dollar’s possible decline.
Own Stablecoin
Stablecoins, one of the most important cryptocurrencies in the market, are typically pegged to stable assets like fiat currencies, ensuring relatively stable prices and providing an anchor for the value of various cryptocurrencies, reducing volatility in the crypto market.
Although many countries and regions have begun developing regulatory frameworks for stablecoins, differences in policies across jurisdictions may impact cross-border movement and usage.
The Market of Stablecoin
The global stablecoin market is experiencing rapid growth. Data shows that global quarterly stablecoin transfers have increased 17-fold over the past four years, reaching $4 trillion in the second quarter of this year. On July 17, 2024, the total daily trading volume of stablecoins reached $87 billion, with Tether (USDT) accounting for 83.3%.
Commenting on the reasons behind the rapid expansion of the stablecoin market, Zhao Wei, a senior researcher at OKX Research Institute, emphasized that stablecoins are one of the most important cryptocurrencies in the market. Pegged to stable assets like fiat currencies, they provide price stability, anchoring the value of multiple cryptocurrencies and reducing volatility in the crypto market. This is crucial in maintaining balance and stability within the cryptocurrency ecosystem.
The demand for and usage of stablecoins as a critical intermediary in the market continues to grow, driving the increase in stablecoin market capitalization and transaction volume. In the first half of 2024, the U.S. Securities and Exchange Commission approved Bitcoin and Ethereum spot ETFs, offering institutions and individuals direct investment opportunities. This has also indirectly increased the demand for stablecoins in areas like arbitrage and risk management. Additionally, stablecoins attract new user groups for purposes like hedging against currency depreciation, remittances, and payment transfers, fueling their global adoption and use.
Currently, regions such as Europe, Singapore, and the U.S. are actively developing stablecoin markets and strengthening regulatory oversight. In March 2024, the Hong Kong Monetary Authority announced the launch of a “sandbox” for stablecoin issuers, allowing them to test stablecoin issuance under regulatory conditions. In June 2024, the UAE approved regulations for stablecoin licensing, mandating that businesses in the country only accept stablecoins pegged to the dirham as a means of payment.
Clear regulatory frameworks and compliance requirements will enhance investor confidence in stablecoins and alleviate concerns about potential risks. This is particularly important for institutional investors and large financial institutions, as stablecoins’ legitimacy and regulatory compliance are prerequisites for entering the market. With regulatory clarity, these institutions are more likely to participate in the stablecoin market, bringing in more capital and resources. At the same time, the stablecoin market has long faced issues such as a lack of transparency, operational risks, and potential legal challenges. Through regulation, supervision over stablecoin issuance and operations can be strengthened, ensuring sufficient and transparent reserve assets and preventing market manipulation and fraud.
Concerns and Challenges
However, there is another side: changes in the regulatory environment may also bring new adaptation requirements. Experts point out that stablecoin issuers and market participants must invest resources and effort to comply with new regulatory demands, including upgrading technical systems, strengthening internal controls, and increasing compliance costs. Adapting to the new regulatory environment may pose specific pressures and challenges for some small and medium-sized stablecoin issuers.
Meanwhile, challenges and risks coexist. The global regulatory landscape remains inconsistent despite many countries and regions formulating regulatory frameworks for stablecoins. Differences in policies across countries and regions may affect the cross-border movement and usage of stablecoins. Although stablecoins are usually pegged to tangible assets, their market price is still influenced by changes in supply and demand, market sentiment, and macroeconomic factors. Some stablecoin projects face short-term liquidity issues, particularly during periods of high market volatility, making it challenging to maintain their stability.
Furthermore, stablecoin issuance and operations require high transparency and trust; concerns regarding insufficient reserve assets or operational opacity could undermine market confidence. Additionally, stablecoins rely on blockchain technology and smart contracts, making their technical security critical. Vulnerabilities in code, hacking attempts, or technical failures could lead to system collapses or financial losses.
Stablecoins are vital tools for maintaining stability in the cryptocurrency market, and changes in industry demand are key factors influencing their development. Internal competition also plays a role in determining stablecoin trends. The stablecoin market is characterized by healthy competition, which benefits investors by providing more choices. However, how various stablecoins will continue to operate as the market evolves remains to be seen.