Bitcoin Suffers from Volatility Due to Stablecoin Fears

Ibeth Rivero

Since the beginning of the week, Bitcoin has gained 7.69% against the US dollar, breaking a three-week losing streak and closing Tuesday's session at the 36,672.6 level, after losing 1.70% during the session.

The cryptocurrency has been suffering from strong volatility in recent weeks, with some analysts describing it as a correction. Before the correction phase began, the cryptocurrency had been gaining popularity among both retail and institutional investors, particularly after the endorsement of Tesla CEO Elon Musk and backing from traditional financial institutions such as Goldman Sachs, who announced that it is considering offering Bitcoin to its clients.

Despite Bitcoin making important gains before the correction phase, it has given up a huge part of those gains in the last couple of weeks.

Bitcoin has been losing popularity mainly because Tesla announced that it was no longer intending to accept payments in Bitcoin. The company claimed that receiving payments in the cryptocurrency goes against the values of the company, since Bitcoin mining requires a lot of energy and it seems that most mining is done with non-renewable energy. Because of this, some countries have decided to ban Bitcoin mining. One example of this is China, who has been attempting to shut down Bitcoin production in a bid to become carbon neutral.

Now there are concerns that Bitcoin could be displaced by stablecoins which, given the fact that their value is linked to traditional currency fluctuations, seem to be better as a store of value. However, just as regular cryptocurrencies, there are concerns regarding stablecoins and some governments are considering regulating them.

“It is moving fast. The crypto space in particular right now if you characterized it – is an extremely volatile market and I don’t think its characteristics right now are conducive for them to be currency. The stablecoins get closer but there is still more to be done,”  commented Atlanta Federal Reserve President Raphael Bostic last week after highlighting that the development of the cryptocurrencies markets and digital finance is an area that cannot be ignored by regulators.

Stablecoins are currently considered a solid alternative to regular cryptocurrencies because they serve the same function and offer stability that is as of yet impossible to achieve in the crypto markets. Given its somewhat stable price, stablecoins can be used as regular currencies; that is, to save and perform economic transactions easily.

Despite this, there are still traders and investors that believe that Bitcoin will at some point replace traditional currencies and that volatility will eventually diminish.

By 12:59 GMT, Bitcoin went up by 3.20% against the US dollar, hitting the 37,242.2 level.

Ibeth Rivero

Ibeth contributes daily market commentary in both English and Spanish (both of which she speaks fluently) and she also manages the DailyForex mobile app to ensure that traders around the world are getting important market updates in real time.

Did you like what you read? Let us know what you think!

exclamation mark

Please make sure your comments are appropriate and that they do not promote services or products, political parties, campaign material or ballot propositions. Comments that contain abusive, vulgar, offensive, threatening or harassing language, or personal attacks of any kind will be deleted. Comments including inappropriate will also be removed.

0 User comments

exclamation mark

Please make sure your comments are appropriate and that they do not promote services or products, political parties, campaign material or ballot propositions. Comments that contain abusive, vulgar, offensive, threatening or harassing language, or personal attacks of any kind will be deleted. Comments including inappropriate will also be removed.

Read more
Add new comment
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.