Who needs physical money? The coronavirus pandemic has highlighted problems with cash, which is neither contactless nor clean. Some investors have turned their attention to so-called stablecoins like Tether and USD Coin. These dollar-backed cryptocurrencies are shaping up as winners amid the pandemic.
With the risk of the Covid-19 disease, some grocery stores and other businesses that have been allowed to remain open are refusing to take cash. The US Federal Reserve at one point quarantined paper money from Asia before recirculating it, while South Korea's central bank removed bank notes from circulation for two weeks as part of containment efforts.
Alongside other virtual payment methods, bitcoin, the biggest name in cryptocurrencies, seems a natural beneficiary but it hasn't turned out that way. The most popular digital currency, with a value outstanding of $131 billion according to CoinMarketCap, was not supposed to be correlated to equities. But its value fell by more than 10% in the first quarter as stocks also tumbled.
The resulting flight to safety has added to demand for US dollars, including the digital kind. The greenback is up 4% this year against the euro and other major currencies. That has had positive ripple effects for stablecoins, which are backed by reserve assets like fiat money or precious metals.
Last weekend the most popular version, Tether, hit a milestone market value of $7 billion. It's the fourth-largest crypto asset on the blockchain. Emerging markets like Brazil, where local currencies have weakened, are the source of some of the demand.
Likewise USD Coin in circulation has grown more than 75% since mid-March. There has also been an eightfold increase in businesses signing up for accounts at Circle, a platform for USD Coin.
Both are still small compared to bitcoin. The interest could, however, also help Libra, the beleaguered crypto project led by Facebook. Last week, the 22-member Libra Association announced changes to ease regulators' concerns, including establishing stablecoins backed by single currencies as well as a multicurrency basket.
Getting watchdogs fully on board will probably mean Facebook has to take a back seat, with the association transparently able to overrule Mark Zuckerberg's social network. It's worth the price to take advantage of an opportune moment.
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