Bitcoin has reigned as the undisputed king of cryptocurrencies since it was created a little over ten years ago.
The bitcoin price has soared, with some ups and downs, over the last decade—climbing to around $11,300 per bitcoin today and giving bitcoin a total value of over $200 billion.
Now, as the market for stable coins—cryptocurrencies pegged to traditional currencies or assets—has doubled in the last three months, a new report has predicted the largest stable coin, the controversial tether, could become the second most valuable cryptocurrency after bitcoin as soon as next year—with “the still deflating broad crypto-asset bubble … migrating assets toward tether.”
Bitcoin remains the most valuable cryptocurrency by a considerable margin–but the stablecoin tether … [+]
“Tether represents what many of the so-called cryptocurrencies aren’t: a stable form of payment,” Bloomberg senior commodity strategist Mike McGlone wrote in the company’s Crypto Outlook report for the fourth quarter of 2020.
Over recent years, bitcoin’s primary use case has evolved from a payments system to a store of value and more recently as a hedge against the inflation some see in on the horizon. McGlone expects recent unprecedented central bank stimulus spending and rising debt-to-GDP levels around the world to act as a strong tailwind for the bitcoin price, putting it on course to reach a whopping $100,000 per bitcoin by 2025.
“Indicating demand for a digital version of gold (bitcoin) and a crypto-asset like the dollar, if current trends prevail, the market cap of tether may surpass ethereum next year,” McGlone wrote, adding it “should take something significant to stall the increasing adoption of tether” which has been growing “rapidly” in contrast to “the stagnant market cap of ethereum.”
Ethereum currently boasts a market capitalization of a little over $40 billion, compared to tether’s relatively paltry near-$16 billion. However, tether’s total value has ballooned 300% over the last 12 months, while ethereum’s has merely doubled.
Bitcoin’s market value has risen at an even slower pace than ethereum, adding just under 40% since this time last year.
Meanwhile, tether’s cumulative transaction volume has increased by around 20% over the past 30 days to climb above $600 billion, according to blockchain analytics firm Glassnode. Tether’s daily transaction volume is around $35 billion according to an average from cryptocurrency data sites CoinGecko and CoinMarketCap, with bitcoin’s average daily transaction volume put at between $20 billion and $25 billion.
Elsewhere, data from analytics provider Skew has found futures contracts based on tether are now “almost on par” with those based on bitcoin.
As much as 70% of exchange trade volume is now denominated in tether, up from only a tiny fraction of the trade volume in 2017 when bitcoin accounted for 50% of trades, according to data from CryptoCompare.
Tether’s cumulative transaction volume has soared by around 20% over the past 30 days to over $600 … [+]
Tether’s management, which shares considerable overlap with the Hong Kong-based and British Virgin Islands-registered Bitfinex bitcoin and cryptocurrency exchange, is keen to play down any suggestion tether is aiming to eventually displace bitcoin at the top of the cryptocurrency pile.
“Aside from bitcoin, of course, which is the king of all cryptocurrencies, tether is in some respects the digital asset of our times,” Paolo Ardoino, the chief technology officer at Tether Limited, said in response to the Bloomberg report, adding: “We definitely see tether as a complement to bitcoin rather than a competitor.”
“Of course, we don’t see ourselves as competing with ethereum. Nevertheless, eclipsing ethereum’s market capitalization … will be a powerful statement. Tether once again proves itself to be one of the most trusted assets in the crypto space.”
Tether has had its fair share of problems, however. Over the summer, a New York court allowed the state’s attorney general to pursue a claim that Bitfinex, hid the loss of over $800 million in client and corporate funds. Tether Limited has also failed to satisfy critics that have suggested tether tokens aren’t fully backed one-to-one by U.S. dollars.
Looking ahead, the rise of stable coins in recent years has been taken as a sign of coming central bank adoption of digital currencies—with some suggesting central bank take up could provide the market with much-needed support.
“Increasing adoption of stable coins is likely a precursor for central bank digital currencies and promises to be more enduring than alt-coin speculative excesses,” wrote Bloomberg’s McGlone.