This post will be me channeling my inner Nostradamus. 2021 has been a very profitable time for my portfolio. Long story short, I was able to jump from wave to wave, from BTC's rise, to DeFi's rise, to NFT's rise, and finally to stablecoin's rise.
I do not think I am special at all when it comes to this journey. I think if I have any skill, it's the skill of having a pulse of where the capital is going.
It's not fun to have this view but I'll say it bluntly:
The rise of Tether has put the entire cryptocurrency market at risk and I would recommend "cashing" out on your profits for the year if you've reached your initial goals.
For transparency, I have withdrawn 80% of my crypto assets to FIAT.
Before DeFi, stablecoins were used primarily as a "notch" mechanism for traders. If traders' assets went up a significant portion and traders wanted to "lock-in" the profits, they could exchange their crypto for stablecoin and wait for the next dip to trade back in.
USDC is a stablecoin issued by Coinbase and each USDC token is backed by a single dollar. This is one of the safer ways to expand the number of stablecoins circulating.
Rise of DeFi
Stablecoin's role in crypto began to evolve from being a way to "lock-in" trading profits to become a interest yielding generator. Many different DeFi apps are able to leverage your stablecoin to earn more stablecoins or the project's governance token (sometimes both!).
This has put stablecoins into the spotlight especially as it looks like we're now in a bear market and "traditional" coins like BTC/ETH are poised for a large correction as general retail seems to be losing interest which can be seen from google trend searches of both. Game theory dictates as bear market sentiments spread more throughout the Crypto community as retail begins leaving (selling) and prices drop, stable coins will be the only logical investment for crypto investors.
Image below of Curve pool that utilizes USDC, DAI (USDC lite), and Tether. Current rates are 0.18% stablecoin rewards + up to 4.34% bonus apy.
There's a great video on Tether by CoffeeZilla that goes more in-depth about Tether and why there's reason to suspect foul play in their organization.
Earlier I spoke about USDC and how each token is backed by a US dollar. The reason we're able to make this assumption is that Coinbase is located in the United States and therefore has to deal with United State legislation and oversight which leads to pretty high consumer confidence that the token you're spending is backed.
Tether is unlike Coinbase and has backpedaled multiple times regarding how their stablecoin is backed. Originally stating each coin was backed by one USD until turning it into partly usd and "other crypto assets". The market capitalization is also very suspect. Seeing how Tether has grown more than 6x ($50,000,000,000) just in 2021 alone while being unable to show if the Tether organization truly has that money under management.
Tether's unnatural growth plus its sketchiness leads to the situation where the largest stablecoin by far is seemingly unreliable. This won't be the first time we've seen unreliable coins in crypto. Just recently we saw the destruction of TITAN's stablecoin IRON losing millions for its investors. However, unlike TITAN, which mostly only affected investors, I believe Tether will lead to a disastrous domino effect on the crypto market.
I foresee an event that will follow these steps.
- Traditional coins drop over the course of 4-6 months and leads to a retail exodus further pushing the price lower.
- Bear market begins and the majority of new investments are funneling into stablecoins in search of interest yields.
- Tether bank run and depegging of the stablecoin
- Pools with Tether are destroyed and drop to 0. This would affect pools of major projects like Curve and lead to massive stablecoin losses.
- The stablecoin market collapsing will further bring the price of traditional crypto plummeting as consumer confidence hits an all-time low.
- This would then be the time to invest heavily into traditional assets (BTC/ETH).
This is my prediction for the rest of 2021. Not financial advice but if you're uncomfortable with these risks, I would advise minimizing your % of capital in crypto to a level you're more comfortable with. I am not Nostradamus (even though, he was wrong plenty of times as well) so DYOR and stay safe.
Words from a trader wiser than I. Click the quote if you want to visit Bagsy's education site. It's wonderful and I recommend it if you're new to trading!
"In crypto, the most important thing you need to do is survive. This technology is likely a harbinger of a multi-decade macro shift in finance, economics, organizing people, and whatever other use cases we’ll figure out for it. You’ll have plenty of time to take advantage of the opportunities. That is if you’re still there to take advantage of them. Survival is key."