Crypto ETFs Make Great Headlines, But Stablecoins Are Key To Mass Adoption

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Even as the calendar rolls toward May, and along with that, the potential for a decision regarding the future of ether ETFs, crypto investors and advocates would be well advised to keep an eye on other important developments in the cryptoasset sector. ETFs, long-awaited and anticipated by retail and institutional investors alike, have performed as advertised by attracting billions of new dollars of investment to the sector which has led to significant upswings for bitcoin and other crypto assets in 2024. At the same time, however, the very success of these instruments has seemingly reignited intense scrutiny from policymakers and regulators alike.

As the SEC launches its latest round of legal and enforcement actions against crypto organizations, this time in the DeFi space (specifically Uniswap Labs), the message toward crypto enthusiasts is clear. No matter how widespread the interest and appetite for crypto might seem the regulatory authorities seem determined to hash out regulation in the courtroom versus substantive conversations. On the other hand, the likelihood of Bitcoin, or any other widely traded and liquid crypto assets, supplanting the U.S. dollar as the currency of choice on the global stage seems as remote as ever. In a twist that can be dubbed the crypto price paradox the higher that current prices rise, when combined with optimism of even higher prices in the future, leads to a situation where sellers are limited, and investors are not inclined to use these instruments as currencies.

There is, however, one subset of the cryptoasset space that continues to look well-positioned to lead a widespread adoption of cryptoassets throughout the U.S.: stablecoins. Let’s take a look at a few of the reasons as to why this is.

Stablecoins Reduce Obstacles

Stablecoins are not, and should not be thought of as perfect or ideal crypto assets, but they do address several of the more significant obstacles that have stood in the way of wider adoption and utilization. By design, stablecoins have lower levels of volatility than other crypto assets such as bitcoin, are more easily used as a medium of exchange when compared to another subset of crypto such as NFTs, and are privately issued therefore avoiding concerns around privacy that continue to stall CBDC development.

Additionally, there is tax clarity that is delivered via the further development and utilization of stablecoins as a medium of exchange. Since stablecoins tend to have lower levels of volatility this also means that even if the tax reporting obligations and compliance work will still be required, the tax liabilities for individuals and institutions will be lessened. In an ideal scenario in which the stablecoin maintains its 1:1 peg to USD the tax liability will be zero while allowing users to reap the full benefits of tokenized transactions.

Put simply the benefits and upsides of using cryptoassets are represented via stablecoins while some of the most complicated tax and operational issues are addressed.

Stablecoins Bring TradFi Into Crypto

In a point that is surely to be controversial one of the main benefits of stablecoin development and adoption is that these instruments will force banks and banking institutions to embrace blockchain and tokenized payments more rapidly than might have otherwise been estimated. Examples of how this transition has already occurred are present in the development and deployment of stablecoins and tokenized payment systems at institutions such as J.P. Morgan, SocGen, Citi, and Bank of America While at this point these stablecoin tokens are not widely available for trading, other TradFi institutions are taking that idea to market presently.

PayPal, a household name, has recently created and issued a native stablecoin available for individuals and entrepreneurs to use for transactional purposes. While this initiative has attracted regulatory scrutiny from the SEC from a securities perspective, as well as connections to Paxos, it remains a watershed moment for the asset class. In addition to the private sector taking the lead in issuing tokens, individual states are following suit. With Wyoming and states including Texas exploring how to issue state-backed stable tokens, the TradFi and governmental sectors are pivoting rapidly to this subset of crypto.

Stablecoins Are The Future Of The Dollar

As has been written here and here the future of currencies of any kind is increasingly clear the underlying trend is for increasing digitization, real-time settlement, and more instantaneous reporting and analytics. When viewed through that lens stablecoins do not as much represent entirely the method of conducting transactions, but appear to be a reasonable next step in the evolution of money, currencies, and the way that both individuals and entrepreneurs exchange value. By combining the (outward) stability and understandability of fiat currencies with the technological benefits of tokenized payments, these instruments seem very well positioned to serve an important role in the tokenization of currencies going forward.

Stablecoins, although not entirely embracing the original ethos of bitcoin and cryptocurrencies remain the best onramp to mainstream and mass adoption of cryptoassets.

Image by: Pixabay

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