Are Stablecoins the Currency Hedge Emerging Markets Need?

Fool.com contributors Chris MacDonald and Jon Quast discuss whether Stablecoins such as Tether (CRYPTO:USDT) could be the solution to the woes of many emerging markets. This conversation took place on “The Crypto Show” on Backstage Pass on Jan. 12.

https://www.youtube.com/watch?v=x8EBhIIQU5k?feature=oembed

Jon Quast: One thing that is not supposed to fluctuate, high value day-to-day, is the stablecoins. We have some interesting information coming out of Turkey in recent days. In Turkey, out-of-control inflation, loss of value on the Turkish lira, 40 percent of its value has been lost in relation to the dollar, and people are moving to stablecoins.

Chris MacDonald: Yeah, it’s interesting for sure to see how monetary policy can really affect the economy in general, and for Turkey, the interest rate cuts while inflation has been running rampant has led to this currency decline.

For crypto bulls, one of the main thesis to own something like a Bitcoin is that it’s going to hold its value relative to the dollar. If you are in parts of the world where there’s this currency depreciation, there’s not only an inflation hedge, but potentially, a currency hedge as well to owning something that holds relatively stable.

Now, we just talked about the volatility that in crypto in general, and the question is how much of a hedge really is cryptocurrency if it’s going to be fluctuating this much. But there is that idea that something like a Bitcoin that’s a little bit more stable or stablecoins are the way to go.

I know in Turkey, there was a report I was reading today that Tether specifically, is one of the stablecoins that has been focused on, I think we’ve got that in the next slide here. A majority of the deposits in Tether are coming from Turkey now, which is pretty incredible. But I think that speaks to the demand for something that’s stable, and whether it’s you invest dollars or stablecoins backed by US dollars. That’s something that’s interesting.

But Tether, there’s a little bit of a deeper story there in terms of what’s backing Tether. There’s been a lot of discussion about what sort of commercial paper, or it’s not just US dollars that are backing some of these stablecoins. You got to maybe dive a little bit into the weeds with these and that’s something that I want to do a little bit more.

But in general, yeah, it’s definitely an interesting trend to watch. I know we’re going to touch a little bit more, not only in Turkey but other countries, Argentina, some of the countries in South America as well.