Notes 7/25: Stablecoin Ratings, Bitcoin Price

Here’s a zinger of a news item from crypto.

Bluechip Stablecoin Ratings Agency has come out with ratings for stablecoins operating in the crypto ecosystem. Binance’s native stablecoin BUSD and Gemini USD have received an A rating while algorithmic stablecoin Tether gets a D. Apparently, the factors considered while deciding the rating are governance, ability to hold onto its peg, reserves, and management quality.

A Top Quality Stablecoin

Any attempt to bring order to the unruly crypto ecosystem must be applauded. But this is laughable. BUSD is winding down its operations after regulators charged it with being a security. Gemini’s GUSD has no defined use case and it produces attestations from the non-existent branch of an audit firm.

And what about Tether? “Its really audit that’s the most important single factor holding back Tether,” said Garrett Jones, Bluechip’s chief economist. “When it comes to Tether, what ends up holding the rating down is the lack of an audit and the fact that people can’t be credibly convinced of its reserve plans.”

Really? How about its management, which consists of a former cartoon creator and an absent CEO? How about the fact that Tether’s price moves are exactly asynchronous to that of bitcoin? Credible convincing of reserves is not required for algorithmic stablecoins because they are not required to hold them. Tron’s USDD is the only stablecoin to garner an F rating from the agency.

A Lucrative Nonprofit

Bluechip claims to be a nonprofit that has received “donations” from some well-known names in crypto, including MakerDAO founder Rune Christensen and Reserve cofounder Nevin Freeman. Jones himself is a professor for the study of capitalism at George Mason University. He has assembled an advisory team that includes the likes of Larry White, Tyler Cowen, and Alex Tabarrok.

Bitcoin Price Falling?

If traders are to be believed, an interest rate hike is almost certain tomorrow after the Federal Reserve Board concludes its deliberations. A hike translates to a fall in bitcoin price because it means investors move away from risk-laden crypto towards regulated government securities. As of this writing, the cryptocurrency is changing hands for $29,247.85, unchanged from yesterday and down 2.1% from last week.

Crypto traders are reported to have already “priced in” the move and are shuffling their funds into other tokens. Altcoins, as such tokens are known, have rallied in recent days after a confusing New York court decision. Ripple’s XRP is the biggest winner and accounted for the highest trading volumes, surpassing even those of bitcoin, in the last week.

Shrinking Liquidity

At least on the surface, crypto seems to be functioning per usual. Traders rotate in and out f altcoins depending on bitcoin’s price trajectory. But things are never as they seem in crypto.

Research firm Kaiko writes that despite the altcoin rally, market depth in crypto has seen only a slight spike in USD terms since the Ripple ruling. That means there is very little new money that has entered crypto markets in recent days. Market depth is the sum of bid and asks within a 1% range at exchanges.

According to data from The Block, the overall trade volume at exchanges that do not offer USD trading is at $289.91 billion, far below the $392 billion notched up last month. Exchanges that support US dollar trading are not doing too well either: their trading volumes are at $53.5 billion as compared to $74 billion last month.

Crypto traders in altcoins will have more to reckon with more than a Fed call on interest rates tomorrow.

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