Stablecoins are a clear indicator that cryptocurrency can’t be ignored – City A.M.

Friday 08 July 2022 3:40 pm

By Andrea Ramoino, Chief Strategy Officer at Contis

The UK government has announced that it intends to regulate stablecoins, turning the page onto a new chapter for cryptocurrencies.

For the uninitiated, these coins are a form of crypto asset which aim to maintain a stable value which is linked to another asset like sterling or gold.

You may be pondering the significance of this: What does it mean for businesses and the everyday spender? Why would I use stablecoins in my own life? And will this mean the UK holds its position as a leader in the digital payments sector, leading to growth and job creation at a time when the country desperately needs it?

Answering these questions requires a look at the crypto story so far, including how this asset class veered from its true purpose as a safe, traceable, and spendable currency.

Whats in a name?

Cryptocurrencys intended purpose is apparent in both name and configuration. These currencies were born out of frustration with the payments system we currently use a system built in the 1970s. Cases in point: individuals and businesses still often wait days for settlement.

A crypto coin is a digital token which can be sent electronically between users located anywhere in the world. Unlike traditional finance and payment systems, cryptocurrency networks are not run by a single company or central authority. Instead, they are operated by a global, decentralised network of computers, which means transactions are virtually impossible to fake or hack, and there is no single point of failure.

Crypto was born off the back of a complacent sector which has for years controlled the speed of transfers, as well as their cost. Peer-to-peer crypto payment systems cut out the middleman offering much cheaper and real-time payments. Liken it to being as simple and quick as handing a five-pound note to a friend. Larger savings will come via businesses cross-border payments, reducing fees, chargebacks, and settlement times.

These virtues have been clouded by the fact that crypto has gained global popularity as an investment vehicle over the last ten years, with thousands of headlines about volatile prices and massive potential gains from major coins like Bitcoin. A knock-on effect of this has been a lag in crypto payment acceptance, as the perception of crypto has moved from payment system to speculative investment.

Cryptos use as a high-risk investment has led to a vicious cycle forming as day traders conduct leveraged crypto trades. Many popular coins now regularly see weekly drops and gains of 20 percent or more.

Naturally, it would be incredibly unappealing to use crypto as a payment when there is uncertainty as to whether that morning coffee could cost 3 or 10. But this problem will be largely solved through the introduction of stablecoins.

Stablecoins and Central Bank Digital Currencies (CBDCs) remove the volatility that has made every day crypto spending impractical. They are a key piece of the spendable crypto puzzle.

Britcoin hit the headlines last year, after a 2021 BIS survey found 86 percent of governments globally are exploring CBDCs, while the decision to regulate stablecoins is set help increase the chances of wider scale adoption.

Stablecoins are also being backed by major banks across the world a potential gold rush which tells us why the UK has made the decision to move them inside the regulatory perimeter.

Meanwhile, industry leaders are now offering technology that means crypto companies can issue cards which allow customers to spend these assets like normal money and could unlock the benefits to people and businesses alike.

Looking ahead, a report from PWC revealed that more than 80 per cent of central banks are considering launching a central bank digital currency or have already done so, indicating the strong future for digital money and a clear signal that crypto cannot be ignored.

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Stablecoins are a clear indicator that cryptocurrency can't be ignored - City A.M.