Bitcoin Volatility Pushes Indian Crypto Users Towards Stablecoins
37-year-old Kumar Abhishek, who doubles up as a crypto trader while also working as a mortgage underwriter at a multinational company in New Delhi, has been investing in cryptocurrencies for the last two years. But, lately he has been increasing his stablecoin holdings, which now stand at close to 40% of his crypto portfolio.
This, Abhishek said, is a conscious strategy to help protect himself against crypto volatility. It also helps him buy into the dips in prices of Bitcoins and altcoins.
26-year-old Karan Sharma, who has been investing in crypto tokens since 2017, has also increased the portion of stablecoins in his portfolio for similar reasons. “Given, Bitcoin prices have been extremely volatile after reaching peak-levels, it makes sense to convert part of holdings in stablecoins so that the returns don’t fluctuate too much,” he said.
Abhishek and Sharma represent a growing pool of Indian crypto users who are now starting to hedge the inherent risk in Bitcoin, which has dominated trade so far across the country’s crypto exchanges. And as they do, stablecoins, which are pegged to an underlying asset such as the U.S. dollar and tend to be less volatile, are gaining popularity.
The most common stablecoin traded on Indian exchanges is USDT or Tether that roughly trades at over or equal to $1 apiece.
We have seen the highest-ever volumes in stablecoins in India in the last two months, said Vikram Rangala, chief marketing officer at ZebPay. "Indian investors, like their global counterparts, are diversifying into stablecoins for a few reasons. One is to have a stable-priced counterweight in their portfolio to volatile assets like Bitcoin and altcoins. Another is to use it to transact in dollar amounts— for online purchases or to buy other digital tokens," he said.
The trading volumes for Tether, often dubbed as crypto-cash, have grown exponentially, claim exchanges WazirX, Unocoin, Bitex and ZebPay, even as growth in Bitcoin trading volumes has slowed.
Bitex, which is headquartered in United Arab Emirates and entered India in November last year, claims that USDT trading volumes grew nine-times in April compared to last month, when it first launched the stablecoin on its platform. This was double the growth in Bitcoin volumes for Bitex, which grew three-times year-on-year in April.
“Even for us, the USDT volumes grew nearly five-fold to $3 million in April compared to last year, as many of our traders liquidated their Bitcoin holdings and converted them into stablecoins,” said Sathvik Vishwanath, founder and chief executive of Unocoin, one of the oldest crypto exchanges in India.
BloombergQuint could not independently verify these volumes as no official source of data is available.
The shift being seen in India mirrors what is happening globally. Trading volumes of Tether had more than doubled to $171 billion as of April 20 compared to $54 billion a year ago, as per the latest data available on global cryptocurrency data tracker CoinMarketCap.com. Bitcoin trading volumes grew at a relatively slower pace at 80% year-on-year to $68 billion over this period.
Hedging volatility remains the key factor attracting crypto users to stablecoins even globally. Bitcoin, which rose as high as $64,870 this year, has retreated back to $55,000. The cryptocurrency is still up about 90% year-to-date. Other tokens have corrected in line with Bitcoin, pushing demand towards stablecoins.
“A dip in bitcoin prices also causes the prices of altcoins to drop thereby encouraging traders to buy into the dip. So, any market correction causes traders to buy stablecoins such as USDT, so that they can buy more altcoins with it,” said Siddharth Menon, co-founder and chief operating officer at WazirX.
A third possible reason for higher stablecoin volumes in India, according to Monark Modi, founder and chief executive at Bitex, is the uncertain regulatory environment around cryptocurrencies in India and across the globe. As more institutional investors turn to buying cryptocurrencies, governments across the world are taking an active interest in how these tokens should either be regulated or banned, Modi said.
"In India, too, there has been talk of an impending ban, which is leading investors to convert their crypto assets into stablecoins and holding them till the final announcement comes. This is being used as a strategy by some cautious traders, as it is much easier to do cross-jurisdiction transfers using digital cash than real money,” he said.