Increasing stable coin supply in cryptocurrency markets draws attention. Total stablecoin supply approached $8 billion. Especially the increase in Tether supply does not escape attention.
On the increasing supply of stable coins
Legendary economist John Maynard Keynes Macro He is known as the father of economics.. Keynes’ “General Theory of Employment, Interest and Money” is among the first works of macroeconomics.. Keynes’s “Liquidity Preference Theory” is one of the important theories explaining the demand for money.. The Liquidity Preference Theorem provides explanatory information about the stable coin supply, which has increased recently in crypto money markets.
According to Keynes’ Liquidity Preference Theorem, there are 3 important motivations that affect people’s money demand:
- Demand for transactional money: Amount of money held for daily use.
- Precautionary motive: Amount of money demanded for unexpected and urgent needs.
- Speculation motive: Amount of money held to evaluate possible investment opportunities.
There is a positive correlation between demand for money held and income with transaction and prudence motivation. there is a relationship. In other words, as the income level increases, people demand more money with the motive of transaction and prudence.
Please See: Look at stable coins to see the future of money
With the motive of speculation There is a negative relationship between the amount of money held and interest rates.. Considering that today’s interest rates are at a very low level, the amount of money demanded with the motive of speculation must be extremely high.. Also, stablecoins are cryptocurrencies like Bitcoin, as they are released on a blockchain system.. Below we see the total market value of the most traded stablecoins in the crypto money markets.
Tether (USDT): $6.4 billion
USDC
strong>: $0.73 billion
PAX: $0.27 billion
According to CoinMarketCap data, Tether is one of Bitcoin, Ethereum and Ripple in terms of total market cap. 4th most valuable cryptocurrency after. In terms of transaction volume, the currency with the highest transaction volume. Being a bridge currency is effective in the high transaction volume of stable coins.. For example, when an investor with Ripple wants to buy Bitcoin, they first convert their Ripple to Tether.. Afterwards, this investor holds Tether and waits for a suitable time to buy Bitcoin.. How much does the amount of Tether demanded during this period coincide with the speculation motive in Keynes’s Liquidity Preference theorem and the amount of money demanded, right?
The following clip about Keynes may interest you:
After the Corona Epidemic was declared a global pandemic by the World Health Organization, volatility in the crypto money markets increased tremendously. In the extremely volatile cryptocurrency markets, the demand for money for speculation is turning to stable coins, especially Tether.. The increasing stable coin supply draws attention.
Please See: Stable coin transaction volume broke a record in the first quarter of 2020
Meanwhile, Keynes’ Employment, It is worth remembering that he wrote the General Theory of Interest and Money during the Great Depression (1929-1933) and released it in 1936.. Nowadays, it is spoken that in our world where the Corona Epidemic is effective, a crisis similar to the Great Depression will occur again.
Source