A common investor question is the correct currency to analyze Bitcoin, as it is traded freely around the world. To further complicate the situation, it is not possible to measure the volume traded in China, as local exchanges were banned there in 2017.
Anyway, the available data indicate that the Dollar leads absolutely, especially through the stablecoins, cryptocurrencies paired with the American currency. Could it be said that Euro, Yen and Rubles have no influence? How should the Brazilian investor analyze prices?
Let's address these issues and take the opportunity to get to know the USD Coin (USD), the stablecoin available for trading on the Bitcoin Market.
How much of Bitcoin is traded in Dollars?
It is complicated to aggregate the volume of all exchanges, since not all have reliable data. The Bitcoin Market is constantly highlighted in the ranking of the Blockchain Transparency Institute (BTI) , which analyzes governance, transparency and volume.
The CryptoCompare analysis tool indicates that 85% of the volume on global exchanges is traded in US dollars or its stablecoins in the last six months. The Nomics website points to 78% in the volume accumulated in 2020, which gives us an idea of this overwhelming leadership, even when compared to the Euro and Yen.
However, not all Bitcoin and cryptocurrency volumes occur on exchanges. There is also the over-the-counter market, better known as OTC (from English Over The Counter). In these transactions, volumes and prices are freely negotiated between the parties. In this case, there is no public book for consultation, nor is it even possible to identify such transactions on the blockchain. without having the addresses of both parties.
What is the Dollar's influence on Bitcoin?
Although there is no direct correlation between the Dollar and the Bitcoin quote, we need to remember the US currency is responsible for 60% of countries' international reserves. In addition, 45% of the market capitalization of all companies listed on the world stock exchange is on the NYSE and Nasdaq in the USA.
For this reason, any change in the dollar's cost of capital brings seismic shocks, which are felt in all markets, although with different degrees of strength.
Note the 5-year US Treasury Bond rate in the graph above (blue), and its impact on the Bitcoin price in dollars (orange). Although there is no rule in this relationship with Bitcoin, the impact of the fall in rates, read more demand by investors, was felt in the most diverse assets.
How is the Real (R $) in this story?
Nothing prevents a Brazilian investor from following the Bitcoin quotation in Reais, and it even makes perfect sense for those who have income and expenses in the local currency. However, he should be aware that variations in the Real's quote in Dollars will have consequences for the Bitcoin's quote in Reais.
The recent example at the end of May showed us that although there was an appreciation in Bitcoin in Dollar (orange), the opposite movement occurred in the quotation in Reais (blue). This was due to the devaluation of the Dollar in Reais, adjusting after reaching the peak of R $ 5.97 in mid-May.
We want to make it clear that the Real R $ quotation has little influence on the price of Bitcoin, since volumes in the Brazilian currency represent less than 1% of the total turnover. As an example, the same effect occurs in the price of airline tickets and other services priced in dollars and sold in Brazil.
How to take advantage of the appreciation of the Dollar?
For Bitcoin investors, there is no need to do anything. The appreciation of the Dollar against the Real will be automatically reflected in the quotation. However, we recommend that everyone maintain a diversified investment portfolio, making it possible to achieve high levels of return, while at the same time reducing risk.
Stablecoins are an excellent investment option for those who want exposure to the Dollar, but without the volatility of cryptocurrencies. All this with the benefits brought by the blockchain in transparency and the possibility of performing self-custody, read, save your own crypto.
What is USD Coin (USDC)?
It is a 100% dollar-backed stablecoin, an initiative of Circle and Coinbase, companies regulated under US laws. The equivalent Dollars for each USDC are deposited in a bank account in the USA, attested regularly by the audit firm Grant Thornton LLP.
USDC is the second largest stablecoin in circulation, running on the Ethereum network in the form of a cryptographic in the ERC-20 standard. The project is focused on regulation, obliging all members involved to comply with local laws where they operate.
That is, in practice, each USDC issued is guaranteed, that is, backed by a dollar in a bank account. The holder of this crypto is the owner of the right to this dollar that is deposited as a guarantee.
Why buy USD Coin (USDC)?
By purchasing USDC you have the advantages of blockchain technology to carry out your transactions, in an agile, transparent and global scale. All this without giving up the price stability of the US dollar.
Another advantage is the diversification of the investment portfolio, allowing exposure in Dollars, protecting your assets from any devaluation of the Real R $. Recalling that the liquidity offered in the Bitcoin Market is immediate, that is, you can sell your USDC and withdraw from a current account on the same day.
You can also use USDC to make transfers to other exchanges. In this way, it is possible to send values between different platforms without running the risk of oscillation common to other cryptographic ones.
Who sets the price for stablecoins?
Just like other cryptocurrencies, customers send purchase and sale orders, forming a book of offers in the Bitcoin Market, which acts as an intermediary only. Anyway, it is expected that the quotation will be very close to the commercial dollar due to the high liquidity that the crypto has in several exchanges.
Either way, it is important to note that it is not the Bitcoin Market that sets this quote.
Is there any risk when investing in USDC?
The primary risk is exchange variation, as the USDC is backed by Dollars. A devaluation against the Real will cause the crypto price to fall. In addition, there is the risk of the issuer, the CENTER consortium, whose risk policy you can check on this page.
We reinforce the importance of studying any asset before investing. At the same time, we emphasize the advantages of a diversified portfolio, containing investments with different return profiles suited to the risk in which each one feels comfortable.
