CAIA Blog:  Keeping Digital Assets Stable With Stablecoins  January 28, 2021

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By Andrew Keenan, CAIA, CFA, CBP, Assistant Vice President at Credit Suisse

The recent stratospheric rise of bitcoin and its compatriot altcoins has generated both intrigue and despair as a handful of big-name digital assets reached new apogees in 2021 with respect to price and market capitalization.

In the case of intrigue, outperformance of and familiarity with bitcoin et al has led to fruitful discourse as well as interest by a plethora of Institutional Investors to start building allocations to digital assets (see the following CAIA infoseries for more on the discussion as to whether cryptoassets are indeed ready for Institutional Investors). Conversely, in the case of despair, the volatility of digital assets, regardless of how one measures it, has served as the proverbial “worst enemy” of cryptocurrencies and perhaps the most salient detractor for more widespread adoption. After all, it is hard to count on using an asset as a viable medium of exchange if its value or even a store of value if prices fluctuate wildly over a broad spectrum of time intervals and market conditions. Moreover, the parabolic rise of any asset tends to exacerbate the volatility problem by keeping traders consistently unsettled with one eye towards the metaphorical exit, trying to time their serendipitous withdrawal before the next drawdown.

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