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Stablecoins No ‘Safe Haven’ From US Monetary Policy, Says European Central Bank

Author: Content Editor
A working paper by the European Central Bank (ECB) suggests that stablecoins are not a safe investment during market turmoil, as they are highly influenced by U.S. monetary policy. The paper found that stablecoins, which are typically pegged to a fiat currency like the U.S. dollar, are vulnerable to shocks from traditional financial markets, such as changes in U.S. monetary policy. The ECB claimed that when the U.S. government raised interest rates, the market capitalization of stablecoins dropped by 10% over the following 12 weeks. In contrast, traditional non-crypto assets like money market funds received an influx of new capital during the same period. The paper also noted that stablecoin market capitalizations experienced significant falls during "crypto shocks," such as sudden devaluations in Bitcoin's value. The researchers concluded that monetary policy had a greater impact on stablecoins than events in the crypto world, suggesting that big fluctuations in the crypto market do not significantly affect traditional finance.

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