There is no Paul Revere in 2022 walking around screaming that a recession is coming. But some are saying that another economic downturn is inevitable. The surge in inflation is forcing the Federal Reserve to raise interest rates. And economist Mohamed El-Erian thinks these rate hikes could lead to a recession.
If El-Erian is right, the interesting options available to the Investors they are quite limited. But there are some alternatives worth considering. Here are three cryptocurrencies that could hold up well during a recession.
There are several key benefits to cryptocurrencies. Low volatility typically isn't on the list. However, Tether (USDT 0.01%) stands out as a notable exception. Over the past 12 months, Tether's price has rarely dropped more than 1%, even when other cryptocurrencies were plunging.
The reason why Tether's price has such low volatility is that it is a stablecoin. Tether's stability stems from the fact that it is pegged to the US dollar.
Among cryptocurrencies, only Bitcoin and Ethereum have a higher market cap than Tether. It was initially built on top of the Bitcoin blockchain, but later expanded to other blockchains, including Ethereum.
For many investors, buying Tether is largely a defensive game. Investing in stablecoin during a recession, therefore, could make sense. It is also possible to lend Tether tokens to earn returns ranging from 3% up to around 20%.
However, Tether is not without risk. There has been controversy in the past as to whether or not its tokens are fully backed by US dollar reserves.
2. USD Coin
You probably won't find a cryptocurrency with less drama than USD Coin. Like Tether, USD Coin is a dollar-pegged stablecoin. The price hasn't fluctuated at all since its launch in October 2018.
USD Coin has a market cap of $ 81,7 billion. This is enough to rank it at No. 5 among all cryptocurrencies and second only to Tether among stablecoins.
The positives for Tether are generally applicable to USD Coin as well
Arguably the most important differentiator for USD Coin is its reputation for transparency. The stablecoin was launched by Center Consortium, which has two founding members: payment services firm Circle and cryptocurrency exchange Coinbase. Unlike some cryptocurrency companies, both Circle and Coinbase comply with current regulations.
Each USD Coin in circulation is fully backed by dollar reserves or dollar-denominated assets of equivalent fair value. All of these reserves are held in accounts maintained by financial institutions that are regulated by the United States government. This transparency has allowed USD Coin to gain ground on Tether over the past year.
Not surprisingly, the third cryptocurrency on our list. TerraUSD, like Tether and USD Coin, is also a stablecoin. It ranks at no. 14 among the cryptocurrencies based on the market cap. However, TerraUSD has been less stable than its peers for the past 12 months, with its price temporarily dropping as much as 8% in May 2021.
This increased volatility resulted from a sharp drop last year for the Terra Luna token. Both cryptocurrencies are part of the larger Earth ecosystem.
However, this ecosystem offers some advantages for investors. Perhaps the most important is the Anchor protocol. The decentralized savings and loan application offers a return on TerraUSD stablecoins of approximately 19,5%.
These high yields are likely not going to be sustainable. Two major cryptocurrency investment firms, Polygon and Arca, are pushing the Anchor protocol to reduce its returns. But TerraUSD could still be an attractive port in the storm if and when a recession hits.