A report published by S&P Global concludes that stablecoins are more volatile than pegged fiat currencies. The report released today, ‘A Deep Dive Into Crypto Valuation’, is timely given that this is one of the most volatile recent weeks for cryptocurrencies, following the need for a bailout from the FTX exchange. The paper primarily explores volatility and compares digital assets like Bitcoin to other cryptocurrencies, large-cap stocks, and gold.

Stablecoins are more volatile than pegged fiat currencies

S&P Global compares three dollar-pegged stablecoins, Tether, USDC and DAI, and the Hong Kong dollar (HKD), a fiat currency also pegged to the US dollar. The HKD is significantly less volatile.

The comparison shows that DAI was very volatile a couple of years ago, but has since declined and is more stable than Tether lately. This is because DAI was previously mostly backed by cryptocurrencies like ETH, which now only makes up a small proportion of reserves. Instead, most of the current reserves are other stablecoins, especially USDC.

Crypto uncorrelated to stocks

One of the report’s contrary findings is that cryptocurrencies do not correlate with stocks, even though the comparison was from 2018 to 2022.

On the other hand, look at the widely known fact that cryptocurrencies are significantly more volatile than stocks. The volatility of each of the four cryptocurrencies (Bitcoin, Ether, Binance, XRP) has remained above 60% over the last 30 months, with Binance and XRP showing significantly larger price movements.

Since April 2021, XRP has been the most volatile cryptocurrency of the four that were compared. XRP also showed the most significant single-day return percentage. Both of these could be explained by the sentiment around the SEC lawsuit against Ripple, claiming that XRP is a security.

Different factors drive crypto vs. stock prices

S&P Global explores the factors that affect market prices and concludes that cryptocurrencies are driven by market confidence, adoption, regulations, technology, liquidity, and supply and demand. Rather, it states that stock prices are influenced by earnings, interest rates, inflation, and economic policies.

Meanwhile, the S&P group has been expanding its reach into the blockchain and digital asset spaces. S&P Dow Jones Indices has launched a series of cryptocurrency indices. S&P Ratings now covers digital asset offerings. For example, it gave a rating to Compound Prime, a centralized offering based on the DeFi protocol. He also has his sights set on a tokenized future and has backed VAKT, a blockchain supply chain solution for the oil sector that plans to tokenize commodities.