NZD-backed stablecoin could solve the “crypto investor’s dilemma”

14 November 2023

The beginnings of Easy Crypto started with Janine and Alan Grainger trying to solve a problem for Kiwis looking to get involved in crypto. To date, it seems that the crypto market is more friendly to United States-based investors. Long-term crypto investors could jump in and out of trade positions using USD stablecoins, accumulating US dollars for years and years.

But the US Dollar domination of the crypto space and the NZDUSD volatility makes it harder for Kiwis to maximise their crypto profits. Can an NZD-backed stablecoin balance the playing field?

US Dollar Domination

The US dollar dominates the crypto world, whether we like it or not. A major currency of the world, the US dollar is paired with nearly all crypto assets in the market, with BTC/USD as one of the most liquid and most active currency pairs in the world.

There are even three major US dollar stablecoins to choose from — Tether US (USDT), USD Coin (USDC), and Dai (DAI). Combined, there is over 190 billion NZ dollars of value represented in these stablecoins. Of course, we can sprinkle a few additional millions of dollars of value contributed by the smaller USD stablecoins.

You may argue that Dai is not technically a direct contributor to the US economy’s influence on the crypto market. It’s true that Dai is backed by a collateral of crypto assets, most notably Ethereum and Wrapped BTC. However, the US dollar valuation of these crypto assets was decided as part of Dai’s design. So, the US central bank’s monetary policy will indirectly influence how other crypto is valued relative to Dai.

In simple terms, holding DAI is just as effective as holding the US dollar.

USD is an easy financial on-and-off ramp for many…

US-based crypto investors obviously benefit greatly from all this liquidity and accessibility. 10% of US residents are crypto owners (this is equivalent to Kiwi crypto holders as well), but this number is small compared to the estimated total of 425 million crypto users on the planet.

A Statista report  surveyed a sample of respondents in 50 countries and how many percent of them owned crypto. The 2023 data reveals that the United States is ranked 21st on the list. Nigeria is ranked 1st as nearly half of the population have adopted crypto, mostly Bitcoin. India, Nigeria, and Indonesia are among the top countries with the most number of crypto owners.

These three countries are developing economies, with much higher annual inflation rates compared to the United States. It makes the US dollar still quite desirable and a logical component of a crypto investor’s portfolio for those regions. 

So, for many market actors, a US dollar stablecoin is economically desirable. However, many New Zealand residents would rather hold a crypto asset that represents the Kiwi dollar, for a very practical reason — avoiding volatility.

…but for Kiwi crypto owners, it’s too volatile

Clearly, the volatility between the USD and NZD aren’t as extreme as NZD and Bitcoin. Still, volatility, however small, can scale up to potentially cause large losses. Volatility between fiat currency isn’t inherently bad, and it can be considered a good sign for healthy competition.

As two developed economies, New Zealand and the United States are competitors, and when one gets ahead of the other, a slow but creeping change in exchange rate occurs. You can make inferences on the economic health of both nations from 2005 to the present.

The up and down arrows are indicators to help you see the rate changes in percentage alongside the y-axis.

Over the course of 18 years shown here, NZD has experienced appreciation against the USD for five years (2009 – 2014) after the US recessession. This was bad for USD holders. Conversely in 2014, the high hopes for an even stronger NZD, however, were quickly shot down by a strong growth in the US economy in 2015.

The NZDUSD pair has also seen some dramatic peaks and troughs (2006 – 2009 and 2015 – 2019), as volatility between the currencies moved 5-10% within the same year. COVID-19 years saw a fast devaluation of USD, while through 2022, our economy was met with rough patches.

Kiwi investors need a new stablecoin, preferably NZD-backed

So, what about Kiwi crypto investors? It makes little sense to hold USD stablecoins as a way to lock in our long-term profits. Large swings of volatility, especially in the 5% to 10% range, is still going to be a problem. The bigger the investment value, the bigger the problem. For example, an investor who has a NZ$10,000 portfolio value locked in DAI stablecoins could see their portfolio moving down $9,500 if NZD weakens. 

Kiwi crypto investors also suffer from another dilemma when using USD stablecoins. For an effective crypto investment strategy, a budget should be committed to an investment routine. The question is — should this budget all be in the form of NZD cash or in USD stablecoins?

Considering the former choice, as an investor you would have to make multiple on-ramp transactions. Each on-ramp transaction may require more than one step, and you may need to pay additional fees from brokers and payment facilitators. 

Considering the latter choice, it takes one step to swap USD stablecoins to token of choice, using decentralised exchanges. The minimum fee they will pay is the network fee at best, but normally exchanges take a small cut. However, this cut is negligible if you consider that centralised exchanges pose significantly higher fees for withdrawals. 

Should you stock up on USD stablecoins and save money from doing multiple on-ramp transactions, but risk facing forex volatility?

Enter NZDD, an NZD-backed stablecoin for Kiwi crypto investors

NZDD is our take on the modern stablecoin that is versatile for people in Aotearoa. As a stablecoin that is integrated with a trusted crypto payment gateway, you can spend NZDD like you would with ordinary dollars.

NZDD can also be your alternative to the traditional remittance network. While remittances become more expensive as you move money through remote regions, NZDD takes costs the same regardless of where you send it to. 

Created by the team behind Easy Crypto, NZDD will always remain a local business and abide by the laws and regulations of the Financial Markets Authority (FMA). As a holder of USD stablecoins, you may not have the same protections as those residing in the United States territories. But here in New Zealand, we are fully responsible for making sure that NZDD is stable and redeemable.

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