2018 has seen the rise of stablecoins. Now we are in 2019, we should be wary of yet another stablecoin revolution since we believe that this year, stablecoins will become bigger and better than ever before.
What is a Stablecoin?
According to Investopedia:
“Stablecoin refers to a new class of cryptocurrencies which offer price stability and/or are backed by reserve asset(s). In recent times, stablecoins have gained enough traction as they attempt to offer the best of both worlds – the instant processing and security of payments of cryptocurrencies, and the volatility-free stable valuations of fiat currencies.”
Such stablecoins on the markets today include; Tether, USD Coin, TrueUSD, Paxos Standard Token, Dai, Gemini Dollar and others.
Why should I buy them?
Let’s remember that stablecoins are not an investment, you will not make a return from buying and holding stablecoins because they tend to be pegged to a stable asset, like FIAT current. In the instance of Tether, USDT is one Tether token that is pegged to the price of the US Dollar, therefore the token is always equal to $1.00.
What’s the point?
The idea of a stablecoin is to make it easier and safer to purchase and invest in other cryptocurrencies. Usually to purchase altcoins, you have to make the purchase in cryptocurrencies as many exchanges only allow for this feature. This means, you have to make a Bitcoin (or similar) purchase first, which instantly puts your deposit at risk, simply down to the fact Bitcoin is so volatile. Moving your money into Bitcoin, to purchase another cryptocurrency means in the end, you could lose more money than usual.
So, to beat this crypto to crypto purchase requirement, stablecoins exist to allow you to purchase cryptocurrency, which in turn can be spent on other cryptocurrencies, without the volatility of traditional coins like Bitcoin. Stablecoins won’t sink in value overnight and thus, investors can safely hold stablecoins, in order to purchase crypto, knowing that their stablecoin holdings will not sink - they hold their value, therefore whatever you put in, you can get back out.
Okay, of course it is a little more complex than this, however our advice is that if you do wish to make crypto to crypto purchases, you are a little safer in doing so, if you purchase stablecoins first. To choose the perfect stablecoin, you need to check out the stablecoins properties and most importantly, you need to check out what trading pairs exist with that coin and also which exchanges the stablecoin can be used within.
It’s not a fool proof investment strategy and of course, purchasing crypto with stablecoins is still risky, but at the very least it does help you to protect your deposit somewhat. Remember that all cryptocurrency investment is risky, therefore before you choose to invest, make sure you do adequate prior research and be sure to trade safely.