Stablecoins are one of the more interesting cryptocurrency investments out there. People not into crypto generally think of Bitcoin and Ethereum as the top assets. However, they have no idea about stablecoins – cryptocurrencies backed by an object like the US dollar or a gold bar. Interesting, right?
Millions out there think it’s best to invest in Bitcoin and make millions as soon as they can. That’s not exactly the smartest business model, but again, these same investors probably haven’t explored their other options like stablecoins.
Let’s go over stablecoins and if they’re a good investment in 2021.
Pros of Stablecoins
Stablecoins are interesting investments because they’re more predictable than other cryptocurrencies. Unlike Bitcoin, a stablecoin can’t suddenly fall $10,000 overnight.
You might also consider the fact that stablecoins allow for private investments. If you try investing in a traditional asset, you have to validate your identity, payment method and have the government know what you’re doing. Stablecoins circumvent this issue, allowing you to invest entirely anonymously.
What’s also nice about stablecoins is you instantly acquire the cryptocurrencies you invest within. There isn’t a waiting period or anything. You simply need a wallet address in which to send your purchase. And, you can convert those stablecoins into local fiat whenever you please.
Various stablecoins exist already, like USDT tied to the US dollar. The versatility of stablecoins makes them an appealing investment for both new and experienced market participants.
Cons of Stablecoins
Now, some stablecoin pros can also be seen as cons, depending on your investment personality.
Stablecoins aren’t nearly as volatile as Bitcoin and other cryptocurrencies – a factor that doesn’t lend them much to instant profit. That might not be a problem to some, but those looking for significant profits may not benefit much from stablecoins. This lends the asset more to a risk-averse type of investor.
That stability is balanced a bit by how accessible stablecoins really are. Traditional assets like gold are a pain to invest within. So it’s up to you to decide if this is really a pro or a con.
Then there’s security. A benefit of physical metals is storing them in a vault in your home or an otherwise secure space. Digital assets are stored online and constantly at risk from bad actors looking to steal funds. There are varying levels of security, like an exchange wallet or a desktop wallet, but none are as safe as physical storage to many investors.
Depending on the stablecoin, you’re also paying to have someone else store your holdings. After all, these assets represent physical investments. Unless the group is audited, it’s not easy to tell if those holdings actually exist. Even if they do exist, you’re trusting that third party to hold them, like with the gold-backed Gold Coin or other physically tied assets. There are various types of investors who wouldn’t appreciate this.
What are Stablecoins Used For?
Stablecoins are used for more than just profit. There are a few ways to benefit from them on top of that.
Interacting With the Crypto Market
If you’re interested in the wider crypto market, stablecoins are a great way to start that interaction. Most stable assets, like USDT, are compatible with all types of other cryptocurrencies. Instead of holding the volatile Bitcoin to try and trade, you can simply do so with stablecoins.
These assets also represent a good way to store funds in the crypto industry without worrying about losing them to volatility.
Decentralized Finance (DeFi) is essentially a blockchain-based version of traditional financial services like banking and lending. Many of these platforms allow you to lend out crypto assets and earn interest on them – meaning you don’t have to do much of anything.
To prevent losing the value of your holdings, you can lend and earn interest with stablecoins. The amount of interest will vary based on the stablecoin and popularity, but it’s certainly a valid way to get involved in the industry.
If you’re looking to make an instant payment anywhere in the world with minimal fees, stablecoins are the way to go. You can use a stablecoin to send funds to your aunt halfway around the globe in less than an hour. Or, you can utilize these assets to pay for goods and services.
As long as a merchant accepts stablecoins, you can use them for pretty much anything. You can also bank on the fact that stablecoins are convertible to almost any other type of digital currency, making them incredibly versatile in the long run.
Other Facts About Stablecoins
Many experts believe stablecoins represent a way to bank the unbanked. While Bitcoin and similar assets have been considered like this, their volatility is too high to be reliable. Developing countries around the world are taking advantage of stablecoin benefits. Citizens claim these digital assets protect them from financial risks like theft and the inflation of their local dollar. Plus, should they find a way out of their home country into another region, these citizens can easily bring their funds.
That said, banks are still looking into the technology for the so-called betterment of their communities. Even in more developed countries, central banks are looking to develop their own bank-issued stablecoins for citizens to use. These developments would make it easier for banks to track payments, for citizens to make tax payments, and to prevent theft and other risk factors almost entirely.
As for if stablecoins are a solid investment, well, that’s entirely up to you, the investor. If you’re a risk-averse investor who wants to dip their toes into crypto, you can probably justify putting money into stablecoins. That said, research the asset your specific stablecoin is tied to, and don’t expect an instant profit. Remember, these digital assets are taking advantage of blockchain technology but aren’t unique cryptocurrencies in their own right.
Otherwise, make a point to only invest in what you can afford to lose. Follow traditional investment advice here, and you can’t go wrong with some diversification into stablecoins here and there.