Lynn Johannson, Advisor, Sustainability and ESG
January 4th, 2024
Lynn Johannson, President of E2 Management Corporation and Catalyst for THE Collaboration
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Are Stablecoins Better Than Bitcoin?
Guest Post | Jan 20, 2021
If you’re new to the world of investing in cryptocurrencies, you might have heard of stablecoins. These are physically-backed assets that differ quite a bit from Bitcoin and other coins. If you’ve heard of them, you’re understandably curious as to what they’re about. This guide can help you with that.
How are Stablecoins Different from Bitcoin?
As mentioned, stablecoins are tied to a physical asset. Bitcoin is not. It has its own value backed by the electricity that goes into mining it. Stablecoins like Tether or TrueUSD are tied to the value of the US dollar. These are sold on most traditional exchanges. Otherwise, there are also precious metal-backed stablecoins. Coins like these are more often sold on dedicated platforms like Gold Exchange.
Now, you can probably infer that because stablecoins are tied to the value of physical assets, their value is inherently less volatile than Bitcoin. As you may know, Bitcoin can (and has) risen or fallen thousands of dollars at any given moment.
That volatility might be a boon for some experienced investors, but newer ones might want to avoid them. This is where stablecoins come into play.
Stablecoins like SilverCoin allow users to take advantage of cryptocurrency and blockchain technology without volatility. This way, they can invest in things like silver or gold without hassle, from anywhere in the world.
What are the Benefits of Stablecoins
When buying silver or gold physically, investors have to jump through tons of hoops. Buyers need to validate their identity, income, and other information. They also need to find a proper vendor to buy from and will often pay a premium for doing so. After all of that, they need to wait for the assets to be shipped or go pick them up. Then, they must store those assets. This could be in a safe they buy themselves or paying a company to secure the assets.
In other words, investing in physical assets can be a pain. With stablecoins, investors can buy fractional amounts of an asset instantly. There’s no need to reveal any identity, and the coins are held in a free digital wallet. That anonymity is huge for most investors, especially those interested in cryptocurrency. That, and the ability to buy fractional amounts, is significant for investors with fewer funds. It allows users to start earlier than they would otherwise, putting in as little or as much as they’d like.
See: Cryptocurrencies vs. Precious Metals: Which is the Better Investment?
However, it’s worth noting that those looking to profit off of crypto might not enjoy stablecoins as much. Because these coins are tied to a physical asset’s value, the coin only raises or lowers its price as its physical counterpart does. For example, those investing in the Tether stablecoin must realize it is designed to sit at $1.00 per coin, give or take a few cents. There’s next to no way to profit from this.
Instead, it’s more for users to convert funds to another type of fiat or move them around the world faster and cheaper than traditional conversions. While some stablecoins can provide a profit, the reality is that’s not what they are designed for.
So, Which One is Better?
Technically, neither asset is “better” than the other. Both are great at what they’re designed to do, but each has its own set of flaws. Really, whichever one is better depends on what you’re looking for in a cryptocurrency.
If you’re trying to profit off of your investments, Bitcoin is probably the best option. If you’re more of a traditional investor or need to move funds, stablecoins are your best bet. In fact, central banks around the world are planning to release their own stablecoins for customer’s sake.
Regardless, do your research before investing in any asset. There’s always risk no matter where you put your funds.
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