Stablecoins are digital assets that retain value regardless of whether the price of other cryptocurrencies is going up or down. Typically, people don’t, therefore, invest in stablecoins. Instead, Nigerian and other investors use stablecoins to safeguard crypto wealth during market downturns.
What are Stablecoins
The cryptocurrency market is notoriously volatile.
In January 2017, Bitcoin was trading at $1,000. By December, Bitcoin was trading at $20,000. However, by January 2019, Bitcoin had lost almost three-quarters of its value.
Dramatic price swings are common in the cryptocurrency market. However, there is a way to retain Bitcoin and other digital asset profits, even in the face of near market collapses.
Stablecoins like Tether, USDCcoin, and the Gemmi Dollar, benefit from full collateralization against the U.S. Dollar. Each coin, therefore, always has a value equivalent to that of $1 USD.
How do Investors use Stablecoins?
How cryptocurrency traders and investors use stablecoins is simple. When the Bitcoin or other digital asset prices are rising, they sell coins they own and use the proceeds to buy stablecoins like Tether (USDT).
Later, when Bitcoin and other digital asset prices start falling, investors sell coins like USDT to once more buy Bitcoin.
Is Using Sablecoins to Counter Cryptocurrency Price Volatility Safe?
At first, glance, using stablecoins to counter cryptocurrency price volatility can seem like a good idea. It is even possible to make a profit by selling Bitcoin when prices are high, before buying back into the market when prices are low. However, using stablecoins can be risky.
Even when it is possible to exchange stablecoins for real U.S. Dollars, coins like Tether only allow holders to cash out $400 at a time. Moving wealth from Bitcoin into stablecoins can, therefore, be somewhat risky.
Which Stablecoin is the Most Widely Trusted?
If you do plan to use a stablecoin to counter cryptocurrency market volatility, it may be a good idea to avoid using Tether.
Thankfully, there are Tether alternatives which are more widely trusted. One of the most transparent is an Ethereum based ERC-20 token called TrueUSD.
By being an Ethereum based ERC-20 token, it is easy to exchange TrueUSD at any time for Ethereum. TrueUSD is, therefore, easier for Nigerians to cash out for physical Naira if this is ever necessary.