Stablecoin: a safer cryptocurrency than Bitcoin
If we look at the market fluctuations of Bitcoin value, in the past two years, there have been significant ups and downs. The market of cryptocurrencies has always been wild in nature but what we have seen in the recent past is more random than our imagination. For starters, the highest valuation the Bitcoin has reached this year was US 64,863 dollars in April 2021, whereas in January, the price of this currency was US 34,622 dollars.
So with this vast difference in valuation, it is normal that the investors will be looking for something that gives more stability. And this is where the stablecoins come into the picture. This currency has the ability to hold its value by itself, offering investors more stability than other digital currencies.
Cryptocurrency is a sort of digital currency that authorizes people to transact between themselves without the help of any third party or intermediaries. These cryptocurrencies do not have any underlying value, and the price of this currency is based on what people are offering to buy them. Due to this exact reason, the price of digital currencies has mainly been volatile in the market.
But on the other hand, stablecoins have an underlying value, and it can be redeemable using the tangible currency it is based upon. The underlying asset of the stable coin usually gets deposited in a trusted bank. If the issuer of these coins have enough funds for the coins in circulation and these digital currencies can be redeemed for the said currency, then the price of stablecoins do not fall beneath the value of the underlying asset.
The most widely accepted stable coins are USDC, Tether, TrueUSD. Within these coins, Tether has faced minor volatility issues; the value of these currencies fluctuated from $0.989 to $0.95. USDC has also faced a price drop of up to 1.8%, but TrueUSD has been stable all along. The stability of these currencies are not dependent on any technical factors; instead, human trust is essential for these currencies to remain stable. If people lose trust in these coins and the supply overtakes the demand, then the prices of these currencies can significantly drop.
Why are the stablecoins becoming more popular?
The random market crash faced by Bitcoin, ethereum and other such cryptocurrencies has made people realise that these coins are completely unpredictable in nature. Therefore people are looking for cryptocurrencies that have more stability in terms of valuation.
Some crypto exchanges have also faced difficulties while interacting with traditional banks. In some cases, exchanges had their funds suspended by banks. And this has resulted in the exchanges no longer allowing the swapping of cryptocurrencies against fiat currencies or real money. So to buy cryptocurrencies, people need to use cryptocurrencies themselves. And stablecoins are a good option to make use of.
Although stable currencies can maintain their stability for now, if people start to lose their confidence and trust, these currencies can have a negative effect on the entire cryptocurrency market. For now, stablecoins can hold the market for some time, but we have to look for something more profound to rely on.