Investing in crypto remains one of the hottest opportunities for people to make money. Bitcoin’s price surge has led many formerly skeptical of virtual currencies to express interest in blockchain technology. The rise of altcoins, fueled by the explosive growth of decentralized finance (Defi), has turned people’s attention to the wide range of alternative assets besides the well-known Bitcoin.
stable coins are one category of digital currency many are curious about. Some are backed by fiat currencies, while others like RhodiumCoin are underpinned by precious metals or other commodities like diamonds or oil.
Others are backed by algorithms and smart contracts that automatically increase and decrease the coin’s supply to adjust to market conditions. A few stable coins are crypto-collateralized, meaning they are backed by a basket of other virtual currencies.
stable coins are alluring as their base asset means the cryptocurrency remains relatively stable in price. A coin like Bitcoin, with no hard backing, could theoretically drop to zero in value. A stable coin remains at the price of the underpinning asset, with a few exceptions (like if the coin becomes very popular).
stable coins have become particularly prominent in the Defi world as a tool for value transfer. Ethereum stable coins, in particular, surged in value more than 800% from the start of 2019 until mid-2020 largely due to their popularity among those involved with decentralized finance.
As cryptocurrencies as a whole remain popular and rise in value, some investors wonder if they should focus their money on Bitcoin or stable coins. Both are good choices, but people should understand the different nuances of each coin to make an informed decision about how to allocate their money.
Bitcoin and Stablecoin Investment: Understanding The Pros and Cons
Prospective Bitcoin and stable coin investors have a number of options to buy each coin. Many popular exchanges like Coinbase and Binance have robust trading platforms, a high degree of security, and various coins besides Bitcoin (and well-known stable coins) to buy.
Some choose to buy cryptocurrency on peer-to-peer platforms like LocalBitcoins, but buyers should be careful about who they transact with and make sure the terms of the agreement are fair.
The biggest advantage of buying Bitcoin is its unlimited price potential. Bitcoin has shattered all expectations in its ten-year life so far, leading even big banks and financial institutions to admit the cryptocurrency has some merit in the global economic community. The price of Bitcoin has varied widely, and often rises and falls in just a few seconds based on news and market conditions.
Tesla announced a $1.5 billion dollar Bitcoin investment in early February, driving the price of the cryptocurrency up and making a tidy profit for the company. A couple of weeks later, a drop in the coin’s price led to a $200 billion loss for Tesla, demonstrating how price swings with Bitcoin can dramatically alter investments.
In contrast, the price of stable coins is much more static. Fiat-backed options like Tether hover just around the price of the currency.
Precious metal-backed stable coins do have a greater potential for growth as the base prices of metals like gold, silver, platinum, and palladium can rise dramatically in value depending on how the economy is doing – boosting the coin’s price as a result.
Many precious metal-backed stable coins can also be redeemed for physical bullion at any time, giving investors a tool to both invest in digital currency and precious metals. However, the price of a stable coin backed by a hard asset, like fiat currency or bullion, will never fall below the spot price or actual value of the reserve. This gives investors a sense of relief that they will not watch their digital investments dip to zero in the case of a major market correction.
Additionally, stable coins like RhodiumCoin have helped investors dramatically raise the value of their portfolio as the asset jumps in value. Rhodium, a valuable metal due to its use in catalytic converters, is far rarer than palladium or platinum.
The metal’s spot price sits at about $24,000 in February 2021, a massive jump from a January 2020 price of just under $14,000.
Making A Choice Between Bitcoin and stable coins
Investors choosing between Bitcoin and stable coins will not go wrong. Both asset classes are smart investments and look to grow in popularity and price as the future brings more people to the cryptocurrency world.
Bitcoin and stable coins are regarded as one of the best on-ramps for new investors into the world of virtual currency due to their notoriety.
Those interested in a more stable asset with the potential to redeem digital holdings for real-world bullion (in the case of bullion-backed options) should choose to invest in stable coins. Investors eager to potentially reap larger returns in the cryptocurrency community should opt for Bitcoin.
