The price of Bitcoin (BTC-USD) has this year rallied closest to its current historical highs amid a pandemic-driven shift towards alternative safe-haven investments. Following its second halving in June, bitcoin has gone on to hit a new 3-year high of about $16,800 before pulling back to the current level of about $16,795 (at the time of writing).
This led many to draw comparisons to gold. There is a strong view that millennials identify with bitcoin as baby boomers do with gold. Judging by the evidence from the last five months, this could very well have some level of objectivity.
There is also another class of investors that view bitcoin and related cryptocurrencies as highly volatile investments whose future could be facing huge bottlenecks. This school also holds the view that stablecoins, whose value is tethered to fiat currencies to limit volatility, could be the solution that the market has been searching for since cryptocurrencies erupted in the mid-2010s.
However, as many have found out over the last few years, not every stablecoin is a ticket to riches. In fact, some argue that bitcoin still offers a better investment opportunity for those looking to make good money in crypto.
The case for stablecoins
Stablecoins are cryptocurrencies whose value is tied to a ‘stable’ fiat currency like the US dollar. This is supposedly one of their strongest selling points – that unlike bitcoin and other cryptocurrencies, their prices are generally stable because they are pinned to a specific value, mostly $1.00.
This is particularly important when it comes to pricing smart contracts. In most cases, contracts are paid for over an extended period of time after they are signed off. If you are going to pay for those contracts using, say bitcoin, it can be very tricky because of the volatility of the pioneer cryptocurrency.
For instance, just over the last six months, the price of bitcoin has rallied from a low of about $4,867 to a high of about $16,800. That’s more than triple the price it was back in March.
Smart contracts provide a fast and secure platform for organizations to transact business while at the same time allowing flexibility of payments at low costs. Blockchain technology has emerged as a force in this section of the market but is still hampered by the high volatility of cryptocurrencies.
This is why several blockchain startups are targeting stablecoins to try to disrupt the space. With a stablecoin like Tether (USDT-USD), which is pinned to the US dollar, the price would not have changed as much.
Other startups like BXTB Foundation have launched DeFi projects that are looking to provide investors with an opportunity to benefit from stablecoins. BXTB Foundation launched the BXTB DeFi project which collateralizes other stablecoins like Tether and Dai Coin (DAI) by Gemini.
BXTB is targeting a rapidly growing space in the DeFi projects market where companies are launching enterprise-focused stablecoins. Businesses are seeking to transact with cryptocurrencies in a bid to capitalize on the decentralization advantages created by blockchain.
In exchange projects like BXTB will collateralize these stablecoins by allowing them to charge transaction fees to businesses. This is one of the most assured ways of investing in a stablecoin. We will be discussing why buying a stablecoin for the sake of holding it for capital gains may not be a wise idea shortly.
Another case for stablecoins comes in the way of simplicity and symmetry. This is especially important when dealing with individual product prices. For instance, if a business wanted to put a price tag on a pair of shoes worth $40.00, this would be easier to present to a potential customer, than say, for instance, $0.002424 BTC, based on BTC-USD price of $16,500.
This pricing advantage again shows why stablecoins will continue to play a crucial role in the cryptocurrency market.
The case for bitcoin
The pioneer cryptocurrency is the reason why blockchain technology boasts the popularity it has today. Bitcoin is by far the most successful cryptocurrency. And even as some continue to doubt its long-term future, it continues to prove them wrong.
This year, it has already been likened to gold with some calling it the preferred safe-haven investment for millennials. Whether it can go on to live up to the hype remains to be seen. The test of time will tell. Bitcoin is still a very volatile cryptocurrency as demonstrated by its price movement over the last few months. But it is this factor that also makes it a better investment than stablecoins for those looking to profit from capital gains.
As mentioned earlier, stablecoins do not offer a lot of incentive for capital gains. Take Tether, for instance, it is pinned to $1.00 per USDT. This means that the value of USDT cannot exceed $1.00, or fall below.
The problem with this concept is that even the US dollar loses value with time. Some call it inflation, but there is more to this than just traditional inflation. Because of economic factors like recession, the government can choose to print more money to stimulate consumer spending. This, in turn, dissolves the value of the dollar, which means that it also affects any cryptocurrencies (stablecoins) tethered to the greenback.
As such, it is possible for a stablecoin to decline in value over time while it is highly unlikely that it will gain in value unless there is deflation, in which case, one US dollar becomes more valuable.
Bitcoin is also increasingly becoming acceptable on several platforms. PayPal Inc. (PYPL) is one of the latest major payment platforms to embrace crypto. Other payments companies like Visa Inc. (V) and Mastercard Inc. (MA) have also opened doors for cryptocurrency payments, which, in hindsight continue to legitimize bitcoin and other cryptocurrencies. This continues to push bitcoin closer to the mainstream financial markets.
In summary, while stablecoins present an interesting disruptive power to the cryptocurrency markets, there are still no clear ways to invest in them. However, with the likes of BXTB providing an opportunity for investors to benefit from transaction fees, perhaps there is a future for fiat-tethered cryptocurrencies.
But for now, the best way to make money would be to invest in bitcoin, which so far has withstood the test of time – overcoming several obstacles along the way.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.