Cryptocurrencies like Bitcoin and Ethereum are on the bull run of their lifetimes, but behind this bull run lies an unsung hero in the form of Tether – a stablecoin. However, as crypto booms and a whole new set of investors start investing in them, they often tend to not fully understand the concept of stable coins.
Questions like “are stablecoins a good investment? Which coins are stablecoins? Can you make money on stablecoins?” are way too common. At WazirX, we understand how overwhelming it can be to buy cryptocurrencies in India. Fret not let’s understand what stablecoins are, and 7 different uses of stable coins.
What is a stablecoin?
Stablecoins are cryptocurrencies whose value is tied to the value of an external asset. These assets can include currencies such as USD (like in the case of Tether (USDT)), precious metals such as gold, or any other commodity. Stablecoins, unlike other cryptocurrencies, act as a store of value and a means of transaction, and the value is not speculatory.
For instance, Bitcoin, which is valued at $52,000 as of 19th February 2021, can be $60,000, or even $40,000 in a month. On the other hand, stablecoins like Tether are always valued at $1 regardless of the month and day. The value of the pegged currency may rise or fall -i.e, the USD might rise or fall, but the value of Tether is always $1 USD.
Are stablecoins a good Investment? – If you are buying it for one of 7 reasons, yes. But if you’re looking to hold it for a speculatory rise in value, or participate in a bull run, then no. Stablecoins are not created for speculatory investment. If you’re speculating on the price of the underlying asset, i.e, the USD – then you can theoretically use the USDT.
Which coins are Stablecoins? The most common examples of stable coins are USDT and Bilira. The unreleased Diem (formerly known as Libra) is also a stablecoin. If you’re unsure whether a particular cryptocurrency is a stablecoin or otherwise, you can find your answer within minutes by googling “Is (cryptocurrency) stablecoin”
Can you make money on stablecoins? You cannot make money by speculating on stablecoins. It is possible to earn more stablecoins by using a method called Yield Farming
7 Important uses of Stablecoins
- Cross Border Remittance
Stablecoins are cryptocurrencies without inherent volatility. This means that stablecoins while having the traditional advantage of cryptocurrencies, like cheap cross-border transactions, without paying significant fees to intermediaries.
- A better Currency
Stablecoins, like cryptocurrency, use blockchain, are easier and more secure to pay with than regular currency. It combines the advantages of cryptocurrencies and fiat currencies. Since the transactions are cheaper, they can facilitate trade and provide a universally accessible P2P financial system.
- Yield Farming
Stablecoins can be used to earn more money by using a strategy called yield farming. This is done by staking or lending crypto with the aim of generating high revenues in the form of the same crypto staked/lent.
- Used as a medium to buy cryptocurrencies
While it is possible to buy cryptocurrencies in India without using Tether, using stablecoins in cryptocurrency exchanges in India offers you reduced transactional fees. Tether is the most popular method to buy cryptocurrencies.
- Hedge against Volatility
As discussed before, Stablecoins are not as volatile as the other cryptocurrencies. This helps traders as they can trust their investment and makes it easier to strategize their portfolios.
- Combat Inflation
Countries with weak economies like Venezuela have turned to stablecoins to tackle their problems. The International Monetary Fund suggests that stablecoins pegged to strong foreign currencies will be used more, and hyperinflationary local fiat currencies would be “shunned”.
The latest use case to be added to the ever-growing list of the utility of stablecoins is the fact that stablecoins can be used to settle banking transactions. On the 5th of January 2021, the USA’s OCC (Office of Comptroller and Currency) approved the use of stablecoins in banking transactions. Other countries are set to follow suit soon.
Stablecoins are crucial behind the crypto bull run’s success, but misinformation runs rampant even within the crypto sphere. Make sure to do thorough research before investing in any cryptocurrency, including the purchase of stablecoins. Follow us on Twitter and join our telegram community to keep up to date on the latest updates in the crypto world.
The Bitcoin market is unquestionably more volatile than the stock market. This may not be the market for you if you are incredibly risk-averse. Ethereum, on the other hand, may be a terrific investment for you if you're a diamond-handed investor who won't lose sight of short-term losses. Ethereum is a relatively safe investment as it is also based on blockchain.
In India, cryptocurrencies are legal; anyone can purchase, sell, and trade cryptocurrencies. They are currently unregulated; India does not have a regulatory framework in place to regulate its functioning. According to the Ministry of Corporate Affairs (MCA), companies must now declare their crypto trading/investments during the financial year, according to the Ministry of Corporate Affairs (MCA). Cryptocurrency transactions have been taxable in India when people receiving such gains are Indian tax residents or where the crypto is considered to be domiciled in India
Many altcoins are flourishing to invest in. Some cryptocurrencies with great potential are Ether, Ripple, Tron, and more. Investors are trying to diversify their portfolios and are flocking to the leading cryptocurrencies. Many growing businesses are already accepting cryptocurrency as acceptable payment methods.
Satoshi Nakamoto invented cryptocurrencies and the technology that makes them function in 2009. The presumed pseudonymous individual or persons who invented Bitcoin used this identity. In addition, Nakamoto created the first blockchain database. Even though many people have claimed to be Satoshi Nakamoto, the person's identity remains unknown.
Cryptocurrency can be purchased in two ways: through mining or exchanges. The process of confirming and adding transactions to the blockchain public ledger is known as cryptocurrency mining. Cryptocurrency exchanges are another option. Exchanges make money by charging transaction fees, but there are alternative platforms where you may communicate directly with other cryptocurrency traders.
Cryptocurrency mining can be time-consuming, expensive, and sporadically profitable. Mining has an appeal for many cryptocurrency enthusiasts as miners are paid directly with crypto tokens for their efforts. The legality of cryptocurrency mining is dependent on where you live. In India, there is no restriction on crypto mining.
No, cryptocurrency is not banned in India. India has seen its ups and downs in the crypto sector concerning its legal status. The Reserve Bank of India (RBI) issued a circular in April 2018 advising all organizations under its jurisdiction not to trade in virtual currencies or provide services to assist anyone in dealing with or settling them. A government committee proposed outlawing all private cryptocurrencies in mid-2019, with up to ten years in prison and severe penalties for anyone dealing in digital currency. The Supreme Court overruled the RBI's circular in March 2020, allowing banks to undertake cryptocurrency transactions from dealers and exchanges.
Pi Network (PI) is the newest digital token to catch the cryptocurrency community's interest, even before it has wholly debuted. Some users see it as a chance to get engaged in a cryptocurrency from the beginning and profit in the future, similar to how early Bitcoin adopters made huge profits by mining and keeping the coin. Other users have compared Pi to a worthless multi-level marketing (MLM) scheme.
Cryptocurrency investments are subject to market risks, but if sufficient security measures are not taken, trading accounts can be maliciously accessed. Investments come with risks and uncertainties, and we cannot claim that any digital currency investment is risk-free. Buying and selling cryptocurrencies can be risky even if the trader is knowledgeable about the market and treats their coins carefully.
Cryptocurrencies can be safe, but your crypto wallets can be hacked if proper security steps are not performed.There are also dangers and uncertainties associated with investments, and we cannot declare any virtual currency investment risk-free. Buying and selling cryptocurrencies does not have to be dangerous if the trader is well-versed in the market and treats his coins with care.