Stablecoins are, to many, the future of investing. Stable cryptocurrencies act very unlike the rest of the crypto industry. People are surprised at the discovery of stablecoins and are curious if they should invest in the assets.
Whether or not you should hold stablecoins is based on a variety of factors. Ask yourself the following questions to make a decision.
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Do I Want Quick Profits?
The number one thing to consider with stablecoins is your patience. Are you okay with waiting years for significant returns? Do you understand that stablecoins tied to physical assets will only fluctuate based on those prices?
Stablecoins won’t react if you see Bitcoin shoot up in price. They’re only as valuable as the asset they’re backed by. Instead, stablecoins are more long-term, non-risk investments.
Profits can vary based on the asset you’re invested in, but don’t go in hoping for this.
Do I Know What I’m Investing In?
Now that you’re aware of the patience aspect, do you truly know what you’re investing in with a stablecoin? There are many different kinds out there.
Some, like Silver Coin, are worth 1/100th of an ounce of silver per. They allegedly hold your silver bullion in a secure space, so you don’t need to worry.
Or, you can invest in a stablecoin like USDT. This is a popular project based on the United States dollar. However, the company behind USDT refuses to submit to a full audit. Does this mean they don’t really have the dollar amounts to back these stablecoins?-
You can also invest in stablecoins tied to other cryptocurrencies. With so many different kinds out there, do your own research and see what they’re all about. Don’t invest blindly in a project you find at random.
Do I Believe in the Project?
Even if you find what seems like a valid project, do you believe in it? Is it a project you’ve read about, analyzed its white paper, and can explain to anyone on the street?
The only time you should feel comfortable investing in a stablecoin project is if you feel positively based on the terms mentioned above. Don’t invest in a stablecoin simply because someone else told you to, or you heard about someone making a profit online.
Some crypto projects, even the lesser-known stablecoins, can be massive scams. Looking at the team, understanding the mission, and developing a true belief in the project is very important.
Do I Know How to Acquire Stablecoins?
Even if you know what a stablecoin is, do you know how to securely invest in it? Where to store your investment and what to do with it?
Some stablecoins are available on an exchange like Coinbase or Binance. Others might be available somewhere more obscure or can only be purchased on the website.
If you can’t invest with fiat, do you know how to buy Bitcoin and convert it over to a stablecoin? Do you know which blockchain the asset is on and have a compatible wallet?
Knowing about a stablecoin is only half of the game. Properly investing in and holding the asset is essential to making a smart choice and keeping your investment in the long run.
Do I Have a Valid Stablecoin Use Case?
Before acquiring any stablecoins, what do you want to do with them? There are a variety of use cases.
Some investors do so to send money back to their families in their home country. After all, stablecoins allow one to do so almost instantly and with next to no fees.
Others will invest to lend out their stablecoins in a process called staking. Staking is the act of holding stablecoins in a wallet and lending them out, earning interest from doing so. Interest rates can differ based on your stablecoin of choice, so understand that as well.
Moreover, experienced crypto investors might want easier access to the overall digital asset space. Holding their funds in a stablecoin makes crypto investments faster and cheaper than using fiat.
You can even use stablecoins to pay others for goods and services. Crypto-focused companies might invest in tons of stablecoins to easily pay workers.
Maybe you have another use case entirely. The point is, stablecoins have a variety of features. Don’t invest without intent.
Do I Understand the Risks?
Finally, consider the risks of stablecoin investment. While stablecoins are certainly less risky than other cryptocurrencies, they’re not 100% secure.
Know that with most stablecoins, you’re giving up custody of your funds. As mentioned with Tether, these projects tend to have large holdings that supposedly “back” the digital assets you spend on. These groups could be lying and scamming you, causing a significant loss in funds if you’re not careful.
We’ve all heard the stories of investors putting their life savings into cryptocurrencies, only to lose it all in the following months. Some of those losses can be attributed to volatility, while others are as simple as falling for scams.
Ask yourself these questions before investing in stablecoins. If you have a valid answer to all of them, it’s probably worth holding these asset-backed cryptocurrencies.
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