These are uncertain times. Stock markets from around the world are on a topsy turvy ride. The Federal Reserve, America’s central bank, has increased interest rates yet again this month by the biggest amount since 1994 to combat record-high inflation. Food and fuel prices around the world are high. From the lofty and vertiginous valuations, Bitcoin, the oldest crypto asset is now trading at around $20,000. The crypto market, too, has entered a “bear” territory. What can an investor who has entrusted faith in the world of digital assets do at a time when the market itself is skittish?
Not all is doom and gloom. Much like in the conventional world, which calls for having a “balanced portfolio” of debt and equity, the crypto world is no different. You might recall your financial adviser telling you not to put all your eggs in one basket. For instance, if you have, say, Rs. 100, split it intelligently. If the stock market crashes, you still can survive the fall because of some diversification in the debt market, which offers convervative returns, but holds its own during a market downturn.
Much like on those lines, in the world of crypto assets, stablecoins have a reputation to hold fort when all about them are losing theirs.So what is a stablecoin?
A stablecoin is a type of cryptocurrency that is typically pegged to an asset, like the dollar or another government-backed currency. As the name suggests, it is “stable” when compared to other virtual assets.
This stability is not just on paper. To insure such coins from market gyrations, stablecoin issuers usually hold assets in their reserves in the form of short-term securities. These may be in the form of cash or government debt. This is to make good on the promise to investors that if they pledge $1 or say, Rs. 100 of their money, the currency’s worth will not be depreciated when the market chips are down. An insurance against volatility?
To quote the New York Times, “Stablecoins are useful because they help lock in value at the time of transaction. This is important since cryptocurrencies are volatile and prone to price fluctuations. They form a bridge between traditional money and crypto, and are exploding in popularity as a practical and cheap way to make transactions in cryptocurrency.”
All in all, stablecoins are built to largely withstand volatility and price fluctuations in the market. If you look at the price movements of all leading crypto assets in the last three years and compare them with those of any reputed stablecoin, you will notice that returns of stablecoins have remained more or less consistent as compared to others. Indeed they may not offer windfall returns in quick time, but they are a smart long-term bet. So what stablecoins should one look at?
ZebPay lists over 100 of these on its platform. Take a look at Tether, USD coin, among others. Investors can not only hold on to their stablecoins on ZebPay
but also lend them at an attractive rate. Whatever be your risk appetite or your investment portfolio, stablecoins offer an excellent source of diversification.The pages slugged ‘Brand Connect’ are equivalent to advertisements and are not written and produced by Forbes India journalists.
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