Are stablecoins the safe future of cryptocurrency?

More and more investors are turning away from uncertain markets to put their money into alternatives with tangible assets

Volatile activity across the markets is leaving many investors looking away from crypto staples like Bitcoin and Ethereum.

And the search for a secure alternative is driving many towards stablecoins.

While many cryptocurrencies are being hit hard, the value of stablecoins – linked to the rate of a tangible asset like gold or the US dollar – offers less risk to many potential investors.

According to an article in the Daily Express, UK author and crypto expert Thomas Power says the shift towards pegging cryptocurrencies to something tangible provides an attractive proposition.

Freedom of choice

“Stablecoins are certainly a future, but I wouldn’t say they were THE future, because I think freedom of choice has a huge role to play in how we treat our financial assets in the years to come,” he told the national newspaper.

“You want to see an environment where people have got a choice to use either or, rather than being dependent on one.”

His views were supported by University of Strathclyde blockchain and cryptocurrency academic Dr Greig Paul.

He said: “We’ve seen Bitcoin fall dramatically from a high of nearly $20,000 this time last year to something currently around $3,400.

“Naturally, that sort of unpredictability makes it absolutely understandable that many users of cryptocurrency would want to look for something with more stability.”

Mr Power did, however, stress that Bitcoin must not be written off.

“Across the board, crypto is down 80%, but people forget Amazon floated in 1997 and then it collapsed 90% by the end of 1998,” he added.

“Projects have to be built, capital has to be built, people have to be recruited.

“Just look at Amazon now, compared to that catastrophic fall in 1998.”

Health warning

Stablecoins do come with a health warning, though. Tether, of course, fell into controversy this year when its value dropped to 92 cents against the dollar after running out of reserves.

“As a solution to short-term volatility, stablecoins are a very attractive option, as long as they are backed by something which will maintain a stable value such as gold, the US dollar, or even the British pound in the future,” Dr Paul added in the Express.

“What it won’t do, though, is fix confidence losses, particularly if the value of the reserve asset backing what is essentially a promissory note is questioned.

“The price of that stablecoin is likely to fall if the ability to redeem the currency is at risk, which is why the whole premise of acceptance relies largely on one thing – trust.”

Disclaimer: The views and opinions expressed by the author should not be considered as financial advice. We do not give advice on financial products.

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