Crypto trading relies on stablecoins.
To explain just why stablecoins are so important to trading, I’m about to add a (long) excerpt from issue seven of my Crypto Wire newsletter below.
But first, I wanted to tell you why I’m talking about stablecoins today. The reason, is biggest crypto exchange in the world has just launched its own stablecoin… priced, not in US dollars, but in British pounds.
This goes against virtually everything we’ve seen in crypto trading up to this point. And it could be great news for British crypto investors.
I’ll get to why that is in just a second, but first, here’s the excerpt explaining what stablecoins are and why they are so fundamental to crypto trading.
From Crypto Wire:
A stablecoin is a cryptocurrency that remains price stable.
Let’s say today stablecoin x is priced at $1 per coin.
You buy 10,000 stablecoin x for a total of $10,000 keep it for five years.
When you come to sell your 10,000 stablecoin x, after those five years, your 10,000 stablecoin x are still worth $10,000.
I guess that begs the question, why would you ever want to invest in a stablecoin if you’re never going to make a profit when you sell?
You wouldn’t, you’d never use it as an investment. But you would use it as a currency, or as a store of value. The exact thing that bitcoin was invented for in the first place.
Which then leads us on to the next question. If you’re an investor, why should you care about stablecoins?
Because of what stablecoins enable.
Stablecoins provide the foundations for the new crypto economy to be built on.
Let’s take a look at some of their main uses
- A liquidity tool for exchanges
Crypto enables people to trade in and out of other crypto assets extremely quickly and extremely easily.
But it takes a lot longer to trade between crypto and fiat. And worse still, many banks are blocking trades to crypto exchanges altogether.
Stablecoins mean you don’t have to trade back into fiat to take a profit or to cut a loss.
You can simply trade into a stablecoin, instantly and at virtually zero cost.
You can even deposit your money on to an exchange and change it directly into a stablecoin so you’re ready to execute a trade whenever you feel like it.
This is much easier and safer than keeping your trading money in your bank in fiat.
What if a few days before you want to make a trade your bank decides it doesn’t want you moving your money to crypto exchanges? You’re stuck.
Having your money in a stablecoin is like having it in a bank. Except you’re completely in control of it. When a bank has your money, you never really own it.
Remember the capital controls Greece imposed during its crisis?
Remember the run on Northern Rock and the bank bailouts that followed in the UK?
Remember that Times headline written into the bitcoin genesis block?
Put your money in a stablecoin and no one can take it from you without the threat of force.
As you can see, stablecoins are extremely useful for exchanges and crypto traders. Until very recently the stablecoin of choice was Tether.
But if you follow the crypto news, you’ll know Tether has had its fair share of tribulations…
Its owner and creator iFinex was recently sued by the New York Attorney General for fraud.
During this investigation iFinex admitted it doesn’t actually hold a 1:1 ratio of US dollars in reserve for every Tether it creates – as it has always adamantly started.
It turns out it only holds around 74 cents for every dollar of Tether in existence. This happened, apparently, because it lost $850 million and had to dip into its reserves.
Then no sooner did this news surface than iFinex announced it had held a private crowd sale and raised $1 billion, sorting out all its financial woes.
So, as you can imagine, most people don’t hold too much stock in Tether, iFinex or the exchange it runs called Bitfinex.
New stablecoins have been minted by much more reputable sources over the last couple of years. And many of these new stablecoins make their auditing public to avoid being tarred with the Tether brush.
Now, Binance, the biggest crypto exchange in the world, is creating its own stablecoin. But unlike all the others, it’s pegging its stablecoin to the British pound.
From Yahoo! Finance:
Binance has announced that it is testing out a new GBP-backed stablecoin as a new asset on the firm’s native Binance Chain blockchain.
Despite being added as a new asset to be openly viewed on the firm’s blockchain, Binance CEO Changpeng ‘CZ’ Zhao said that the new stablecoin is still very much in the testing phase, with “only £200 minted so far” on the network.
This new GBP stablecoin also ties in with Binance recently opening up a new branch of its operation in Jersey. So it seems as though Binance is taking a shine to the UK.
When asked if Binance would be making a similar euro-backed stablecoin, its founder Changpeng Zhao gave the following answer.
From a British point of view, it could be pretty useful having a stablecoin pegged to our own currency… especially if it goes on to become one of the more used stablecoins.
And if it ends up being Binance’s main stablecoin, which it’s looking like it may be, that could make the British pound a very important marker for crypto prices.
Now, if you’ve read this far, it’s probably fair to say you have an interest in crypto.
If that’s true, you need to get your name down for Sam Volkering’s crypto event – Beyond Bitcoin – taking place at 2pm tomorrow.
In it, Sam will be covering:
- A simple way to understand where crypto prices will go next
- The most important lesson Sam Volkering learnt making 25,000% in the last crypto boom
- The single most valuable crypto trading secret you can use right now to strictly limit risk
- The two specific crypto plays beyond bitcoin and Ethereum that could deliver 1,000%+ potential gains
- A new way to accumulate regular crypto without mining… or buying it.
To take part, all you need to do is get your name down here today.
Until next time,
Editor, Exponential Investor