Stablecoins: The Latest Buzzword in the Crypto World 

Stablecoins are currencies that, like Bitcoin, exist on the blockchain and offer some of the advantages that the blockchain provides. But unlike Bitcoins, they are not issued in limited amounts.

Here’s how Stellar, a platform designed to tokenize fiat currencies, explains it:

In general, digital currencies have a high degree of volatility. Their prices can fluctuate dramatically, making them difficult for most people to adopt. Not knowing what the value of your tokens will be tomorrow can feel very uncomfortable…. Stablecoin is a digital currency that is linked to an underlying asset such as a national currency or a precious metal such as gold…. Since they are pegged to a more stable asset such as the US dollar, stablecoins were created to manage price swings often seen in Bitcoin and other cryptocurrencies.

There is a big difference between stablecoins that are linked to gold (or other precious metals) and stablecoins that are linked to the US dollar (or other national currencies).

The value of a stablecoin linked to gold would rise and fall like the US dollar did when the dollar was tied to the value of gold. In other words, stablecoins tied to precious metals would offer one of the major advantages that Bitcoin offers: They would be resistant to artificial inflation caused by the issuance of more US government debt.

But stablecoins that are tied to the US dollar are an entirely different kettle of fish. The value of those stablecoins will have the same vulnerability to inflation as dollars do. Their values would always stay even with dollar values. They would always be easily convertible to dollars. They would be, in effect, precursors to what I predict is coming next: a digital version of the US dollar.

The money that Amazon, Apple, and Google will be printing in the future will be just another form of stablecoins – digital currencies that are tied to the US dollar.

And like stablecoins, because of this link, none of them will have any intrinsic value whatsoever. They will merely be replica dollars with the same vulnerability to inflation, but they will be perceived by cryptocurrency enthusiasts as something more and better.

This delusion has already taken place with one stablecoin. Tether, the leading stablecoin, has a value of $60 billion.

From a long-term perspective, paying a premium now for a digital dollar is insane. But that doesn’t mean one can’t speculate on the insanity. Despite my view that Bitcoin and similar true limited-in-issue cryptocurrencies will one day be outlawed, I am 100% sure that there are lots of opportunities for profitable speculation in the meantime.

In fact, I have already personally profited from the cryptocurrency mania. Some while ago – just for the fun of being in the market – I bought a small amount of Bitcoin, Ethereum, and Litecoin. My profit to date is more than 600%.

And, yes, I sometimes think, “Why didn’t I buy more?”

But then I tell myself, “It’s because you’re a pragmatist, which means you are a dabbler and, when necessary, a hypocrite.”

Speculate if you like with digital currencies. But don’t bet on Bitcoin long term.

Click here and here to read two good short articles on stablecoins.