Should you invest in Stablecoins?

What Is Your Investment Strategy?

First you need to consider your personal investing strategy and the level of risk you are willing to take on. A low risk investment would be keeping your money in fiat currency in a centralized bank. This is still risky with the current ongoing debasement of currencies around the world, even the U.S. Dollar which printed over 40% of its supply in 2020. On the other hand, seemingly higher risk investments typically include placing your money in a hedge fund or into a cryptocurrency such as Bitcoin. With the macroeconomics landscape changing especially since 2020, Bitcoin is actually considered a very strong hedge against currency instability. Stablecoins fall somewhere in the middle of these two levels of risk. This is because, depending on the stablecoin you invest in, they are either pegged to a currency like the U.S. Dollar, or backed by a company, which could be liable to go under—making them only slightly higher risk than investment in a bank which is guaranteed by the government. But because they are usually pegged to fiat currencies or actual assets of value, stablecoins are much more stable, and therefore less risky, than a typical cryptocurrency investment. 

What Type Of Returns Do You Want?

Next, you need to consider the returns you want to receive on your investments. Banks typically only provide around at best 2%  interest for keeping your money in an account with them. This has changed in recent years with interest rates near zero or negative around the globe. On the other hand, cryptocurrency or hedge fund investments have the potential to return 20-25% yield or more. When you simply purchase stablecoins, it is very similar to investing in fiat currency and you probably won’t earn many returns on just holding the coins. However, if you lend your stablecoins out to others, this is more of an investment strategy, and there is a potential that you could receive up to a 6% – 8% yield on your investments for doing so. And this is a great middle ground to be in.  

Is Stablecoin A Long-Term Investment For You?

The important thing to note when it comes to investing in stablecoins is the fact that they are viewed as good long-term investments. Using stablecoins as a way to store your wealth and getting yield by lending them is a great alternative to being in fiat currency and having your cash in a traditional bank. This is because stablecoins are also a hedge against macroeconomic trends, while also being an investment in future technology. Stablecoins increase in popularity, and use, as the world becomes more digital and transactions fees with traditional companies like Visa or Mastercard get more expensive. But this is where your belief in future economic trends should be taken into account. You need to investigate and invest in a stablecoin or stablecoins which you think will be necessary in the emerging digital world economy. And keep in mind that stablecoins are generally not an investment you will make quick or instant returns on, so you do need to be prepared to be invested long-term.

Do Your Research

If you do decide that a stablecoin investment is for you, remember that doing your own research is key. You will want to invest in a project that you believe will be necessary in the future. You also want to be knowledgeable on what fiat currency or other value the stablecoin you are investing in is pegged to. A stablecoin like USDS is a good place to start as it is pegged on a 1:1 basis with the US dollar, making it as stable as the US dollar, and more stable than other projects which are only backed on a partial basis with fiat currency. But remember that most of making returns with a stablecoin is acquiring the stablecoin you wish to invest in, and then lending it out to companies, such as banks, for returns. 

Overall, stablecoins are a great investment for an investor who is looking to make stable, medium-sized returns over an extended period of time. They are much safer than a number of other investments, while still being a better investment than just leaving your fiat currency sitting in a bank account. If you want to learn more about how to add stablecoins to your portfolio, contact us.