Cryptocurrencies have taken the world by storm ever since Bitcoin’s debut to the world about a decade ago. Digital currency has facilitated exchanges of wealth, helped countless unbanked people participate in the global economy, and has given rise to countless innovative projects focused on improving the world (and making money).
Many know popular cryptocurrencies like Bitcoin, Ethereum, and Litecoin. Coins like these are often what people start with as new investors due to their popularity. 2020 has also brought fast risers like Chainlink to the top of trading charts.
Stablecoins are another class of cryptocurrency that have gained notoriety. Backed by a reserve asset, these coins are often heralded by those not interested in experiencing the volatility and wild price swings of the ‘regular’ crypto world.
Most stablecoins are fiat-collateralized, meaning they are backed by traditional currency, or in the case of GoldCoin.com, actual physical bullion that can be redeemed for the yellow metal.
Stablecoins do have their critics, mainly for allegations that projects do not have an adequate amount of reserves to back up digital coins.
Some investors wonder if it is better to focus on stablecoins versus regular cryptocurrencies like Bitcoin. Keep reading for an understanding of each type of digital currency and if one is better than the other.
Future Price Potential: Regular Crypto Wins
Many investors in the cryptocurrency world wonder about the coins they can put money into that will reap strong returns on investment. Digital currency is popular because the return rate can be astronomically higher than the most lucrative stocks.
This concept is clearly demonstrated by Bitcoin’s astronomical price surge since its initial creation.
The first Bitcoin transaction took place in 2010, when a man purchased two Papa John’s pizzas with 10,000 Bitcoins. As of September 1, 2020, that transaction would have a value of $114 million, an unprecedented uptick in value for an asset easy to purchase.
Stablecoins do not have the price potential of regular cryptocurrencies by design. While some do surge ahead of their base asset, especially if the coin proves to be popular, no stablecoin has experienced the massive price breakouts seen with traditional cryptocurrencies.
A stablecoin pegged to the dollar is going to stay around a dollar in value, with some slight fluctuation. One backed by an ounce of gold per coin will keep pace with the spot price of gold, with some exceptions.
Regular cryptocurrencies beat stablecoins when it comes to the potential for growth and future value.
Stability: Stablecoins Win
While cryptocurrencies like Bitcoin and Ethereum can rise to theoretically unprecedented levels, they have nothing backing the coin. These types of cryptocurrencies can slide downward in price and theoretically become completely worthless in value, wiping out the investment portfolios of holders.
Bitcoin made headlines in July 2017 after falling below $2,000, almost 40% from a June 11 high of $3,018.
While the cryptocurrency did surge to nearly $20,000 by the end of the year, the example highlights the volatility of regular cryptocurrencies and their propensity to lose value rapidly.
Stablecoins have a built-in price floor that ensures stability. A gold-backed cryptocurrency pegged to an ounce of the precious metal will never fall below the gold spot price, even if the coin is not popular.
Stablecoin commodities like fiat currency, gold, silver, and diamonds all have longstanding value in citizens’ eyes across the world, assuring their status as relatively stable assets.
This price floor gives stablecoins a distinct advantage over regular cryptocurrencies when it comes to stability. Stablecoins are often purchased by those interested in hedging against inflation or volatility.
They are popular among those eager to see widespread crypto adoption and use in the everyday world since their nature makes them a good medium of exchange.
Who Wins? Stablecoins Or Regular Crypto
The argument between stablecoins and regular cryptocurrency largely comes down to an individual investor. Those curious to support innovative projects and potentially reap large returns should opt for regular cryptocurrency.
Investors with a more conservative mindset and are wary of digital currency’s price volatility should stick with stablecoins. Both are legitimate forms of investment in the digital asset world.