In the past two years, the sharp rise in cryptocurrency adoption has been fueled by the influx of Generation Z investors in the mainstream and cryptocurrency trading markets. The spike in activity in traditional trading markets and the crypto trading markets can be attributed mainly to the pandemic where millions of new investors were eager to try their luck in the trading markets using the stimulus checks they received from the government.

As new and inexperienced traders started to flock towards the trading markets, different companies’ stock and cryptocurrencies started to grow exponentially. Trading groups of the likes of WallStreetBets and Crypto communities pumped millions into stocks and cryptocurrencies, leading to huge growth in the market.  These events lead to even further growth in the popularity and adoption of cryptocurrencies. 

If we talk about 2021, we have seen the emergence of a slew of new blockchain applications, trading platforms, and NFTs. The growth can be gauged because nowadays, there is hardly a new major news headline without a mention of cryptocurrencies in the finance world. 

If we talk about statistics, approximately 15% of Americans now possess some type of digital currency such as Bitcoin or Ethereum, with most of these investors joining the field in the last two years. The reason for this is that cryptocurrencies have become more accessible to retail investors than ever before.

Rise of stablecoins:

The incredible growth in the cryptocurrency trading market has been made possible thanks to stablecoins. Stablecoins provide liquidity and convince to millions of investors worldwide who want to trade their digital assets on popular trading platforms like CoinBase, Binance, etc.

The rise in stablecoin use has been astronomical due to the sheer scale of investors flocking towards the trading markets. Stablecoins contribute towards the largest trading pairs out there when it comes to investing in spot or futures markets. 

Stablecoins provide the ease and reliability any investor would need to jump into the trading market. This has lead to the meteoric rise in the usage of stablecoins, where today, stablecoins have passed the $100 billion mark in market capitalization. 

How stablecoins solve the problem of volatility within the cryptocurrency market?

Despite the fact that cryptocurrencies are meant to be globally safe, decentralized, and stable digital assets, their prices are extremely volatile and subject to speculation. People all over the world have lost and earned millions of dollars in a matter of hours.

This demonstrates how volatile and risky the cryptocurrency trading markets can be, particularly when it is utilized as legal tender and the sole means of exchange for goods and services. Issues like these, on the other hand, are not going undetected in the Cryptocurrency ecosystem, and thanks to Stablecoins, platforms have devised solutions to this growing problem.

Stablecoins to the rescue:

Stablecoins, in contrast to cryptocurrencies, have a set value. In the case of stablecoins, they are digital currencies that are backed by real-world assets. These assets could include precious metals such as gold as well as fiat currencies such as the US dollar. Stablecoins are based on blockchain technology and are fixed-value cryptocurrencies. While they have many of the same benefits as other cryptocurrencies, including as transparency, security, privacy, and accessibility, they do not share any of the potential risks associated with other currencies.

Stablecoins have changed the whole game in the cryptocurrency market. Stablecoins, similar to other types of cryptocurrencies, is based on blockchain technology and offers many of the same advantages of cryptocurrencies, including transparency, security, privacy, and accessibility, but without the volatility that characterizes nearly all other cryptocurrencies.

Stablecoins market capitalization has surpassed $100 billion. They bring a new culture to the trading scene since they are not affected by the bitcoin market’s volatility. Stablecoins function in the same way that any other currency does. They’re a completely new sort of electronic money. They could be used for decentralized finance, trading, and exchange. Simply said, stablecoins allow you to have the best of both worlds.

Thanks to stablecoin, people can now put their phones down, scan a QR code, and pay for their morning coffee using cryptocurrency. Hotels and businesses all over the world can now accept cryptocurrency as a method of payment, thanks to stablecoins. Thanks to stablecoins, we can now utilize cryptocurrencies the way they were intended to be used. We are overjoyed that stablecoins have effectively digitized our currency.

Providing hedge against market downturns and bear cycles: 

Another major advantage stablecoins provide a hedge against bear cycles. Whenever there is an unlikely event where Bitcoin, Ethereum, or the overall crypto industry tanks, the first move of traders is to liquidate their positions and cash out in stablecoins, this strategy protects traders from losing money in a bear cycle. Moreover, since the stablecoins retain their value, they can figure out other investment strategies while holding on to their money in stablecoins. 

Moreover, keeping their holdings in stablecoins also gives them the leverage to make trades as soon as the market bounces back. Alternatively, they can also explore the DeFi market and lend their stablecoins to earn interest from their lending.  

Easy liquidation in Fiat currencies: 

Stablecoins also provides easy and seamless liquidation in fiat currencies. Since the demand is so high, almost everyone needs to buy stablecoins. Peer to Peer marketplaces and trading platforms encourage users to buy and sell stablecoins, which in term contribute to a secondary trading market. Since the demand is so high, traders can also leverage from the demand-supply principal and sell their stable coins at a higher conversation rate in fiat currencies. This really makes stablecoins a powerful trading currency whose demand is increasing day by day.

Is Stablecoins an effective investment?

Stablecoins, as we all know, are not subject to the tremendous volatility that other cryptocurrencies have to face. Let’s take a look at an instance that occurred in 2010. A programmer paid 10,000 Bitcoins for a pizza, which was around $30 at the time. The same order would now cost almost $328 million at the time of writing, according to Bitcoin’s price surge.

The frequent exhibition of significant price swings has established a strong concern among business owners and organizations about accepting bitcoin payments. Businesses are still hesitant to accept bitcoins as a legitimate payment method. But despite this, companies like Tesla, Paypal, and other payment behemoths, on the other hand, are warming to cryptocurrencies as a reliable form of payment.

Interestingly, Stablecoins were frequently employed as an escape plan or risk management tool in the event of a potential market catastrophe since they share the benefits of blockchain technology. Owners of assets would frequently switch their bitcoins or other assets to stablecoins in minutes on a single exchange, avoiding market losses. Without stablecoins, asset owners would have been forced to transfer their holdings into fiat money, which would have been impossible at the time of their purchase.

This was one of the many benefits that stablecoins provided; however, stablecoins now symbolize something quite different. They’ve developed into their own system. Stablecoins can also be utilized in regular business just like any other currency, but with the added benefit of blockchain technology that is legally protected and secure.

Low trading fees

Another advantage of using stablecoins for trading are their incredible low exchange fees. Stablecoins transactions are almost instantaneous, with minimal fees benefiting users with the advantage of quick liquidity and exchange. Compared to other cryptos like Bitcoin or Ethereum where network fees or gas fees is sometime exorbitant, the low fees structure in stablecoins really make them a worthy investment.

So should we invest in them, and are they safe? 

In the financial industry, stablecoins have recently received a lot of attention. However, before making a decision on whether or not to invest in this asset, you should be informed of all of its benefits and potential drawbacks.

Pros

  • The price of Stablecoins remains constant, which means any fluctuation will not affect your invested amount at any cost, as Stablecoins are pegged to fiat currencies. 
  • Stablecoins provide an escape plan. 
  • They provide faster cross-border payments at a very low cost. 
  • You can access DeFi products using Stablecoins.
  • Stablecoins are highly intuitive and easy to use for people in contrast to other high-risk digital assets.
  • Stablecoins have very low processing fees. 

Cons

  • Since Stablecoins are decentralized and in case your funds are stolen, the owners will remain confidential, and you wouldn’t be able to figure out who the perpetrator was. 
  • No gains on Stablecoins because they’re pegged to an underlying asset. 

Concluding thoughts

Stablecoins are driving the growth in the cryptocurrency industry by digitizing money and economies around the world. With a market worth more than $100 billion and a massive daily trading volume of more than $50 billion, it’s not a question of if, but when, stablecoins will totally eclipse all other currencies. We are bullish towards stablecoins, what do you think, how soon are stablecoins going to replace traditional fiat currencies for good ?