A big issue with cryptocurrencies like Bitcoin and Ethereum is their volatility. While they have many characteristics that make them viable currency options in the future, their volatility is a big concern. No one wants to be holding their life savings in a currency that has the potential to drop 10-20% overnight.
2018 in general was a tough year for the overall crypto market. Due to the major pullback and continued volatility in the markets, stablecoins began to emerge in popularity, especially in the 2nd half of 2018. Stablecoins are backed by real assets, and have much reduced volatility compared to traditional cryptocurrencies. Here’s why 2019 could be a huge year for stablecoins, and how they may take center stage ahead of Bitcoin:
What is a Stablecoin?
A stablecoin is a representation of a stable, collateralized asset on a blockchain primarily used to hedge against the decline and volatility in traditional cryptocurrencies. Unlike Bitcoin, they are backed by real assets, including fiat currencies and precious metals. They can even be used as a vehicle to exchange value, although at the moment the speed of its blockchain is an issue for time-sensitive transactions.
Evolution of Stablecoins
Until last year, Tether (USDT) was the dominant Stablecoin, being accepted on major exchanges such as Binance as a cryptocurrency pair. They claimed to be backed by the US dollar, but there was no formal audit of the coin which raised a lot of skepticism about its legitimacy in late 2018. People begin to look for and create better stablecoin solutions last year in response to these shortcomings of Tether.
As a result, other stablecoins were launched last year such as TrueUSD (TUSD), USDC, and Gemini USD (GUSD). All three of these are backed by audited funds, and thus investors have certainty that all their stablecoin tokens will maintain their peg and be fully redeemed upon request.
The conversation of stablecoins inevitably leads to a questioning of the fiat system that backs them. What happens if the US dollar becomes unstable? It is has been considered a stable currency for most of the 20th century and during the present, as it is protected by many assets. However, the US has a record amount of debt at $21 trillion, and it is expected that this continuingly growing debt will be a threat to the stability of the US dollar, which in turn will threaten the stablecoins pegged against it. A widely anticipated recession this year has many concerned about the fate of the US dollar.
Precious Metal Stable Coins in 2019
Gold has historically been a safe haven during financial crises. There have been numerous instances of the asset increasing in value during global recessions, although the correlation is not exact. There is a high probability we will see a recession of some degree this year or next year. Investors will be looking to move their capital into more stable assets, which is likely to be precious metals like silver and gold.
Until Stablecoins, there was no way to issue currency representing precious metals to make transactions with, as governments abandoned the gold standard in the mid-20th century. Now with blockchain technology, an organization can issue a currency backed by a precious metal, conduct regular audits, and allow users to access to all of the data. A stablecoin backed by gold or silver could be a viable investment and currency option in the future.
Some precious metal stablecoin projects to watch in 2019: Tiberious Coin (TCX), Digix, and Kinesis . All of these projects are varients of stablecoins backed by a precious metal. Take a look at them, they could be some of the hottest crypto projects of 2019.