Cryptocurrency investments churned out overnight, making many people turn their heads away from traditional stock markets. However, they didn’t know that cryptocurrencies like Bitcoin are extremely volatile. They can lose value just as fast as they gained it because of the lack of a value backing mechanism.
The lack of backing for Bitcoin prompted the crypto community to create alternative coins. They aimed at mitigating the risks associated with Bitcoin’s volatility.
This post will discuss stablecoins by examining one of the most popular — USDT. Thus, you can decide whether you should convert BTC to USDT and other stablecoins.
What Are Stablecoins?
As mentioned above, the earliest cryptocurrencies didn’t have any backing, and their value was determined by the market. There was no form of regulation to mitigate the volatility of coins like Bitcoin. The high volatility explains why it rose literally from nothing to its peak of $65,000 in November 2021, plunging to almost $30,000 in May 2022.
Stablecoins are designed to mitigate the risk of volatility by introducing valuable assets to back the value of these coins. The assets backing the stablecoins include fiat currencies like the US dollar, oil, gold, etc. They will always have value in the real world, and tethering a stablecoin’s value to them gives it stability.
While you have a choice to buy and trade different stablecoins, we will examine the most popular ones on Godex. Hopefully, you will understand the concept of stablecoins even better.
USDT — One of the Most Popular Stablecoins
USDT, or Tether, is a stablecoin whose value is backed by the US Dollar. The coin itself is an asset of the Tether Platform and thanks to the Omni Layer protocol, the asset can be issued on the Bitcoin blockchain.
USDT is the most popular stablecoin with a market cap of $67.5B, placing it third in the pecking order of cryptocurrencies. While USDT’s unit price should theoretically be $1, considering it is directly backed by the US dollar, its value sometimes fluctuates.
USDT could go on a bull run, following the general crypto market and increased demand for cryptocurrencies; it works vice versa as well. Besides the price of other cryptocurrencies, legal issues (lawsuits against cryptocurrencies) also affect the price of USDT and have seen it drop to its lowest price to date of $0.56.
Some of USDT’s notable features and use cases include:
- International money transfers. You can make quick transfers that take less than 10 minutes on the blockchain. These efficient borderless transactions are part of the reason that USDT grew so fast.
- Store of value. You can store your funds in USDT as it has the backing of the US dollar and has the potential of growing in value with time.
- Mitigate the risk of crypto investment loss. Since USDT has strong backing, it mitigates the risk of losing money because of the volatile nature of traditional cryptocurrencies.
Now that we’ve considered the key features of USDT, should you consider swapping BTC for USDT?
Why Swap BTC for USDT?
During the recent cryptocurrency crash, BTC alone lost more than $1 trillion in value as people’s resentment towards cryptocurrencies continued to grow. Those who had invested in BTC watched helplessly as its value fell into a nosedive, and they couldn’t do much but hope for a bull run.
Wise investors used USDT to mitigate the risk of losses by swapping their BTC to USDT as soon as BTC’s price went into a free fall. Trading BTC to USDT takes a few seconds, and your cryptocurrency will now be tethered to USD, reducing the chances of losing money.
The Future of Stablecoins and USDT
There are a lot of legal issues regarding the eligibility of stablecoins for trading. They have the potential of introducing different contagion channels to market financial stability but remain the best bet to mitigate crypto volatility. The idea of stablecoins is still relatively young, and teething problems like lawsuits are part of the community growth.
As the stablecoins like USDT strive to finally find their niche in the crypto market, it is evident that they definitely are here to stay to form a large part of the crypto future.
