We’re huge proponents of diversification here at Key Coin Assets. You can achieve life-changing wealth through cryptocurrencies, but you don’t want to put all your eggs in one basket. Diversifying your crypto investments is the best way to protect yourself against the volatility of crypto and the blockchain.
One digital asset management solution that should be in your portfolio are stable coins. Unlike the more popular but crazily volatile Bitcoin, stable coins are exactly what their name implies – they’re more stable than your usual cryptocurrency.
To help you get started, we’re sharing tips on how to invest in stable coins safely and carefully so you can maximise your profits while minimising the risk.
Stable Coins: The Basics
Stable coins are cryptocurrencies that are pegged to a fiat currency. Fiat currencies are the money you have in your wallet right now – whether those are dollars, pounds, Euros, yen, and any other tradditional currency.
As a result, cryptocurrency traders and investors use stable coins to hedge against the volatility of regular cryptocurrencies.
Stable coins can also be used as crypto-collateral in order to get loans from crypto lenders, or even as a means of payment for services like online gaming or gift card purchases.
Because they can be transferred quickly and securely, they’re much faster than using traditional payment methods like credit cards or bank transfers, making them ideal for everyday transactions where speed matters.
There are many stable coins on the market now – some pegged to the US dollar, others to the Euro, and a few others that are backed by precious metals like gold. There is no one-size-fits-all when it comes to choosing which stable coin to invest in, so you should carefully consider what factors matter most to you before deciding where to put your money.
3 Beginner-Friendly Tips on Investing in Stable Coins
In general, you should trust stable coins that have invested in ensuring the stability and security of their assets:
1. The coin should be backed by a real-world asset.
You can think of this as the underlying value to which the stable coin is pegged, or its anchor within the digital marketing blockchain.
For example, if a stable coin has 1 USDT token for every US dollar it holds (and nothing else), you know that its value will remain at $1 USDT per dollar—at least as long as the company holding that money does not go bankrupt or otherwise lose control over those dollars (or if it does go bankrupt but there’s another party willing and able to take over those dollars).
If there are other entities behind such an entity, such as insurance companies or governments, then they could help ensure stability even more strongly than simply having trust in the company alone would provide—though they also introduce additional risks because these entities might fail (for example).
This makes it important for you to do your own research into how well these organizations are run before deciding whether this type of currency is right for your needs.
2. The coin should be transparent about how it is backed up.
Transparency means both knowing exactly what assets are backing up your currency and being able to see where those assets are located so that no single party has access to too much power over them (which could lead them towards instability).
If the founders of a digital asset management solution are vague about what’s behind the scenes of their stable coins, take that as a red flag.
3. Study commodity-backed stable coins before investing in them.
Some stable coins have backed their tokens with commodities like gold and silver. While this is an interesting option, there are a few things to keep in mind before you invest in one of these tokens:
- First, you should know that these stable coins are backed by the ever-fluctuating value of gold and silver.
They’re not backed by dollars or euros—or any other fiat currency that can be printed at will. This means that if you buy into a gold-backed stable coin whose price rises suddenly because people think it would be useful during an economic crisis, then those assets may not be available when you want to sell them again (or trade them for something else).
- Second, you should be aware that gold and silver can be volatile.
The price of gold has been on a roller coaster ride over the past decade, and there’s no guarantee that it will continue to rise. In fact, some experts believe we may be due for a crash in the near future.
So if you do invest in one of these stable coins, make sure they’re only one part of your strategy. Diversify your portfolio with other assets as well—such as fiat currencies or crypto tokens not backed by precious metals—to mitigate your risk.
In other words, a stable coin might make sense as part of your overall investing strategy. But it’s not a substitute for doing your due diligence and making informed decisions about what to invest in.
Build Your Wealth in Crypto – The Low-Risk Way
We didn’t bet randomly, though. As a cryptocurrency marketing agency, we carefully assessed the market, evaluated each asset, and chose investments with a strong backing and solid whitepapers.
Allow us to do the same for you: send us a message so we can discuss your risk appetite, study your financial goals, and give you custom advice to help you get closer to building your wealth. Contact us today and start investing in yourself!