Hi there. I would like to make a short crypto & finance post about the importance of stablecoins. With the recent events from the news and the sharp decline of crypto prices, I learned quickly firsthand the importance of stablecoins.
Note that I am a math based guy who knows a little bit of finance. I am currently learning the basics of crypto trading and investing.
Invest and manage your own money at your own risk.
What Are Stablecoins?
A stablecoin is a crypto coin (asset) that has a price that remains stable for the most part. If you want to get more technical you can say that these stablecoins have low volatility. Low volatility as in the price swings in these stablecoins are low.
Examples of stablecoins in crypto include:
- Tether (USDT)
- USD Coin (USDC)
- Binance USD (BUSD)
- Dai (DAI)
- TerraUSD (UST)
- Paxos Standard (PAX)
- TrueUSD (TUSD)
The dollar based stablecoins usually have prices of $1 with plus or minus three cents.
Using Stablecoins
At first, I never understood the purpose of stablecoins. I asked myself why would I want something that would not have massive gains. Silly me. I understand a bit better in terms of strategy after some research and from crypto crashes.
Preservation of Wealth With Stablecoins
As stablecoins do not move in price very much they can be very helpful to have before market crashes. If almost all crypto prices crash and have their prices go down by 40%, stablecoins will still hold a lot of their value. Think of stablecoins as shields against market crashes.
After a crash, the stablecoins can be used to buy the dips. This is assuming that prices bounce back up.
I would not be the best person to ask for how much stablecoins you should have. Maybe 10-20% of the portfolio in stablecoins. That way you have stablecoins on hand to buy any crypto that is heavily discounted and expected to go up.
Notes
I did not have stablecoins on the May 19th crash so my crypto portfolio got crushed by about 40%. There was no panic selling on my end as I was looking for gains in the long term (6 months - 1 year).
With some research, I came across the Wyckoff distribution and bear traps. I did some research and learning on this. Thank gosh I had some stablecoins for the second crash which happened an hour ago as I type this on May 21.
I do feel bad for the investors who lost a lot of funds in these crashes regardless if they FOMO'ed in, made rational decisions or irrational decisions with money.
This is extreme volatility at its finest and a learning experience I suppose.
Thank you for reading.
Posted Using LeoFinance Beta
