After the success of Bitcoin, other cryptocurrencies were born. Afterwards, the digital currencies market has been booming. But while it is easier to trade cryptocurrencies, most investors are having a hard time figuring out how to approach crypto investments. What crypto assets to hold? When to sell? Is it stable? Here are six things we believe will stabilize the crypto market this year.
Make sure people understand how it works
People are scared of what they don’t understand. Moreover, there are plenty of people who don’t understand crypto. They may not even be aware that Bitcoin is just one of many cryptos. Or they may simply not understand the technology. Therefore, teach them how it works in crypto betting. That wariness will translate into instability in their willingness to use it as a stable currency.
Use crypto-collateralized stable coins
A crypto-collateralized stable coin is a cryptocurrency backed by another cryptocurrency or basket of cryptocurrencies. If you wanted to create a crypto-collateralized token called “Tether,” you would need to back it with Bitcoin or Ethereum. If you wanted to create a crypto-collateralized stable coin called “True USD,” you would need to back it with a basket of assured cryptocurrencies. This includes Bitcoin, Ethereum, and Litecoin.
Issue a government-backed cryptocurrency — but with some caveats
The most straightforward option would be to create a stable coin backed by fiat currency. This can be dollars or euros. Governments could issue their own digital currencies, pegged to their official currency and guaranteed by their central banks. The European Central Bank is already exploring the concept of a digital euro, and the Federal Reserve is researching similar possibilities in the crypto space.
Use the coin for international transactions
One of the most common uses for cryptocurrency is for international payments because it allows people to transact across borders quickly and cheaply. However, many merchants can’t accept volatile digital assets because they don’t want their revenue streams affected by currency fluctuations. Stable coins could solve this problem by functioning like digital versions of foreign exchange certificates that merchants could use when accepting payments from abroad.
Give it a real-world value
Crypto has an intrinsic value, because it takes real work to create. However, that doesn’t mean people have any reason to put a cash value on it. When using something as a currency, you need some external baseline. Like gold that determines its value in terms of other currencies. That’s what gives you stability, so people feel safe using it as a store of value.
Increase the supply when the economy grows
It is weird that in a world where we can have a monetary policy with stable prices, we do not use it. We continue struggling for decades to keep inflation low and stable. But what do we do when we finally get there? We say, “that is too boring, let us go back to an old-fashioned gold standard” or something like that.
The way to fix this is obvious. If you want a stable currency, you need to tie the supply of money to the demand for money. That is what central banks have been trying to do for decades. However, indirectly, their response is slow (because they need to estimate how much new money is required). Also, they are uncertain (because they don’t know how the economy works).
