Why Stable Coins Are Not a Good Store of Value in the Long Run
Don't get me wrong
I love stable coins, especially DAI after initially learning about it and most recently reading this excellent article by my friend @PVMihalache. And I regularly use DAI: When I feel like another crypto ran a bit hot and I should take some profits, I exchange some fraction of the other crypto for DAI, hoping that I can buy my original stake back later for a lower price.
However
After reading this excellent article by@scottcbusiness I was reminded of the problems connected to fiat currency. And I immediately came to the realization that stable coins pegged to the Dollar or any other fiat currency are actually a bad idea as a store of value.
Why?
Stable coins suffer from the same problem that fiat currencies suffer from: Inflation.
Scott wrote about the fact that 23.6% of all US dollars were created this year. Just to put special emphasis on that: That is almost a quarter of all US Dollars in less than one year.
Scott continues to argue that the increase in the amount of Dollars basically means that your income and your savings are reduced by almost a quarter. Or viewed a different way, the increase will lead to higher prices for commodities, products and services.
In my opinion that is the reason why we see new highs in stocks despite an uncertain future economic development. And at the same time, stores of value like gold and Bitcoin rise in price.
What would be a better solution for "stable" coins
In the long run, "stable" coins should rather be pegged to an asset like gold. Of course, measured in fiat currency, such coins are not stable at all. But that is because you are measuring with a yard stick that shrinks over time. We should change our thinking and measure with something that retains its value over time.
As much as I thought that buying gold was silly when I first heard about it many years ago, because I don't like shiny things all that much and what would I do with gold? Nothing really... It also doesn't produce anything. It just exists. Well, it can be used for some purposes, but none of them appeal to me. Therefore, I concluded that most of gold's value comes from other people thinking that it has a high value. But isn't that the case with almost everything?
Gold has been used as a store of value for centuries. The advantage is that you cannot create as much of it as you like. That is its main advantage as compared to fiat currency. And that is exactly the aspect that many cryptocurrencies adopted: a limited supply.
Of course, some problems remain with gold or any asset pegged to gold as speculation leads to significant ups and downs in their prices.
That's why I came up with the following strategy.
My strategy
I have started buying stocks two years ago as I already knew about the problems with fiat currencies back then. I have started with accumulating free crypto around the same time. And this year I intensified my efforts to earn crypto - with projects such as this blog, for instance.
And now after learning about this massive increase in the Dollar, the problems have become a lot bigger. I have finally come around and started buying assets which are pegged to gold as recently as last week.
I believe that gold is still in an upward trend. We have seen a retracement and I'm pretty sure in the long run, we will see higher prices again.
If I ever feel like gold is running too hot and I should take some profits, I will try to switch a fraction to another store of value or to stable coins or fiat for the short term.
Nothing to rob here
By the way, I don't own any physical gold. So there is no need point in trying to rob me. 😬
I know that this is not an ideal solution.
If everything breaks down, I cannot access my "paper gold", but I really really don't want to be robbed and possibly lose my life.
And if everything breaks down, I might die of starvation or thirst anyway, because I live in a city and rely on drinking water coming out of the pipe and food being sold at the supermarket.
I don't have the space to become a prepper. Let's hope that it won't be necessary. 🙈
What are your thoughts?
Do you own stable coins?
What do you invest in?
What alternative stores of value can you recommend?
I have mentioned that I also invest in cryptocurrencies, but I have not explained why. If you like to read more about that topic, I can highly recommend this excellent article by @abesmoothy.
...and you will also help the author collect more tips.
Can you please tell me how to copy all my 150 articles from read.cash to publish0x?