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Why Stable Coins Are Not a Good Store of Value in the Long Run

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Written by   211
6 months ago

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.

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Written by   211
6 months ago
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Comments

Can you please tell me how to copy all my 150 articles from read.cash to publish0x?

$ 0.00
6 months ago

Sorry for the late reply. I started writing that article and got distracted by an app that let's you earn points for streaming music and playing games on your phone (which you can use for receiving money on PayPal) and I forgot to finish that article, because I was so deep in "research". 😅🙈

I will finish that article today. Hopefully it will still be useful to you. 🙈

$ 0.00
5 months ago

I'm so excited to read that article! But you didn't answer my question :(

$ 0.00
5 months ago

I meant that I will finish the article which explains how to copy your articles from read.cash to Publish0x. 😊

$ 0.00
5 months ago

Ohh right! Can't wait to read then!! Merry Christmas!

$ 0.00
5 months ago

I bought some gold when I was working and keep it and when I appraise it last year I got almost tripled my money! Which is very nice lol. Do you know we have pawn shop in the Philippines and you can pawn gold when you run out of money? So gold is good as cash! I heard about stable coins but don't own any. I know you're hiding gold somewhere out there lol. I'll find you and I'm gonna get it. 😂

$ 0.00
6 months ago

Haha. 😂 I wish I was hiding it somewhere. Or maybe I am and even I forgot about it? 🙈 Maybe I need to get a jacket and a spyglass and then I will find it. And I need a parrot, so that it can fly and look at the ground from above. And I could use an eyepatch for looking through the spyglass.

I don't know where I'm going with this either. 😅 My only excuse is that it's pretty late already. 🙈 Good night!

Oh and thank you very much for the tip. 😊👍

$ 0.00
6 months ago

I also read some thoughts about this with Fexonice1, that it is not good to hold stablecoins for long well besides it is stable like you said that it is like fiat affected by inflation.. As for gold its a really good investment but not be worn or else you'll get robbed especially walking on the streets 😆🤣🤣

$ 0.00
6 months ago

Stablecoins are bad investments but have short term value/use. Looking at swap a portion for stablecoin/s at the height of the next bull market, take some profit, HODL and buy back in. But that is not as easy as it seems.

Gold is primarily insurance not an investment unless you are able to time the market.

Doesn't pay to flaunt your wealth, otherwise some one will want to share it with you. The biggest thief of all is the taxman .

Those that do are generally not really wealthy but are just wanna be's. Spend all their money on the image of wealth but have no net wealth

$ 0.00
6 months ago

Yes, that is the tricky part with gold. Actually, it is better to have it in physical form if ever the system breaks down. But then again having it in physical form is super dangerous as you could be robbed, for instance. 🙈

As of now, I decided against having gold in physical form. And it could turn out that by the time it becomes evident that everything breaks down, it might be too late to get it in physical form. 🙈

Let's hope that will never ever happen.

$ 0.00
6 months ago

every yr around the same time we buy. this year was abit late and was surprised that the queue was out the door, had to wait over a hour, was sold out of the bigger sizes, but I got what I was after. It is pretty to look at but unfortunately has to be kept in a vault. Gold is for insurance. Similar to BTC, you can get robbed.

$ 0.00
6 months ago

Short term parking of profit in stable coins should not be problem.

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6 months ago

Yes, I agree. 😊👍

$ 0.00
6 months ago

Gold and crypto awake interesting of investors and big amounts of fiat currency to be invested in that assets. Inflation as some unwanted in transactions of financial instruments give advantage to currencies and asset which is preserved from that impact.

$ 0.00
6 months ago

I have been trying to save and earn as much crypto as possible. I have been staking coins like zilliqa and using the profits I get from that to invest in other crypto like tron. I also have invested in some wallet coins because I believe that they will grow right along with crypto and there coins will be worth a good amount. That is only my idea and I hope I am right lol.

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6 months ago

It definitely sounds like a plausible plan. I have to admit that I am not very familiar with the coins you mentioned. I will look into that.

Personally, I have been pretty bullish on Ethereum, BAT and Stellar Lumen. I wasn't a big fan of Bitcoin as it never made sense to me why it should be that dominant. But I finally gave in and bought my first fraction of a Bitcoin two days ago. Probably almost right at the top. 😂🙈

$ 0.00
6 months ago

This is the only time in all of history that the little guy has a chance to get in on the ground floor before all the venture capitalists etc. You need to get up to speed real quick as the window of opportunity is closing rapidly. Crypto is a disruptive technology, look up the S curve (its in a few of my posts), we are still at the start of things.

I would be trying to learn as much as you can about BTC, you need to get your head around it. I did alot of research for my posts. Especially about Satoshi, was a visionary, read the early writings. The more I read the more I get it.

BTC is tier 1, Ethereum is 2nd tier, BAT is 4th tier, recently swapped all the XLM when it pumped. We got alot of XLM from Coinbase Earn, and airdrops. Stellar couldn't even give them away, in the end they had to burn half the supply.

$ 0.00
6 months ago

I will definitely go through your articles. 👍

I'm familiar with the S curve, but probably don't know enough about Bitcoin. 😅 The relatively slow transaction speed which results from the proof of work algorithm was what made me think that it has its problems and that another crypto will probably surpass it at some point.

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6 months ago

my posts on BTC are usually historical ones

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6 months ago

I will leave it up to people more knowledgeable to explain. But I feel one has to stop thinking of BTC in the traditional sense of money. We do not plan on buying a cup of coffee with our BTC. If we ever need to, will convert to LTC, Dash, XLM, ZEC and spend that. So I don't see it as a problem but it is actually part of its strength (POW) where it gets some of its value from.

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6 months ago

Get rid of stablecoins as soon as we get them. Don't ever want to convert crypto back to fait. Hoping one day to spend or give to the grandchildren

$ 0.00
6 months ago

That sounds like a good plan. I'm still a bit cautious when it comes to crypto and hold only a relatively small amount. But I'm continually increasing the crypto part of my savings.

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6 months ago

I am also cautious regarding security of my wallets, scams, what to buy, when to dump etc. But have invested a lot of time and effort in learning all I can about crypto. We bought little bits in 2017 on the way up (brutal lesson) and again from Jan 2019 (lucky to spot signs the market had bottomed out) in larger amounts and still buying with my spare cash each week. Slowly consolidating our portfolio, getting rid of the so called shitcoins. I realise in amongst the shitcoins there may be a gem or two. Can't win em all, but on average you will. Cut my teeth investing in Disruptive Technology, learned my lessons the hard way. The same rules apply to crypto as it is a disruptive tech too. 1 out of 100 will survive and go on to be huge. You can only lose 100% of your money on the losers but the winners more than make up for. You can improve the odds. The DT portfolio is up 100% after most of them disappearing, still have 2 only just breaking even and 2 that are on the way up. It has been a few years waiting to reap the rewards. Only need one of the 2 succeed. I am in the process of writing about the journey "How We Started On Our Crypto Journey Down The Rabbit Hole" or something along those lines. It will be a very lengthy post.

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6 months ago

I am looking forward to reading that. 👍

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6 months ago

You will need to be patient.

$ 0.00
6 months ago

Such a great source of information. Dai is the best stable-coin and has no shady background like Tether

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6 months ago

Slowly developing the exit plan and it will probably involve using a stablecoin to book some profit . At the moment tend to use BTC instead of a stable coin.

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6 months ago