Can You Make Money on Stablecoins?
Updated: Feb 15, 2022
Cryptocurrency has a weird rap. With Bitcoin establishing itself as the dominant player in the space, and Ethereum right on its heels, hundreds have coins have begun sprouting up across the volatile crypto space in order to take advantage of the enhanced media attention *cough cough massive returns*. Did I say volatile? I meant "maybe the most volatile asset you could keep in your portfolio." Just look at meme-
king Dogecoin. The Doge-chart (left) looks less like something in your portfolio and something you'd find at Dollyworld next to the Fried Bread stand. Many investors, especially around "boomer" age, are nervous to make digital assets a part of their portfolio. I wrote about this previously as part of covering CNBC's annual "Millionaire Survey," which found that millennial millionaires are taking advantage of crypto assets in their portfolios for the first time. But let's say you want to have some kind of exposure to digital assets, but don't want the volatility of a Bitcoin, Ethereum or, god forbid, Dogecoin. What are you supposed to do? Welcome, my friend, to the wonderful world of stablecoins.
Made-Up Internet Money Gets A Face-lift
For anyone new around here, stablecoins are a new type of cryptocurrency. In order to qualify as a stablecoin, you have to be just that: stable. They do this by pegging their value to an external source, such as a traditional fiat currency or a commodity like gold, so that it is always worth a 1:1 ratio. According to Investopedia, even if massive swings were to occur in the underlying asset, then the coin's controlling authority may jump in to intervene by controlling supply and demand. The most popular and famous stablecoin at the moment is "USD Coin." As you might imagine from the creativity of the name, it's a coin pegged to the US Dollar. Every USD Coin you own is worth $1, and vice versa.
So the logical next step here is to ask: Why would I own USD Coin if it's worth the same as the $1 in my pocket I forgot to spend at Magic City last night? Great question, and don't forget to hydrate after your awesome night.
The biggest reason is to prove your nerd cred at the office water cooler with Steve from Accounting. Investing in a stablecoin allows you to take part in the crypto-game, while keeping you away from the volatility. Will you benefit if Bitcoin rises 35% in 3 days? Nope. But you'll also keep away from when it drops 50% and Andrew Pompliano has to apply for shift work at his Miami McDonald's. It also allows you to more easily take the dollars in your bank account and convert them to a different crypto, or port them over to a different exchange should you feel the need for speed. If you do want to BTFD when Ethereum takes a tumble, you can easily swap your USD Coin for some Ethereum without incurring the typical exorbitant crypto fees that makes Coinbase such a compelling traditional investment.
The next reason to own is the reason this project exists in the first place: speed. According to founding body Circle's offering circular (sorry), USDC was built to:
"Move at the speed of the internet, can be exchanged in the same way we share content, and are cheaper and more secure than existing payment systems."
Circle clearly sees this project growing into the gold-standard of digital payment delivery systems, but is taking on the big boys like Paypal, Square and Stripe in the process. Should this dream come to fruition, grabbing USDC could be a prudent move if you're looking to purchase Beeple's next modern art project.
The other reason you'd want to invest in a stablecoin, and the reason we're talking about USD Coin today, is the incentives. Kick-starting a new coin project like this takes time, energy and a LOT of money. Putting their money where their mouth is, Coinbase recently launched a new incentive that gives 4% APR on your USDC holdings. That is staggering. Actually staggering. The average savings account interest rate in the United States is 0.04%, according to Smart Asset. USDC is offering you literally 100x more than that to keep your money with them. But what about the online savings accounts that Graham Stephan likes to bring up? That only sits at 0.50%, according to Nerd Wallet. In order to incentivize you to use their new currency, Coinbase is willing to give you 100x what you would get at a bank. That's insane.
Look, at the end of the day, this is not an article looking to persuade you to take your life savings and move it from JP Morgan to some guy's pet project on Coinbase. Far from it. But if you have any interest in the crypto game, getting into USDC could be a great first step. And the current 4% interest rate on your savings is genuinely mind boggling. This could serve as a pretty decent inflation hedge when the Fed comes knocking and there's nowhere to hide. I'll definitely be looking to put some cash in there soon to take advantage of that sweet sweet APR. And if you're looking to get in on the crypto action, use my Coinbase link to get a free $10.
What is your experience in crypto? Do you own USDC? Let us know in the comments below, and don't forget to sign up for my email list so these can be sent directly to your inbox!