Recently, there has been some unprecedented events in the cryptocurrency ecosystem. Crypto traders experiencing  DIPs (massive price fall) in their portfolios. It is no longer news that a ticking bear market is unfolding, leading to a massive decline in the value of cryptocurrencies. A few have sustained the value of their assets by converting to stable coins which have protected their cryptocurrency worth from devaluation.  This article will drive towards the concept of stable coins and their role in a bear market (overall fall in prices of cryptocurrencies).

CRYPTOCURRENCY

For the newbies that are just entering into the cryptocurrency space, cryptocurrencies are simply digital assets or currencies for digital transactions. It said said to be the future of payment system by various recognized individuals.

Traders or ‘investors’ as we traditionally refer to them, benefit from cryptocurrency through market volatility. Market volatility implies the irregular rise and fall of a cryptocurrency at any material time. Let’s quickly illustrate how market volatility works.

HOW MARKET VOLATILITY WORKS

Assume an investor owns a coin (a cryptocurrency), let’s say $DOGE. Let’s assume the value as at 4am on 10th April 2022 was worth $0.02, and he decided to buy the coin at the above stated price. The coin within that period gained traction (popularity and attraction of buyers). This traction led to the price rising to $0.15 due to massive buying. Now the value of the investor’s $DOGE increased from $0.02 to $0.15. At this point, the investor has profited and achieved great gain.

Let’s take another example. For instance, an investor buys another coin, $PHTR. $PHTR held the price value of $0.22 at the time of purchase. Four hours later, $PHTR dropped to $0.001. The value declined, meaning the investor will be running at a loss.

STABLE COINS AS A HEDGE 

These two illustrations above, describe how market volatility can make a trader gain or lose profit from a cryptocurrency trade. To prevent market fluctuation of assets, an investor can use a stable coin as a hedge coin against volatility, to protect his worth or value, till he decides to withdraw or further a trade. Stable coins are pegged to the USD and doesn’t fluctuate so this becomes a useful asset for investors in times of volatility.

Investors see stable coins as a hedge against inflation in fiat currencies of their economy and also as a safe haven in times of huge downside movements in the market. Stable coins provide a cheap, fast, easy and verifiable means of transferring value. It is said to be the back bone of the internet of value.