Trading, Stablecoins, And What’s Inbetween

Trading, Stablecoins, And What’s Inbetween

Crypto trading is a fascinating field, and it can be a lot of fun to try your hand at it. However, before you begin, it’s essential to remember that there are some things you should know about crypto trading before diving in. Moreover, there are multiple good reasons to pay attention to stablecoins, what they can do for your portfolio, and how you trade crypto.

Establishing Ground Rules To Trade CryptoWhile it may seem appealing to throw a few hundred – or thousand – dollars into crypto trading and “YOLO” -ing, that isn’t the best approach. Many people need to pay more attention to these crypto markets and their overarching volatility. There are never guarantees to make money in the industry, which is one of the common mistakes people make when they start trading crypto. Everyone should set some ground rules to get in the right mindset.

1) Know Your Limits

When starting with crypto trading, the first thing to do is to figure out how much money you’re willing to lose. Doing so will help keep your risk-taking in check, which is essential to success when dealing with this investment.

2) Understand How Crypto Trading Works

Crypto trading involves buying an asset and then selling it when the price goes up or down, depending on whether you think the price will increase or decrease in value over time. The goal is not necessarily to make money immediately. Instead, it’s about investing in an asset that will increase in value over time so that when you sell it later, you’ll get more than what you paid for it originally.

3) Keep Track Of Your Profits And Losses

Proper record-keeping is essential if you want to be successful at crypto trading because keeping track of profits and losses helps give investors valuable insight into how well they’re doing financially.

Do Not Ignore The StablecoinsWith the ground rules established, the next step is looking at how to trade crypto most efficiently. Using stablecoins will help traders access all major crypto markets and maintain solid liquidity to enter and exit positions. Stablecoins are digital representations of fiat currencies – most notably, the US Dollar – but fiat currency reserves don’t always back them. For example, until recently, Tether relied on fiat currency and other assets to issue USDT stablecoins, but the company slashed its commercial paper reserves to zero. So instead, they replaced them with US Treasury Bills. 

There are two other crucial types of stablecoins:

Collateral-backed currencies hold assets as collateral to back their value. These assets can range from gold or silver to real estate or debt obligations. The total value of these assets is equal to the amount of money issued in the stablecoin.Algorithmic currencies use algorithms to control their supply, which means they can adjust it based on market conditions. Algorithms are often used because they’re cheaper and easier than holding actual assets as collateral.Which Stablecoins Are Safer?Classifying stablecoin types as being “safer” than others is tricky. However, there have been some issues with algorithmic stablecoins in the past. The most recent example is the implosion of TerraUSD (UST) in 2022. The team could not sustain its peg to the US Dollar, and its uncollateralized design ultimately proved to be its downfall. Moreover, UST heavily relied on the Anchor protocol, which saw some unusual activity as UST started to depeg. 

Moreover, with USDT moving away from paper, fiat-currency-backed stablecoins are slowly disappearing. Nevertheless, there still are such currencies out there, including USD Coin (USDC), Binance USD (BUSD), and EUROS (EURS). USD Coin and Binance USD are the second and third largest stablecoin by market capitalization today. 

That said, there are new initiatives underway to build multi-collateralized stablecoins. One example is the GTON Capital Dollar (GCD), which maintains a soft peg to the US Dollar through smart contracts. It is backed by a basket of decentralized cryptocurrencies, including ETH, BTC, and PAXG. Additionally, users can leverage other currencies with high liquidity to create GCDs. Its overall design is similar to DAI, sUSD, USDP, and other crypto-collateralized stablecoins that slowly started gaining more traction.

Using Pegged Currencies For TradingStablecoins are often used to hedge against the extreme volatility of popular cryptocurrencies such as Bitcoin and Ethereum. Traders can hold them to ensure they have something that will retain value. As such, they can safely invest in other assets without worrying about losing money on their initial investment.

Stablecoins can also be used for more complex hedging strategies, such as taking out short positions on other assets. Doing so allows traders to use their holdings of stablecoins as collateral while they bet against those same assets with other investments or trades. 

There are many reasons for traders to use stablecoins. Most people rely on these assets to trade crypto, as they are rather versatile despite not providing any profit potential directly. 

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