There are many different ways to limit your risk and protect your crypto portfolio. One of those is using stable coins. In this post, I’ll dive deeper into these controversial coins and how to use them.
A quick disclaimer
Don’t take any of this as financial advice. I’m by no means an expert. I’m learning just as you are. Take it with a grain of salt and do your own further research.
What are stable coins?
In very basic terms, a stable coin is a crypto token that keeps its value or at least changes in value on very low percentages (1-3%). Popular examples include Tether (USDT), TrueUSD (TUSD) and a few more. Tether is very controversial, but works. There seems to be a lot more trust in TrueUSD as it is regulated and backed with “real” USD dollars.
An example of stable coins in action
Let’s say the market receives some kind of crazy bad news. In a matter of hours, the price of Bitcoin plummets down 10%. If you were able to predict the downward trend and move your Bitcoin into a stable coin before the move, you could have saved 10% of your portfolio.
Let’s put this into number terms.
Amount of BTC owned: 1 BTC
BTC value = $6000
If you were to keep your BTC in BTC, in other words, do nothing with your portfolio, after a 10% drop, your 1 BTC would be worth $5400.
BTC value after 10% decrease = $5400
Stable coin price = $1 and keep in mind it’s “pegged” to the USD.
1 Stable coin = $1
If you exchanged your BTC for a stable coin before the drop you would have:
$6000 / $1 = 6000 stable coin tokens worth about $6000
Now you can essentially enter the market again by buying 1 BTC at $5400 with $6000. This would mean, that instead of having 1 BTC, you would now have 1.11 BTC and you would still have the same portfolio value.
You’ve just increased your position by 0.11 BTC.
This is a very basic example and I know it’s not always easy to time the market, but I’m just showing you the power of stable coins.
Further tips and where to buy
Remember to check out my guide on “Where to buy alt coins” here to find out my two preferred methods for discovering which exchanges list tokens. However, Tether can be found on most popular exchanges like Binance and Bittrex.
TrueUSD is predominantly on Binance but has limited trading pairs. Only BTC the last time I checked. You’ll get a lot more trading pairs with Tether which helps a lot.
What you can consider doing, that’s if you can time the market correctly, is move your funds into a stable coin and then start to dollar cost average. This basically means to buy smaller amounts of crypto on a regular basis to get a better average price.
Off course, you’ll mostly want to use stable coins in markets where there are crashes and excessive down trends like the one we are experiencing right now in crypto.