Cryptocurrencies are still in a state of infancy, crypto investors are still exploring the space and how it operates. Although the promise was to provide a platform with low-cost transactions, the motive of Bitcoin is still unclear due to the lack of regulations and adoption. Does it lie in the category of a store of value or is it going to be the next big globally accepted transactional currency which would replace fiat? Let’s dig in deeper.
Mass adoption and increase in use cases might specify how bitcoin would be used in the future but for now, Bitcoin(BTC) is proving to be a lot similar to gold then it is different. The limited supply, the deviations of valuation, free store of value, all point towards its similarities to gold. However, the differences can also not be ignored. Comparing BTC and gold, Martin D. Weiss, founder of Weiss Ratings stated,
Bitcoin does indeed have some characteristics that are akin to gold’s: Limited supply, robust security, as well as emphasis on being permissionless and censorship-resistant. But the differences are equally important. Bitcoin is digital, which means it’s free to store, easy to transfer, and, unlike virtually all other financial assets, carries no counterparty risk. This makes it a unique and ideal store of value. As its market cap grows and its price becomes more stable, it’s likely to become more popular as a safe haven.
Obviously, the increase in the market cap is a long term process which could be achieved after mass adoption. Till then, gold it is probably!
Stablecoins have emerged to be a different power altogether in the market, most people have classified stablecoins as the currency which would eventually eliminate volatility out of the crypto space and become the transactional currency due to its stability as opposed to Bitcoin (BTC). That might be true as Tether has proven to be the easiest tool for robust money transfer while still pegged to USD with a minimal transaction fee. However, a few analysts believe that the best use case for stablecoins is the link with dApps and networks instead of having a transactional use case on their own. Martin stated,
Stablecoins are a different animal. Our view is they are a necessary crutch that the space may need for mainstream dApps to replace their centralized counterparts in the near future. Streaming services, ride sharing services as well as social media platforms based on digital assets and Distributed Ledger Technology will require digital assets to maintain a relatively stable value. Currently, uncertainty caused by the volatility of crypto assets make them ideal vehicles for speculation but, sadly, not for mainstream use.
The issue with Stablecoins:
The peg of a stablecoin to a certain currency could be termed as a blessing as well as the main issue. The valuation is not independent if the currency’s value goes up, the stablecoin moves up. Martin articulated this issue briefly as follows,
We fear too many market observers ignore the risks and flaws that stablecoins bring along: Unlike Bitcoin or Ether, a stablecoin is more akin to an IOU — a promise to pay another asset in the future, rather than an asset that holds value in and of itself. Reason: stablecoins only have value as long as the issuer holds an equivalent value in fiat with a custodian.
As such, stablecoins are as dependent on the existing financial system as a bank account, PayPal, Apple Pay, or any other centralized fintech service.
BTC vs Stablecoins:
So, as the aforementioned debate states, both the currencies have their own issues. Martin’s views seem to be a bit inclined towards Bitcoin being the future transactional currency as it has its own strong foundation as compared to stablecoins which exist on layers. Putting forward his argument on whether BTC or stablecoins would win the transactional race, he stated,
Cryptocurrencies like Bitcoin live in a separate financial system, which holds the promise of becoming a more solid foundation than what the financial system offers today. In contrast, stablecoins live on a layer that’s built atop today’s hyper-leveraged system, still vulnerable to breakdowns and debt crises.
He further stated,
Cryptocurrencies hold the promise of a world where pure, native digital assets held by the masses are the foundation of a new — and more robust — global financial system. Stablecoins will have no place in that world.
All in all, both BTC and stablecoins have their own ups and downs, but for now, as per this series, BTC scored and the score’s even for both. As stated above, the regulations and mass adoption will direct the market to a more secure position where BTC could be decided to be gold or a transactional currency, but for now, BTC is slightly more gold than a transactional currency while stable coins like Tether better serve the purpose in the bear market specifically.
SEE ALSO: Bitcoin (BTC) vs Stablecoins: Which One would Become the Future Transactional Currency?
