The Inevitable Rise of 'Crypto Dollars'

Doc's note: Over the past year, we've seen cryptocurrencies hitting the mainstream. It's easier than ever to invest. And now, according to our in-house cryptocurrency expert, there's a major force that will continue pushing cryptos into the portfolios of average investors...

It would have been the biggest bank in human history...

In May 2019, Facebook executive David Marcus secretly gathered some of the social media company's brightest minds together.

He told them not to share what they were talking about. Then, he hoisted a glass of champagne in the air and said, "We're going to change the world."

Facebook was secretly developing a bitcoin competitor... a "supercurrency" backed by a basket of currencies from around the world.

It was called Libra. And after Facebook rolled it out to its more than 2.2 billion monthly active users... it would transform the company from a social media platform into a banking giant almost overnight. At least, that was the plan.

What Facebook didn't plan on was spooked regulators. They pounced on Facebook right after the company formally announced the project on June 18, 2019. Soon, Libra was buried. But that wasn't the end of it.

Lately, Facebook is putting the final touches on Libra's more modest successor... Diem.

You see, instead of building supercurrencies, today's blockchain innovators are building stablecoins. (That's what Diem aspires to be.) They represent individual fiat currencies – something regulators are more comfortable with.

Stablecoins have grown dramatically as a result. They regularly generate more transaction volumes than PayPal does over three months. And this is one more reason why cryptocurrency is on the verge of mainstream acceptance...

Stablecoins are cryptos pegged to the value of other assets (usually the U.S. dollar). For example, USD Coin (USDC) is a crypto that's pegged to the price of the U.S. dollar. One USDC token should always be tradeable for $1. So you can think of these types of stablecoins as "crypto dollars."

There are two main types of stablecoins: centralized and decentralized.

Centralized stablecoins are issued by a single company or organization. These companies set aside a bank account for U.S. dollars. Investors can deposit real dollars into those bank accounts and get stablecoins back. That's how USDC works.

USDC is issued by Boston-based payments company Circle, and it has become one of the top 15 most popular cryptos in the world. There are more than $6.5 billion of USDC in circulation and trading volumes regularly exceed $2.5 billion a day.

Decentralized stablecoins are issued and managed by computer code, so they're not issued by a single company. Some people prefer decentralized stablecoins because they work more like bitcoin. For example, no one can block a transaction that is done with a decentralized stablecoin. Dai (DAI) is currently the largest of these.

Stablecoins have several key advantages over traditional dollars...

First, they have no borders. You can send a stablecoin across town or around the world almost instantly and with very little fees. Stablecoin transactions also "clear," or are 100% finalized, within seconds. Compare that with the traditional banking system, which shuts down on nights, weekends, and holidays.

Since they're cryptos, stablecoins are also programmable. Developers are using that feature to spawn an entirely new banking system called decentralized finance ("DeFi").

DeFi uses "smart contracts" to do all of the things that banks can do – like issuing loans, interest accounts, and even bonds and derivatives. You see, smart contracts are computer programs that run automatically on blockchains. So even people who don't have bank accounts can get involved... All you need is a mobile phone and crypto.

In short, stablecoins have become a gateway into the crypto world. And they're in high demand.

The popularity of stablecoins can be paradoxical for some blockchain investors... They're often pegged to assets that lose purchasing power over time (such as fiat currencies).

But stablecoins have a number of different uses:

  • Medium of exchange
  • Store of value
  • Borrowing and lending
  • Remittances and cross-border payments
  • Digital version of accepted currencies
  • Tokenized real-world assets such as gold
  • Easy storage and transactions
  • Access to decentralized applications
  • Suitable for micro-transactions
  • Standardized bookkeeping and performance measurement

In other words, stablecoins have very specific use cases, and they can help investors who are looking to avoid the volatility of speculative coins and tokens.

We'll continue to see innovation throughout this industry. Regulation will increase... not to stamp out stablecoins, but to legitimize them. And as stablecoins continue to put this idea on the map, it will be one more wave pushing cryptocurrency toward mass adoption.

Good investing,
Eric Wade

Editor's note: Cryptocurrencies have become such a mania that Eric is taking part in a crypto briefing next Wednesday at 9:30 a.m. Eastern time.

In the briefing, Eric will talk about what lies ahead for bitcoin. He'll also give details on several smaller crypto opportunities – that you probably haven't heard of yet – showing 10 times potential...

The event is 100% free to attend and will begin at 9:30 a.m. Eastern time on March 31.

Click here to reserve your spot.