Stablecoin vs Bitcoin

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In this article a deep dive into the main differences between stablecoin vs Bitcoin. Also, some decent research on the history of both coins.

The discussion related to stablecoin vs Bitcoin started to be a hot topic in recent months. Investors are trying to better understand the differences there are between Bitcoin vs Stablecoin.

Bitcoin (BTC) became one of the most popular cryptocurrencies in recent years. It is now so popular that its price is above $23,000. But its price evolution towards current prices was not in a straight line. Indeed, Bitcoin is considered a very volatile asset. Its price can move several hundred or thousands of dollars in minutes or hours.

With the expansion of Bitcoin, other virtual currencies were created. Ethereum (ETH) and Litecoin (LTC) are some of the largest and oldest in the market. But these were not the only digital assets to be created.

Bitcoin price in 2020
Bitcoin price in USD in 2020

In order to deal with the volatility we mentioned before, stablecoins were released to the market. Tether (USDT) is the most popular stablecoin. Currently, it is the fourth-largest in terms of market valuation after Bitcoin, Ethereum, and XRP. This shows how important it became in recent years.

Stablecoins are digital assets which price does not fluctuate. In general, we compare their value to a specific fiat currency. Tether, for example, represents the price of 1 USD. That means that 1 USDT is equal to 1 USD. This is the main difference there in the discussion Stablecoin vs Bitcoin.

Nowadays, the question is not whether it should be to invest in Bitcoin or stablecoins. Instead, the goal is to see how to use them both together to maximize profits, usability, and improve our access to financial solutions.

Is Bitcoin a Stablecoin?

The first thing you need to know is that Bitcoin is not a stablecoin. Bitcoin is a relatively volatile virtual currency that has its own price defined by the market. When the demand for the digital currency grows, the price reflects this interest by moving higher.

Bitcoin can move from $20,000 to $15,500 and retrace to $18,500 in just hours. This is how volatile the virtual currency is. The same happens with smaller altcoins.

This is where the Stablecoin vs Bitcoin difference comes into place. Bitcoin is not a stablecoin by any means if you compare its price to fiat currencies. However, if you measure your portfolio in BTC, this volatility shouldn’t be an issue for you.

Some traders prefer to think in BTC rather than in USD. Thus, if Bitcoin moves from $19,500 to $15,500 that wouldn’t affect them. These users prefer to think about how many BTC they own rather than exchange them for USD.

Stablecoins are different. Stablecoins represent the price of a fiat currency but in the form of a digital asset. When you hold a stablecoin, the price will not fluctuate in fiat terms. For example, you will have 1,000 USDT and these funds will be equal to $1,000 even if BTC falls or surges.

Stablecoin vs dollar
Stablecoin vs dollar

For instance, there is a cryptocurrency called Wrapped Bitcoin (wBTC) that has the same price of BTC and it is backed by real BTC coins. Thus, this wBTC can be considered a BTC stablecoin, its price will always be 1 BTC considering there is the necessary BTC collateral backing its price.

Can I Invest in Stablecoins?

Yes, you can invest in stabelcoins. You can select a wide range of stablecoins in which to invest. Each of them is different and would offer you different services. For example, if you are a cryptocurrency trader, you will want to use a stablecoin that first is traded against the virtual currency you want to trade, and second, that has large liquidity.

However, you will not be able to speculate with their price fluctuation because they are not volatile. While Bitcoin and other virtual currencies fluctuate a lot, stablecoins have a “stable” price.

Stablecoins are very popular on crypto lending platforms

If you want to invest in stablecoins, the best thing you can do is to lend them and earn interest on them. This will help you get some income on a regular basis knowing that the price of your initial investment remains stable and it only grows.

There are several centralized and decentralized platforms offering users with the possibility to deposit stablecoins. These platforms will allow you to earn between 2% and 12% APY per year. This is certainly positive considering that fiat deposits in banks are offering almost 0% interest. Some banks are even offering user negative interest rates.

This can be a great way to invest in stablecoins and diversify a cryptocurrency portfolio. A part of your funds can be invested in fixed income solutions using stablecoins. Another part of your portfolio can be used to invest in different digital assets. This is why you shouldn’t think in the dichotomy “Bitcoin or Stablecoin.” You have the possibility to have a healthy and diversified portfolio using both Bitcoin and stablecoins.

What is the Best Stablecoin?

We cannot tell you whether one or another stablecoin should be considered the best. But the market has certainly chosen one stablecoin as the most useful, largest and valuable. We are talking of Tether (USDT).

Even when there have been several discussions on whether this stablecoin was used to manipulate the market, it is currently the fourth largest cryptocurrency in the world. That means that in the last years, this stablecoin was able to attract a large number of investors and users.

Different symbols of stablecoins

Another thing to take into consideration about USDT is that it is accepted in most of the exchanges. Platforms from all over the world are already using USDT rather than other virtual currency. This is certainly very positive for USDT. This expansion it experienced in the last years, allowed it to have the largest liquidity in the crypto market.

Stablecoins like USDT have massive transaction volumes

Nowadays, there is more volume exchanged through USDT than through Bitcoin. This shows that USDT is the digital currency that covers most of the needs of traders in the world. Furthermore, this digital asset runs on different blockchains. This allows it to be deployed on different decentralized finance applications from diverse blockchain networks.

You can start using USDT in order to deploy it on different decentralized platforms. The DeFi market is full of solutions that allow users to use USDT. As we said before, knowing that this virtual currency has the largest liquidity in the market, it can also be used to trade.

Finally, defining which is the best stablecoin is not an easy task to do. This will highly depend on your needs and use cases. It will not be the same if you start using a retail-focused stablecoin than a company-centered one. Additionally, some of these stablecoins might not be available on the platform you use or they might not have the trading pairs you want to trade.

What is the Safest Stablecoin?

There is no question that there are several stablecoins that are offering very safe solutions to users. For example, USD Coin (USDC) and Paxos Standard (PAX) are those stablecoins preferred by large companies.

These two virtual currencies can be used not only in the cryptocurrency market, but also to perform other activities. Everything will clearly depend on your needs. Compared to USDT, the companies behind these two coins release regular updates on the funds they have to back the parity at a 1 to 1 rate.

USDT has many times been scrutinized by the cryptocurrency community due to a lack of clarity regarding its funds. This is where users with a clear needs of safety would prefer to use USDC or PAX rather than USDT.

Handling large amounts of stablecoins can be not ideal using USDT if you don’t trust their numbers. This is where USDC and PAX can be very helpful. These two digital assets are more regulated than USDT and can be used by larger companies to run their businesses.

Nevertheless, USDT has never been affected by a massive sell-off that dramatically affected its price. That being said regulators have issued warnings to Tether regarding price manipulation. If you are searching for the safest stablecoins in the market, the best thing to do is to go for USDC and PAX.

There are many other stablecoins in the market. Nonetheless, smaller coins might not be as respected and recognized as larger ones. Doing market research on stablecoins is always a must-do if you are searching for safe stablecoins.

The Most Reliable Stablecoins in the Market

Stablecoin nameMarketcap valuation
USDT$20 billion
USDC$3.3 billion
PAX$244 million

Stablecoin vs Bitcoin: The most Important Differences

We know you are here for the main Stablecoin vs Bitcoin differences. This is why we are going to tell them all in this section. As we have already seen before, there are a few differences between these digital assets. But there are also some important similarities that we should also take into consideration.

The most important difference is related to its price. While Bitcoin’s price fluctuates on a regular basis (all the time), USDT has a stable value in fiat terms. Each USDT is worth 1 USD while 1 BTC can be traded at $3,800 or $23,000.

If you want to dive more into the specific use case stablecoins has to offer. Additionally, read the article we wrote about 7 reasons why stablecoins exist 😄

Bitcoin is also not regulated by any government or institution. This is different than stablecoins. In general, stablecoins are issued by private companies. They can control their supply, issue more coins, and burn tokens as they please. On top of that, some companies that issued stablecoins can even freeze funds held by some users. Those things cannot happen on the Bitcoin network.

Furthermore, Bitcoin can definitely be used as a store of value. Companies all over the world dare to purchase BTC in order to gain exposure to it. They want to reduce their exposure to massive devaluations that could eventually affect the U.S. dollar and other large currencies.

Stablecoins vs Bitcoin: The main difference

USDT and other stablecoins can be used for payments. Transactions can usually be performed faster than on the BTC network and for lower fees than on BTC. This is because they have been developed on top of very efficient networks (mostly Ethereum) that tend not to be congested.

Stablecoin vs Bitcoin

Finally, if you need to decide whether to buy Bitcoin or stablecoins, you can analyze what are you looking for. For instance, if you want to send and receive funds without being exposed to volatility, then USDT and stablecoins are going to be a great option. Instead, if you want to search for a store of value, Bitcoin will be the right option for you.

Stablecoin vs Bitcoin: Why Can Both Be Used as Crypto Collateral?

Nowadays, the cryptocurrency market is offering a wide range of solutions for investors, traders, and enthusiasts. One of these services is related to crypto collateralized loans. Investors can easily take a loan from other crypto users if they have enough funds to place as collateral.

Users deposit a specific amount of funds that will be used as collateral for a loan. Then the investor will receive a loan that can be in Bitcoin or stablecoin. Everything will depend on the platform used by the user and the needs it has.

Bitcoin and Stablecoins can be used for collateralized loans

When handling collateralized loans, it would be necessary to usually over-collateralize the loan. This would allow you to be sure that you would not get liquidated even if there is a massive price drop in the funds that you have deposited.

The collateral will be limiting the loan risk and exposure for those lending the funds. You can borrow stablecoins using your crypto assets without having to sell them. That means that you can easily enjoy the value of these digital assets without losing them in the market.

You should also understand that stablecoins are collateralized with fiat currencies, financial assets, and even other cryptocurrencies. For example, DAI is a stablecoin (with its value being close to $1 USD) that uses crypto collateralization to keep its value stable.

Other stablecoins such as Tether, use a combination of cash reserves in bank accounts and other financial assets. This allows iFinex (the company behind Tether) to provide the 1 to 1 value of the USDT stablecoin.

USDC and Paxos Standard work in the same way. They are regularly audited in order to confirm they have the necessary collateral to back the USDC and PAX coins in the market. Thus, they use real cash reserves as collateral to provide value to the stablecoins they release to the market.

Wrapping it Up

At this point, you should have a clear view of the main differences stablecoins and Bitcoin have in order to use both assets by generating more profits. More specifically, and to summarize the key points in the Bitcoin vs stablecoins comparison:

  • Bitcoin is a very volatile asset in fiat currency terms
  • Stablecoins are pegged to fiat and therefore never increase in price
  • Bitcoin is autonomous and can’t be regulated
  • Stablecoins are created by central authorities just like fiat currency
  • Bitcoin and stablecoins can be used as collateral to get loans

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Carlos Terenzi

Carlos Terenzi

Carlos is an international relations' analyst specializing in cryptocurrencies and blockchain technology. Since 2017, Carlos has written extensively for leading cryptocurrency sites; with over 3,000 articles published.