Cryptocurrencies, like Bitcoin (CRYPTO: BTC), have become a hot topic on Wall Street since their introduction. At first seen as a novelty, crypto use has expanded, and the crypto model has shifted in important ways. Today, so-called stablecoins appear to offer investors and businesses a new tool to support global operations. The European Central Bank (ECB), meanwhile, is working on its own alternative. Here’s what you need to know.
Cutting out all the middlemen
One of the main features of cryptocurrencies is that they aren’t backed by countries, as are fiat currencies. Moreover, cryptocurrencies like Bitcoin trade hands between individual crypto users, so you don’t even need to use a bank to facilitate transactions. This represents a complete overhaul of the traditional money system that underpins the global economy.
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Early on, Crypto was dominated by small investors enamored of modern technology. Then it became a hot investment theme, where investors bought because they believed they could get rich quickly. The truth is, traditional cryptocurrencies are only worth what their owners are willing to pay. By comparison, a stock is backed by the assets of the company that issued the shares. This dynamic makes crypto a high-risk investment at best, and total speculation at worst.
The potential solution to this problem is stablecoins, which are backed by assets such as fiat currencies or precious metals. Examples here are Tether (CRYPTO: USDT), which is linked to the U.S. dollar, and Tether Gold (CRYPTO: XAUT), which is linked to gold. Tether could theoretically eliminate the need for banks to handle financial transactions. Tether Gold could theoretically eliminate the need for fiat currencies.
The banking industry isn’t pleased
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