The Need for Stable Currencies Before Crypto Can Take Off

Great guest post by Aubrey Hansen.

The price of Bitcoin reached an all-time high in December 2017 at nearly $20,000 but has since dropped to lows of $4,000 as of February 2019. Similar trajectories have been reflected in other coins, whilst others have remained stable or at least resistant to such fluctuations.

Digital currencies work in a similar fashion to commodities such as gold, with the value being determined by the available supply and demand of the product. Because Bitcoin is the most widely accepted and well known crypto, demand for it is very high. But the supply is limited, largely due to the diminishing returns of the original technology it was built on.

Gold prices stay relatively the same because demand is stable (everyone knows about it, and wants it – but not too much), and the supply is predictable (we know who’s mining it and who’s buying it). But Bitcoin is much, much harder to predict, and the same applies to cryptocurrencies in general. 

Payment gateways like CoinPayments and BitPay provide us with huge portfolios of altcoins and tokens, each with their own techie gimmick or security feature. CoinPayments specifically provides tools for merchants to adopt and integrate cryptocurrencies into their enterprises. But once they have the coins in hand, they all do the same thing: they exchange the crypto for a fiat settlement, such as dollars.

The volatility of cryptocurrencies has proven to be a thorn in the side of developers who hope to see their coin as the replacement for traditional fiats. As it stands, many of the typical methods for controlling an economy are intentionally inapplicable to cryptocurrencies which champion principles of freedom and decentralised control. Without these checks, however, most coins will be doomed to suffer extreme volatility at the hands of market forces.

Some attempts have been made to stabilise coins by pegging them to real-world fiat currencies or commodities (such as Binance’s new GBP-pegged stablecoin, BGBP), but these token-like coins are fundamentally different to unbridled, cyberspace-only coins, and will inevitably turn off people who want to emancipate themselves from fiat currencies entirely.