A stablecoin backed by silver offers unique opportunities for investors looking to diversify their portfolios. Because of the unique attributes of stablecoins combined with the long history of Silver as an important metal and safe haven asset, a stablecoin that is pegged to silver can provide a new layer of security when investing today.
This year, just like during previous economic downturns, interest in silver investments has grown significantly. In fact, silver’s spot price has jumped over $38% since Jan 1, 2020. But why the sudden interest in silver and how can a stablecoin with silver reserves backing it up give investors additional protections from market instability?
This article delves into the reasons why a silver backed stablecoin such as SilverCoin expands on the meaning of both stablecoins and safe havens to provide a new investment vehicle that is in tune with modern markets.
What is a Silver-Backed Stablecoin?
A stablecoin that is backed by silver is a digital asset that resides on a blockchain and enables global, peer-to-peer transactions that are encrypted for security. When you buy a silver backed stablecoin, the value that you own is backed 1:1 with a reserve of physical silver.
Because stablecoins are produced and available on blockchain ledgers, the transactional data is immutable, meaning it can’t be manipulated or changed without the entire network knowing about it and without a severe monetary penalty.
This type of stablecoin enables investors to enter the crypto trading markets without the volatility of investing in cryptos that do not have an underlying hard asset like silver to back them up. Stablecoins historically have added legitimacy and liquidity to crypto markets as a whole. Putting a valuable hard asset like silver to the stablecoin mix furthers this progression towards a more mature crypto investment landscape.
Why Using Silver as a Reserve Asset Increases Security.
A silver backed stablecoin is different from other stable assets, so let’s do a comparison with three of the most popular reserve assets that are now being used to back up different stablecoins.
Silver Backed Stablecoin vs. Fiat.
Fiat has for a number of years been used for stablecoins like Tether as the reserve asset. For decades, the global reserve currency has been America’s USD. This year, however, has called into question the USD’s long term validity as a global reserve asset, since in 2020 alone, $9 trillion has been added to the Fed’s coffers, and quantitative easing seems to have no end in sight.
This is worrisome to many people, especially those with cash savings, CDs, and other types of cash investments. Fiat used to be backed itself by gold, but that ended many years ago. By investing in a silver backed stablecoin instead of a fiat-backed stablecoin like USDT, the chances of inflation are much lower because silver cannot be reproduced and disseminated the way USD can. In addition to silver’s scarcity as an asset, demand is rising due to its use in manufacturing cell phones and the digitization of emerging markets.
Silver Backed Stablecoin vs. Bitcoin.
If you back a stablecoin with Bitcoin, you have more exposure to crypto’s most important coin. With the most powerful computer network in the world behind it, Bitcoin seems to have a very long and potent future. But as a relatively small market when compared with fiat or gold, sweeping price fluctuations are still inherent when investing in Bitcoin. While it has been the best performing asset in the last decade, the common, volatile price swings make it less appealing as a store of value than a stablecoin that is backed with a hard asset like silver. Additionally, Bitcoin price, more often than not, correlates to traditional markets, while silver is often a reverse-correlated commodity.
Silver Backed Stablecoin vs. Basket of Assets.
Normally a basket of assets helps the investor hedge their investment by spreading out the risk among multiple fiat currencies (such as USD and the Yuan) and some of the major cryptocurrencies such as Bitcoin, Ethereum and Litecoin.
By investing in a stablecoin that is backed by a basket of assets, however, you are vulnerable to the market movements of each asset, none of which have a hard asset like silver to back them up.
Investing in a silver backed stablecoin provides many potential protections to today’s investor. From shielding them from volatile cryptocurrencies to helping them store their wealth while they weather the storms of economic disruptions, having Silver as a hard asset backing up your cryptocurrencies gives investors the best of both worlds.