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How To Use Stablecoins As a Hedge Against Inflation

2021-05-24

What’s the first thing that comes to mind when you think of cryptocurrencies? Most would probably respond with Bitcoin (BTC) or Dogecoin (DOGE). Non-crypto users and crypto newbies alike usually think of these cryptocurrencies as a speculative and highly volatile class of assets (even though traditional stocks like Tesla (TSLA) or GameStop (GME) can be just as, if not more prone to price fluctuations).  However, one popular class of cryptocurrencies is designed to match the price stability of popular fiat currencies.  

What are stablecoins and how are they valued?

Stablecoins are a type of cryptocurrency whose market value is pegged to the value of a certain asset. Popular stablecoins include Binance USD (BUSD) and Tether (USDT), which are backed on a 1:1 basis with the US Dollar. This means that one BUSD or USDT is the same as one dollar.

Risk-averse crypto users looking for a more stable store of value may choose to buy and hold stablecoins over other types of cryptocurrencies. 

How can stablecoins serve as a hedge against inflation? 

Most of the world’s fiat currencies are prone to inflation, as they are not backed by a physical good or commodity. Because fiat money can be issued by governments and central banks, its value will slowly decrease over time as more money enters circulation. 

Why then, would stablecoins serve as a hedge against inflation? It’s important to recognize that not all fiat currencies have the same price stability. “Stronger” fiat currencies like the US dollar (USD) or Euro (EUR) are generally more desirable due to their relatively low rates of inflation. To put it simply, countries with stable or growing economies often have more inflation-resistant fiat currencies. 

On the flip side, many of the world’s fiat currencies suffer from high rates of inflation, which makes these currencies a poor store of value. In some circumstances, hyperinflation, or inflation that measures more than 50% per month, may make it impossible for people to save money or build wealth. People facing local currency inflation may find it difficult to exchange their money for a stronger fiat currency, like the US dollar for example. 

That’s where stablecoins come in. In many regions around the world, anyone with an internet connection can easily purchase stablecoins to protect their wealth. 

How to buy stablecoins using Binance P2P

You can purchase stablecoins by creating an account on a peer-to-peer cryptocurrency exchange like Binance P2P and Binance Fiat channels. Watch these helpful videos on how to buy crypto (including stablecoins) on Binance P2P using a web browser or using the Binance app

Or, read this comprehensive guide on everything you need to know about buying Bitcoin, stablecoins, and other cryptocurrencies using Binance P2P. 

Risk Warning: Trading cryptocurrencies involves significant risk and can result in the loss of your capital. You should not invest more than you can afford to lose and you should ensure that you fully understand the risks involved. Before trading, please take into consideration your level of experience, purchase objectives, and seek independent financial advice if necessary. It is your responsibility to ascertain whether you are permitted to use the services of Binance based on the legal requirements in your country of residence.