Bitcoin and Stablecoin trading: How does it differ?

21 November 2023/inCrypto academy, Trading crypto

This article takes a look at investing using our Bitcoin-algorithm and our USDT-algorithm. Our Bitcoin algorithm trades from the cryptocurrency Bitcoin and our USDT algorithm trades from a Stablecoin. But what does Bitcoin and Stablecoin crypto trading mean and how does it work? What is the difference between these two algorithms and which one is better for you? In this article we outline clarity around this subject.

Index

What are cryptocurrencies?

Cryptocurrencies can be seen as a digital payment system. This payment system does not rely on banks or any other intermediary for the verification of transactions. It is a system that allows anyone to send and receive payments. The price of a cryptocurrency is determined by supply and demand. The price of these coins is closely related to confidence in them. Bitcoin is seen as the original cryptocurrency, the alternative coins or tokens are called altcoins. The cryptocurrencies can be divided into two categories, namely: coins & tokens.

Coins are digital assets that are specific to their blockchain. Examples of coins are Bitcoin, Ether, XRP and Litecoin. Of these, Ether, XRP and Litecoin fall under the term altcoins and Bitcoin under the term original coins.

Tokens are created on an existing blockchain. Examples include the tokens built on an Ethereum platform using smart contracts, also known as ERC-20 tokens.

What is a stablecoin?

A Stablecoin is a cryptocurrency that is linked to a currency, such as the Euro or Dollar. The best known Stablecoin is Tether, a coin that mimics the value of the Dollar 1-to-1. These types of coins are linked to a fixed exchange rate and offer a stable value against known currencies.

What is the difference between Bitcoin and Stablecoin trading?

We have briefly sketched a picture above about cryptocurrencies and stablecoins. Stablecoins, as mentioned above, are slightly different from other cryptocurrencies. The difference between cryptocurrencies such as Bitcoin and a Stablecoin is that a Stablecoin is stable, as it were, and does not always fluctuate in Fiat value.

But is there also a difference in crypto trading from Bitcoin trading and trading from a Stablecoin? Yes, of course. If you trade from our Bitcoin algorithm, you are dealing with Bitcoin as your base pair, which you trade against USD. This means that you always trade from Bitcoin, which exposes you to the price fluctuations of this coin. Your goal is therefore to collect more Bitcoins on the basis of long and short contracts.

In case you trade from our USDT algorithm, you are dealing with a Stablecoin as basepair, with which you trade against Bitcoin. This means that you always trade from the Stablecoin, so that you are not exposed to the fluctuations of the Bitcoin. The aim here is to collect more Stablecoins (USDT) based on the volatility of Bitcoin.

Which way of trading suits you better?

If you don’t want to be exposed to Bitcoin’s price fluctuations, the USDT-algorithm can serve as a good alternative. The USDT algorithm is all about your trading profits in Stablecoin, without your trading balance fluctuating due to any rises or falls in Bitcoin.

The Bitcoin-algorithm is a bit different. With the Bitcoin strategy, your trade balance will fluctuate with any rises or falls in Bitcoin. The trading profits do work here as a kind of doubler. There is more risk involved, but the return can also be higher. However, keep in mind that it can go both ways – fall or rise -, so it can’t always work in your favor.

Periodically investing in Bitcoin?

Read about smart investing via smart DCA; a strategy that tries to improve DCA (periodic investing).

Read here

Periodically investing in Bitcoin?

Read about smart investing via smart DCA; a strategy that tries to improve DCA (periodic investing).

Read here

Practical example

Mark and Fatima both want to start trading using one of Thriven’s algorithms. However, they both have very different investment objectives and differing risk appetites.

Mark is very risk averse and thinks trading is a very big and scary step. He is aware that he has to do something. Negative interest in combination with inflation make savings in a regular bank account loss-making. Mark wants to safeguard his capital and is satisfied with the trading profits in euro value. So trading from the USDT algorithm could be a good choice for Mark.

Fatima, on the other hand, is less risk averse and believes in the long-term rise of Bitcoin. Fatima is aware that trading with the Bitcoin-algorithm can involve more risks than trading with the USDT-algorithm. Still, Fatima chooses the Bitcoin algorithm because her goal is to accumulate more Bitcoins. Fatima is not only satisfied with trading profits in euro value and wants more Bitcoins to take advantage of the doubler.

Conclusion

The choice of an algorithm therefore depends very much on your risk appetite and investment goal. The USDT-algorithm can be a good choice if you are risk averse, looking for a means of securing your capital and are happy with trading profits in euro value. If you believe in the long-term rise of crypto and you are willing to take a little more risk for a possible higher return, then the Bitcoin-algorithm may suit you better.

*On the basis of this article, we do not encourage anyone to start investing. This article is not written for advisory purposes and is not intended as any form of expert (financial, tax or legal) advice. This article is purely for conveying knowledge and information. Thriven is therefore not liable for the correctness or completeness of the articles.

**Note: Investing in a Stablecoin also carries risks, as this remains a cryptocurrency. As an investor, keep this in mind.