We are dissociating from BitUSD, created by Bybit, due to its high risks and unreliability. We strongly discourage investing in cryptocurrency without understanding their potential pitfalls. In this article, we explain why we are dissociating from BitUSD and highlight broader risks associated with investing in cryptocurrency.
“There are no special mechanism in place with BitUSD to ensure that the price doesn’t fluctuate. It is simply the investors thinking — “why shouldn’t I trade it at $1?” — that is keeping it stable.”
As the world becomes more digitized, cryptocurrency has emerged as a popular investment opportunity. However, not all cryptocurrencies are created equal, and it is essential to carefully consider the risks and drawbacks associated with each coin.
Despite claims of stability, the mentioned research has shown that BitUSD and other distributed stablecoins are highly risky and unreliable investments. We strongly discourage investing in cryptocurrencies without a thorough understanding of their mechanisms and potential pitfalls.
In this article, we will delve into the reasons why we are dissociating from BitUSD and provide insights on the broader risks associated with investing in cryptocurrency.
For those who do not know, distributed stablecoins are a type of cryptocurrency that promises the best of both worlds — the independence and decentralized aspects of blockchain transactions, and price stability of traditional financial assets such as gold and fiat money.
Distributed stablecoins like BitUSD are often touted as the perfect blend of blockchain independence and traditional financial stability, but a recent study by BitMEX Research suggests otherwise. The study found that the only thing keeping these stablecoins at their intended price point is the “why would it trade at any other price” principle, which is nothing more than the psychology of investors.
BitUSD claims to trade at the price of the US dollar, but is pegged to the BitShares cryptocurrency instead of the dollar, which reminds us of FTX. This makes it highly susceptible to fluctuations in the value of BitShares, as BitUSD’s stability is only ensured when its own price remains stable. If the price of BitShares were to drop significantly, BitUSD would be at risk of massive volatility, regardless of whether its price is stable at $1 or not.
Moreover, stablecoins like BitUSD are significantly different from centralized stablecoins like Tether, which are backed by actual financial assets. This means that distributed stablecoins are not only unreliable, but also lack the legal protections and regulatory oversight that centralized stablecoins enjoy.
Despite claims of stability, BitUSD has a track record of significant fluctuations in price. This volatility, combined with its susceptibility to manipulation and lack of financial backing, makes BitUSD and other distributed stablecoins highly risky and unreliable investments that should be approached with extreme caution.
Our conclusion: It seems that there is no cutting-edge technology or financial principle keeping the price of stablecoins stable. It is simply the psychology of investors.