Should You Forget Bitcoin and Buy USD Coin (USDC) Instead?

During the past 10 years, Bitcoin's (CRYPTO: BTC) price skyrocketed 34,260% as it was more broadly adopted by big investors, companies, and even governments. Its limited supply, scheduled halvings (which cut its rewards for mining in half every four years), and the approvals of its first spot price exchange-traded funds (ETFs) all made it more comparable to gold and other commodities -- so it was gradually accepted as a long-term hedge against inflation.

But this year, Bitcoin's price only rose 11% as the S&P 500 advanced 16%. It underperformed the market for two reasons. First, Treasury yields stayed stubbornly high even after the Federal Reserve cut its benchmark rates two more times in 2025. Those high yields likely drew many investors away from speculative investments like cryptocurrencies. Second, more investors took some money off the table as the broader markets hit historically high valuations.

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So while Bitcoin's long-term future might still be bright, its near-term gains could be limited. As we wait for that storm to pass, is it smarter to invest in a leading stablecoin like USD Coin (CRYPTO: USDC) instead of Bitcoin? Let's weigh the pros and cons to decide.

The differences between USD Coin and Bitcoin

Bitcoin is a proof-of-work (PoW) cryptocurrency that is mined with powerful computers. Its miners use those computers to solve cryptographic puzzles across its blockchain and receive coins as rewards. That difficulty ramps up every four years with each scheduled halving, and some 19.9 million of its maximum supply of 21 million Bitcoins have already been mined. Bitcoin is valued for its scarcity, but its volatile price swings prevent it from being broadly adopted for mainstream payments. Bitcoin's bulls expect its price to soar even higher during the next decade -- so it would make more sense to hoard it than to spend it.

Stablecoins are usually pegged to fiat currencies. The most popular stablecoins, like USD Coin, are pegged to the U.S. dollar on a 1-to-1 basis. It might seem counterintuitive to launch a cryptocurrency that is simply pinned to the U.S. dollar, since it wouldn't be a viable hedge against inflation and it would likely underperform the S&P 500 -- which has generated an average annual return of 10% since its inception in 1957.

Yet stablecoins have several key advantages over real U.S. dollars. They can be held without a bank account, used for faster and cheaper cross-border transfers, and help people preserve their savings in countries with currency devaluation issues and limited access to U.S. dollars. They can also be lent out to earn interest-like rewards on centralized and decentralized finance (DeFi) platforms, and those yields can be higher (but riskier) than the yields offered by traditional savings accounts.

The differences between USD Coin and other stablecoins

USD Coin, with a market cap of $76 billion, is the world's second most valuable stablecoin after Tether (CRYPTO: USDT), which is valued at $183 billion. However, it has several distinct advantages against Tether.

USD Coin was launched by the peer-to-peer payments company Circle (NYSE: CRCL) in 2018, and it's backed 1-to-1 by U.S. dollars and short-term U.S. Treasuries. Its reserves are held by big financial institutions BlackRock and BNY Mellon, and it posts monthly attestations (reports from independent auditing firms) on the value of those reserves.

Tether USD was launched by a subsidiary of iFinex, which owns the Bitfinex cryptocurrency exchange, in 2014. Instead of simply holding U.S. dollars and T-bills, Tether USD is backed by a mix of cash, commercial paper, and other assets. Instead of opening up its reserves to independent audits, it only publishes opaque summaries of those holdings. That lack of transparency arguably makes it a much riskier stablecoin than USD Coin, but it's more broadly supported across popular blockchains like Ethereum (CRYPTO: ETH).

USD Coin is also a more conservative investment than smaller stablecoins like Ethena USDe (CRYPTO: USDE) and Dai (CRYPTO: DAI), which don't hold any cash or Treasury reserves but try to stay pegged to the U.S. dollar through a rapidly traded mix of derivatives and crypto assets. That strategy might make them more decentralized than USD Coin or Tether USD, but they could easily lose their dollar pegs in the next crypto crash.

Does it make sense to buy USD Coin instead of Bitcoin?

USD Coin has some clear advantages against real U.S. dollars and other stablecoins, but I wouldn't consider it a viable alternative to Bitcoin. It might be a good way to diversify your cash holdings to earn higher yields than traditional savings accounts or CDs, but it would likely underperform Bitcoin -- and the S&P 500 -- over the long run. So if you can stomach some volatile swings during the next few years, it's still much smarter to buy Bitcoin than USD Coin or other similar stablecoins.

Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin and Ethereum. The Motley Fool recommends BlackRock. The Motley Fool has a disclosure policy.