Key takeaways

• Digital currency includes cryptocurrencies like Bitcoin and stablecoins, as well as government-issued digital currencies.
• Stablecoins are a type of cryptocurrency that aim to reduce price swings and are often used for payments, transfers, and as a store of value.
• Bitcoin and other non-stable cryptocurrencies can be highly volatile and may not be suitable for all investors or financial goals.

Cryptocurrency is a form of digital money that exists online rather than as physical cash. Many people are familiar with Bitcoin, but the crypto market includes several types of cryptocurrency that serve different purposes and come with different risks. Understanding these distinctions can help clarify how digital assets are used and how they may — or may not — fit into a financial strategy.

What are the main types of digital currency?

Digital currency is a broad term that includes cryptocurrencies as well as other forms of electronic money. Within this category, there are several types of cryptocurrency, along with government-issued digital currencies that operate differently.

Broadly speaking, there are three main types of digital currency:

• Stablecoins , which are cryptocurrencies designed to maintain stable value and are often used to make payments or transfers more efficient.
• Non-stable cryptocurrencies like Bitcoin, that fluctuate in price based on market demand and investor sentiment.
• Central bank digital currencies (CBDCs), which are issued by governments and represent a digital form of national currency.

Stablecoins

Stablecoins are a type of cryptocurrency designed to maintain a stable value, typically by being pegged to a fiat currency like the U.S. dollar or euro, or to a commodity like gold. Unlike other cryptocurrencies whose prices can fluctuate significantly, stablecoins aim to reduce volatility and provide more predictable value.

While stablecoins generally keep price relatively constant by backing each token with assets such as cash or government reserves, others rely on algorithms. In general, the quality and transparency of the reserves play a key role in how stable a stablecoin is. Today, there is an estimated $300 billion in stablecoins in circulation, and the figure is growing rapidly.

Read more:  Stablecoins on the rise: What could it mean for investors? 

How stablecoin issuers make money

Like a bank, stablecoin issuers typically make money by taking deposits and earning higher interest on those deposits than is paid to depositors. For now, most stablecoins do not pay any interest, but several providers are seeking to change this.

Examples of major stablecoins

Currently, the two largest stablecoins are Tether (USDT) and USD Coin (USDC). Together they account for most stablecoin market value and transaction volume.

• Tether is issued by iFinex, which also owns the Bitfinex cryptocurrency exchange.
• USD Coin is issued by Circle Internet Group, a publicly traded company.

The stablecoin market remains competitive, with new entrants emerging and large financial institutions and corporations — including banks, payment companies, and major retailers — exploring their own stablecoin initiatives.

What are stablecoins used for?

Efficient transfers

Stablecoins are commonly used to transfer money efficiently, particularly across borders. They can also be useful for those living in countries with high inflation who prefer to keep their money tied to a more stable currency, such as the U.S. dollar.

A store of value within crypto markets

Within crypto markets, stablecoins often function as a temporary store of value between trades. Investors may use stablecoins to move funds without converting back to traditional currency or being exposed to the price swings of other cryptocurrencies.

Potential use in everyday payments

Some proponents believe Stablecoins could, under certain conditions, eventually prove more effective than credit cards or other payment methods for general purchases.1 For that reason, several major banks and retailers are exploring creating their own versions.

A major benefit would be the ability to bypass interchange fees charged by credit and debit card providers, which is typically around 2% per transaction in the U.S.  However, for most consumers, existing payment systems are already fast, convenient, and widely accepted.

Faster settlement for financial transactions

Stablecoins may also be able to speed up settlement times for financial transactions, such as stock or bond trades, especially if tokenization of assets gains momentum. While this could create efficiencies, current financial infrastructure generally works reliably for most purposes.

What has recently changed in the regulatory environment?

New U.S. law for payment stablecoins

In July 2025, the GENIUS Act was signed into law by the President, which defines what a payment stablecoin is and sets licensing and oversight requirements for issuers. It also mandates that payment stablecoins must be backed one-to-one by U.S. dollars or other low-risk assets and requires auditing.

Read more:   What the GENIUS Act could mean for investors 

What the law means for stablecoins

The law provides companies with some regulatory assurances and could help to encourage wider innovation and adoption of stablecoins. It doesn’t meaningfully impact price or use of Bitcoin or other cryptocurrencies, however. Keep in mind, stablecoins are not bank deposits and are not insured or guaranteed by the FDIC or any other government agency. Stablecoins are subject to issuer risk, reserve management risk, regulatory risk, and the risk that the stablecoin may lose its peg to the underlying asset.

Bitcoin and other non-stable cryptocurrencies

Bitcoin is the most well-known type of non-stable cryptocurrency   — a type of digital asset whose price can fluctuate significantly over time. While Bitcoin has many notable features, many people are drawn to it primarily because its price in U.S. dollars has increased historically, leading many to believe this growth could continue.

From a practical standpoint, Bitcoin has limited use for everyday purchases. It has exciting theoretical transactional capabilities, but it’s not ideal for purchases on a wide-scale basis due to factors such as price volatility, transaction speed, and cost.

Market size and major cryptocurrencies

As of today, roughly 20 million of the maximum 21 million Bitcoins have been mined. Together, those Bitcoins are valued at just under $2 trillion, placing Bitcoin’s market value on par with some of the largest publicly traded companies.

Ethereum, another major non-stable cryptocurrency, has a market value of roughly $400 billion, while the remaining speculative cryptocurrencies combined account for less than that amount.

Bitcoin outlook

Unlike traditional investments such as stocks or bonds, Bitcoin does not produce cash flow or represent ownership in underlying assets. As a result, its value is based entirely on what buyers are willing to pay at a given moment, which makes long-term valuation difficult.

Broadly speaking, discussions about Bitcoin’s future often fall into three general scenarios:

• Significant long-term appreciation — Bitcoin goes “to the moon”:  Supporters argue that high government debt and inflation could drive demand for Bitcoin as a store of value, but this is far from guaranteed.
• A role similar to “digital gold”:  Bitcoin is sometimes compared to gold as a scarce asset with no cash flow, but it lacks gold’s long history and has shown much higher volatility.
• A crash:   Bitcoin could also lose relevance over time if demand fades, as scarcity alone does not guarantee long-term value.

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Central bank digital currencies (CBDC)

Unlike cryptocurrencies, CBDCs are issued and controlled by governments rather than decentralized networks, but they are often discussed alongside crypto because they use similar digital payment technology. Most countries are exploring forms of digital currencies, and a few smaller ones — including Jamaica, The Bahamas, and Nigeria — are already using them. Like stablecoin, a CBDC can increase efficiency in transfers and payments and help underbanked populations. Due to backing from governments, they would have zero or extremely low default risk.

China is running a very large pilot program. In the U.S., the Federal Reserve (Fed) has published a discussion paper on digital currency but has been clear it wouldn’t proceed in a meaningful way with CBDC without clear support from the executive and legislative branches. Additionally, Congress has passed a bill restricting the Fed from issuing CBDC without Congressional approval. If the U.S. does issue CBDC, it would likely complement, not replace, existing forms of commercial deposits and currency.

Security considerations for cryptocurrencies

As interest in Bitcoin and other types of cryptocurrencies has grown, questions about where and how these assets are held have become increasingly important. Unlike traditional investments that sit with regulated custodians, cryptocurrencies rely on digital keys to establish ownership. Losing access to these keys, or using a platform without strong oversight, can result in permanent loss.

For individuals choosing to own crypto, it’s important to use reputable custodial platforms and follow strong security practices. The recent introduction of crypto-related exchange-traded funds (ETFs) helps solve some of these problems for many investors, but it does not reduce or limit investment risk and they may not be right for everyone due to varied goals regarding crypto exposure.

Read more: Spotlight on Bitcoin ETFs