Should I step into the world of digital currency investment?

Have you ever felt frustrated when converting different currencies? Digital currency investment is the optimal solution to that problem. With Bitcoin, you can make payments in any country — from the US, Australia, the UK to Japan — as long as the seller accepts it. But a bigger question is: can you trust these virtual currencies? Will more and more people use them in the future? This article will shed light on the potential of cryptocurrencies and why you should consider investing in digital assets.

What is cryptocurrency and how does it work?

Digital currency (also known as encrypted money or cryptocurrencies) is a type of asset that is encrypted and stored in electronic wallets on digital platforms. Unlike traditional cash, digital currencies are protected by cryptography and distributed across a global network of computers.

When you send Bitcoin or Ethereum to someone, you are essentially transferring money from your electronic wallet to theirs. The major advantage is that you don’t have to worry about losing money or theft of cash. Even if you lose your phone, your funds remain safe because they are stored on a network maintained by millions of users worldwide.

Currently, there are over 5,000 types of cryptocurrencies. Bitcoin is the most famous and widely used, while the remaining are called Altcoins because they are based on similar code to Bitcoin but with minor modifications. Typical examples include Litecoin, Zcash, and many others.

Bitcoin vs. Altcoin: Which will lead?

Bitcoin was created in 2009, and that’s when the concept of “cryptocurrency” first became known. After Bitcoin’s success, a multitude of Altcoins emerged — improved versions based on Bitcoin’s technology with better transaction performance and enhanced security.

The question is: can Altcoins replace Bitcoin as the main currency in the future? The answer is possible, but as of now, no Altcoin has a larger trading volume or market capitalization than Bitcoin. Bitcoin still maintains the leading position in market cap and liquidity. Specifically, Bitcoin’s market cap is four times higher than Ethereum — the second-largest digital currency.

If Altcoins are just updates of Bitcoin, why does their number continue to grow rapidly?

Why should you invest in other virtual currencies?

If you see the cryptocurrency world as a digital version of the financial market, then Bitcoin is like gold, and Altcoins are like stocks. When you invest in stocks to grow your assets, you can also invest in Altcoins to increase the amount of Bitcoin you hold.

Each Altcoin serves different customer segments and use cases. The 2017-2018 period was a boom for Altcoins — many coins increased in value by 10x, 20x within just a few months. That’s why Altcoins became a favorite tool for investors to increase their Bitcoin holdings.

Investing in Altcoins is like investing in penny stocks with the hope of finding the next billion-dollar company. These coins often experience strong short-term price volatility. For example, LTC/BTC achieved a 150% profit in 2 months, and TRX/BTC nearly 100%. Within 1-2 weeks, these pairs can fluctuate by 20-40% — a level rarely seen in stock markets.

However, Altcoins also have disadvantages: they are more susceptible to manipulation due to smaller market caps. Large “whales” can easily influence the prices of these coins. But this risk mainly applies to inexperienced traders. If you choose promising Altcoins and invest long-term, you can significantly reduce risks.

If you are not too risky, here are 3 Altcoins considered safe for long-term investment:

• Ethereum (ETH): Current price $2.97K, +1.54% in 24h
• Litecoin (LTC): An established blockchain platform with high liquidity
• Bitcoin Cash (BCH): A fork of Bitcoin with advanced transaction features

Should you invest in digital assets?

You should consider investing in digital assets if you meet these conditions:

• No longer in debt
• Have accumulated an emergency fund covering 3-6 months of expenses
• Have invested 15% of your income in stocks and still have surplus money
• Love technology and trust in the future of blockchain

The trend shows that digital currencies are becoming more popular. In Q2/2020, the trading volume of cryptocurrency derivatives on exchanges increased by 165% compared to the same period last year, indicating growing investor interest and participation.

Two main methods of investing in digital assets

Hold Coin - Buy and hold

This method involves purchasing digital currencies and holding them long-term, hoping their value will increase over time. It’s similar to investing in gold — buying to preserve value rather than short-term trading.

Advantages:

• Lower risk of capital loss
• Low transaction costs
• Good liquidity, easy to buy and sell at any time

Disadvantages:

• Requires a large initial investment
• Must understand the technology behind each coin
• Profits depend on government acceptance and technological development

Trade Coin - Derivative trading

This method involves predicting short-term price trends. You do not actually own the cryptocurrencies but forecast whether prices will rise or fall against USD and profit from price fluctuations.

Advantages:

• Low initial capital (thanks to leverage)
• Can quickly generate profits from short-term price movements
• For example, if XRP’s price increases by just 1%, you can earn 5% using leverage

Disadvantages:

• Requires constant market monitoring
• High leverage can lead to total loss in a single trade
• More dependent on technical analysis than project fundamentals

Current cryptocurrency market data

Bitcoin (BTC) - Price: $88.83K | 24h change: +1.54%

Ethereum (ETH) - Price: $2.97K | 24h change: +1.54%

Dogecoin (DOGE) - Price: $0.13 | 24h change: -1.16%

These data indicate that the digital currency market is still active with significant volatility. You should carefully consider before participating and only invest what you can afford to lose.