Our world is changing radically as technology continues to evolve at an ever-accelerating pace. Because of this relentless progress, economies are becoming increasingly complex and we now find ourselves in an age of uncertainty where the nature of money itself is changing from physical to virtual.
Although we often take an in-depth look at the world of currency investment strategies, today we’re going to discuss why you should invest in currency and how to do it. Specifically, we’ll look at foreign and virtual currency investments.
WHAT IS A DIGITAL CURRENCY?
It’s no secret that investing in digital currency—also known as electronic currency, virtual currency or cryptocurrency—has arrived and affected the currency investment space. But investing in virtual currency should not be confused with account balances appearing in online banking records based on physical cash like banknotes and coins.
WHAT IS DIGITAL CURRENCY INVESTING
Let’s review Bitcoin as a good example of a cryptocurrency.
Bitcoin, the first decentralized virtual currency, was created in 2009 by Satoshi Nakamoto, a pseudonymous developer. It deployed a cryptographic function called SHA-256 as it’s proof-of-work structure.
Bitcoin users can purchase goods and services with this currency, exchanging money without relying on bankers and credit card companies. Encryption techniques regulate the currency and a peer-to-peer (P2P) computer network, called the Blockchain, verifies the transfer of funds.
Investing in virtual currency can be done independently of any central bank or government. This bypasses bank fees and protects cash from predatory governments. Although government confiscations of money are rare in the modern age, the government of Cypress in 2013 seized depositors’ assets during a banking crisis.
A BRIEF HISTORY OF BITCOIN
Let’s take a quick look at Bitcoin’s history to get a deeper understanding of why digital currencies have been a popular investment choice for both professional and amateur investors.
Before Bitcoin, two other currencies, B-Money and Bit Gold, attempted to create an encrypted online currency based on ledgers–but could not fully develop the idea.
In 2008, Satoshi Nakamoto, an enigmatic figure whose real identity is still unknown, posted an eight-page white paper on a cryptography discussion mailing list. This document precipitated an entirely new way of thinking about creating, using and investing in virtual currency.
In 2009, Bitcoin was released to the world. Ideas like mining (the process of creating bitcoins) and the blockchain (the public ledger for recording and verifying transactions) became mainstream.
In 2010, Bitcoin gained monetary value through a bizarre transaction: someone bought two pizzas for 10,000 bitcoins. At today’s prices in 2018, those same bitcoins would be worth $100 million.
In 2011, alternative currencies, known as altcoin, rose to challenge Bitcoin’s monopoly in the cryptocurrency space. Litecoin, for example, proposed to offer more speed and greater anonymity. The idea of mining new cryptocoins continued to spread and there are now over 1,000 altcoins in circulation.
In 2013, Bitcoin underwent intense volatility and many investors suffered heavy losses. At first, the price soared to $1,000. but then it plunged to $300. It took two full years for the price to reach the $1,000 mark again.
In 2014, Bitcoin again suffered another major reverse. This time, criminals defrauded Bitcoin owners, stealing about $450 million worth of the currency. At today’s prices, it would have been a $4.4 billion loss.
In 2016, a new cryptocurrency, called Ether, threatened to undermine Bitcoins market domination. It not only offered more flexibility but, built on the Ethereum platform, it also leveraged the Blockchain for smart contracts transactions.
Additionally, Ethereum ushered in the idea of Initial Coin Offerings (ICOs). Like the stock market concept of an Initial Public Offering (IPO), an ICO served as a fundraising platform for those interested in investing in virtual currencies. Governments around the world were alarmed by the sudden emergence of ICOs. In the U.S., the SEC warned that insufficient oversight exposed investors to Ponzi schemes. Meanwhile, in China, the government banned ICOs.
Still, in spite of all these setbacks, Bitcoin is now flourishing. Last year, a single Bitcoin was valued at $10,000.
Despite dramatic losses in value, the emergence of criminal fraud, and government warnings about investor’s vulnerability to scam artists, this new digital currency shows plenty of signs that it will continue to thrive in the future. In fact, the market is now so big—an estimated $300 billion—that major banks like BNP Paribas, Deutsche Bank, Citi Bank, and Barclays are now researching ways to use Bitcoin.
HOW TO INVEST IN A DIGITAL CURRENCY LIKE BITCOIN
Here are some simple instructions on how to invest in Bitcoin:
First, learn all you can about cryptocurrencies so you’re an educated investor. A good place to start would be reading Satoshi Nakamoto’s white paper, Bitcoin – A Peer to Peer Electronic Cash System. It’s an easy-to-understand work of genius that will only take about ten minutes to read.
Second, only invest a small amount to familiarize yourself with the market.
Third, find a Bitcoin exchange website like Coinbase and store your coins in an online wallet.
DIGITAL CURRENCY’S VOLATILITY
The digital currency market is volatile for numerous reasons:
1. It has no intrinsic worth and its value is based on public sentiment.
2. It has no regulatory oversight, operating outside government regulations and institutional investment firms.
3. It has no institutional capital backing it up. Instead, it’s supported by high net-worth individuals, hedge funds, and large venture capital firms.
4. It is not kept on an exchange order book because that would make it vulnerable to hacking. Instead, records are kept in off-exchange wallets.
Cryptocurrencies are in flux because the idea is so radical that traditional institutions have not found a way to regulate them.
PROS AND CONS OF INVESTING IN BITCOIN
Here are 3 advantages of investing in Bitcoin or other cryptos:
1. Since the currency is digital, there is no possibility of fraud, unlike, say, charge cards where someone can defraud a merchant with charge-backs.
2. Identity theft is not impossible, but it’s extremely hard to pull off because Bitcoin users send merchants the exact amount based on the use digital wallet IDs. The need for names, ID cards, and other forms of identification are considered unnecessary.
3. The money is transferred directly and settled immediately. There is no middleman to delay, obstruct or charge fees.
And here are 3 disadvantages of investing in Bitcoins or other cryptos:
1. Since Bitcoin exchanges are anonymous, illegal transactions can be made.
2. Market volatility means investors face a high risk of financial loss.
3. There is no security to protect Bitcoin users from losses due to human error, technical glitches, or financial frauds.
THE CURRENCY MARKET
The currency market, also called the foreign exchange market, FV or Forex, handles more than $4 trillion USD in average traded value daily, making it the largest financial market in the world. What’s more, the market never shuts down.
Participants—retail investors, hedge funds, investment firms, regular banks, central banks, and commercial companies—purchase, sell, exchange, and speculate on the world’s basket of currencies.
Investing in currency can be done in many ways:
- Currency pairing
- Foreign currency futures
- Foreign currency options
- Exchange-Traded Funds (ETFs)
- Certificates of Deposits (CDs)
- Foreign Bond trades
BEST FOREIGN CURRENCY TO INVEST IN
When it comes to foreign currency investing, the Iraqi Dinar and Vietnamese Dong are currently popular investment strategies because the currencies are weak in comparison to the US dollar.
One way to invest in currency is called pairing. So, for example, if someone wanted to invest in currency like the Iraqi Dinar, they would focus on an IQD/USD pairing, betting that one currency would rise while the other would drop based on the current exchange rate.
The Iraqi Dinar, IQD, is popular among investors because Iraq’s economy has not recovered since the US invaded it in 2003. Since one dinar is worth a tenth of a US cent, investors can acquire plenty of Iraqi dinars at a low price. When this foreign currency revalues, investors will be able to profitably sell their stash of Iraqi dinars.
Although the Vietnamese Dong, VND, is popular for the same reason—it’s cheap to buy— investors are expecting a faster return on investment because that nation is currently achieving rapid economic growth.
FOREIGN CURRENCY INVESTMENT FOR BEGINNERS
Beginners need to be as well-informed as possible to minimize risks and maximize rewards.
Besides understanding market conditions, the rules of currency exchange investment trading, and adopting the most appropriate strategies, financial management is another essential skill beginning traders must learn. For instance, investors who don’t know where to put stops and how to lock in gains can easily turn a winning investment into a losing one.
MARKET STABILITY AND VOLATILITY
A highly volatile market has wide price swings over a small window of time.
Conversely, a stable currency will show a more predictable price fluctuation based on a mature economy and political system; essentially, a country which has diversified production of goods and services, low inflation rates, and a stable trade and balance of payment. But even stable currencies can become volatile due to changes in interest rates, inflation, economic growth and the balance of payments (BOP).
The stability and volatility of foreign currency markets determine what strategy to use.
WHAT’S THE BEST CURRENCY TO INVEST IN?
New investors looking for the best currency investment strategies are often conflicted about whether they should invest in cryptocurrencies or focus on foreign currency investments. They want to know which currency exchange investment platform to trust. Unfortunately, there are so many variables to consider that a definitive answer is not possible.
Those who do want to invest in Bitcoin should start out in an experimental way, only buying a fraction of a coin at a time and working at steadily building up their portfolio.
Many investors prefer to invest in foreign currency because it’s an established marketplace. Beginning investors should focus on learning as much as they can on currency investment strategies.
In the final analysis, digital currency is trendy, but foreign currency is less volatile overall. It’s best to work with a currency exchange investment platform that has stabilized. While ICOs, for example, might seem like a smart way to break into this market, they are often risky.
WHICH CURRENCY IS WORTH INVESTING IN?
Since Bitcoin and other cryptocurrencies are forms of international currency independent of government regulations and central bank interference, they meet the needs of a global gig economy. Unfortunately, this currency is also subject to abuse because the anonymity allows users to create illegal transactions or defraud innocent investors through Ponzi-type investment schemes.
By contrast, Forex trading is a currency exchange investment in an established marketplace. Beginners should start small, limiting the size of trades, choosing the right size of bets, and setting limits on damage with stop-loss orders. Starting small gives you time to learn more about the most effective and appropriate currency investment strategies to use.
If you want to start investing in promising currencies, check out our options here on Treasury Vault and contact us for more details on how to invest in various foreign currencies, including the Iraqi Dinar and the Vietnamese Dong.