The term digital currency is one that’s thrown around frequently these days. As finance and investing continue to move completely online, it makes sense that our currency does too. You may be thinking that digital currency strictly means cryptocurrencies. In a way, it does. Perhaps this is a better way to put it: all cryptos are digital currencies, but not all digital currencies are cryptos. But can you trade digital currency stocks?
Is Digital Currency a Good Investment?
Digital Currencies are growing in popularity and the further the industry develops, the broader the definition gets. So can we invest in digital currencies? Absolutely! There’s a myriad of different ways in which we can gain from digital currency stocks. But before you begin investing in them, it helps to know what they truly are.
Like with most digital objects, you’ll never be able to hold one in your hand or put some in your wallet. These are entities that solely exist online. They usually have some form of encryption for storage. Why does it need encryption? Fiat currencies can be reproduced, while digital currencies cannot be. A digital ledger often referred to as a blockchain, helps keep all transactions and supply accounted for.
Investing in Cryptocurrencies vs Digital Currencies
If you’re like me, you probably associate digital currencies with cryptocurrencies. The two terms have become synonymous. Especially with the introduction of stable coins. At least we understand digital currency stocks. There are in fact some differences in investing strictly in cryptocurrencies and altcoins, rather than in digital currencies. Let’s take a look at the main differences!
- Blockchain vs. Open source transaction: Pardon? The technology behind these digital assets can get pretty complicated; as you can tell. Blockchain is the digital ledger, against which all crypto transactions are tracked. Digital currencies are generally just in an electronic database. This is the key difference between the two. Cryptos are highly encrypted. Whereas digital currencies have essentially no encryption.
- Decentralized vs. Government Regulated: Another major difference is that cryptos like Bitcoin are more or less self-regulated. They are decentralized, meaning there is no governing body like a government or central bank. Digital currencies are often just digital versions of the country’s fiat currency. Still under control by central banks, and tied to the value of the fiat currency.
Volatility vs. Stability: If you have done any sort of research into cryptocurrencies, you’ll know how volatile they can be. Since cryptocurrencies more or less abide by the laws of supply and demand, they can be subject to wild swings. This year alone, Bitcoin flew to all-time highs of $64,829.14 in April, to below $30,000.00 recently in July. Stable coins are named that because for the most part they are just that, stable. The value of coins like US Dollar Coin and Tether are tied directly to the US Dollar, so you won’t get the wild volatility. Some digital brokerages offer some very attractive interest rates for keeping your stable coins in their accounts. More on that later!
Investing in Cryptocurrency Stocks
When looking at ways to play cryptocurrencies in the stock market, there are three groups of companies to invest in. The first group is crypto brokerages. The second is crypto miners. And the third is fintech companies that accept crypto as payments.
These are as close to digital currency stocks as you can find on the public markets. Are they good investments for stock investors? They can be.
Although be warned that the stock price can fluctuate with the price of the crypto markets. Let’s take a look at a few of the top crypto stocks to invest in.
Coinbase (NASDAQ: COIN): The jury’s still out on whether Coinbase will be a good investment. After soaring on its first day of trading back in April, Coinbase has traded mostly sideways. In fact, it’s at nearly half the price level of its day one highs.
A lot of this has to do with the prices of benchmark cryptos like Ethereum and Bitcoin tumbling. Another fun fact: Bitcoin hit its all-time high price the day before Coinbase went public.
Digital currency stocks are all the rage right now because of crypto’s immense popularity. We’ll see if that continues.
Square (NYSE: SQ): Insert Square or PayPal (NASDAQ: PYPL) as the dominant fintech companies that accept cryptos as payment. Utilizing their mobile payment apps, Cash App or Venmo, these two companies allow their customers to directly trade cryptos or use them for payment. While cryptos haven’t quite gained mainstream appeal as currencies yet, one has to wonder how long until stable coins are implemented universally as payment options. Add companies like SoFi (NASDAQ: SOFI) and Visa (NYSE: V) to the growing list of companies adding digital currencies to their platforms. Making them great digital currency stocks.
Microstrategy (NASDAQ: MSTR): If you hadn’t heard of this company before this year, you’re not alone. Microstrategy is a legitimate software company. However, that’s not what it’s known for these days. The CEO Michael Saylor is one of the largest Bitcoin bulls around and has accumulated over 105,000 Bitcoins for the company. It seems to be catching Wall Street’s attention since the stock has climbed over 400% in the last year. This is particularly impressive since the stock has done next to nothing since the 2000 dotcom bubble, trading sideways for essentially 20 years. As you can imagine, Microstrategy’s stock price fluctuates with the price of Bitcoin.
A Note on Crypto Miners
Bitcoin miners have been popular investments over the past year. But with multiple governments cracking down on the activity, including China, the stocks just don’t seem as attractive. Again, the price of these stocks go up and down with the price of Bitcoin. If you ask me, I’d rather own good companies like Square and PayPal, without worrying about the constant volatility. Those are safe digital currency stocks.
Other ways to invest in Digital Currencies
Digital Currency Interest Accounts: The rise to prominence of digital investing platforms has opened the door for investors. Platforms such as Binance, Block-Fi, and Gemini all offer investors high-interest crypto savings accounts.
Block-Fi and Gemini offer upwards of 7.5% annually on USDC investments, with varying rates of up to 5% for Bitcoin and Ethereum. High-interest stable coin accounts have drawn a lot of interest. Pun intended.
All you need to do is transfer fiat money from your savings account to a digital currency brokerage and buy the equivalent value in the digital asset you want to hold.
Staking: Staking cryptocurrencies has become a popular play for high risk high reward investors. The act of staking involves buying a certain digital asset.
Then set those aside to be a node on the network. Staking is essential to new coins being created, and often these can pay some shockingly high yield rates. Be warned though, there’s a chance when staking that your initial investment can go to zero.
Anyone who is into investing in crypto has definitely heard the acronym NFT. But what does NFT stand for? It stands for Non-Fungible Tokens. It’s essentially a way of digitally certifying versions of inanimate objects on the blockchain. A couple of popular uses for NFTs has been sports memorabilia like NBA Top Shot. As well as for digitally certifying art. NFTs are definitely in the early innings, and greater use cases for investors are bound to be created.
Just HODL!: Or you can just buy cryptos through a brokerage and HODL them. Coins like Bitcoin theoretically should continue to rise since there’s a finite supply of them. Supply dictates demand. With institutions scooping up Bitcoin at increasing rates, it’s hard to imagine it going away any time soon. Of course, like with any investment, HODLing can have its cons. Investors who held DogeCoin through Elon Musk’s appearance on Saturday Night Live are down significantly. Like Bitcoin after Coinbase went public, DogeCoin has not been able to recover. As the kids say, those events were the top!
The digitization of the global financial system is still in its infancy. Recently, the Chinese Government became the first to offer its citizens a digital version of the Yuan. Why did they do this? China’s smartphone penetration reaches a market of nearly 1 billion users. Many of these people pay entirely through super apps like WeChat or AliPay.
Cash was falling out of favor in the country. And rather than have its currency completely devalued, China decided to digitize it for greater use via smartphones. Early reactions are mixed for the digital Yuan. However, in the past week, the U.S. Federal Reserve has approached the idea of a digital version of the greenback as well.
Cryptocurrencies are a completely different world! But digital currency stocks are easy to understand. Don’t confuse the US Dollar Coin with a digital US Dollar. Can digital currencies continue to gain traction? It’s almost a certainty that many of the world’s currencies go digital in the future. Whether this is through a digital version of a fiat currency or a decentralized, universal token like Bitcoin, remains to be seen. For now, just try and enjoy the new flexibility and options that digital finance provides us. Investing and finance in the future will look a lot different than it does today!