Digital Assets promise a new way of arriving at a global consensus; a math-based model that can guarantee scarcity while remaining open to anyone with an internet connection. Bitcoin, the best known digital asset, is regarded as a store of value in an age of uncertainty, a kind of digital gold. Like gold, its supply is limited. There will never be more than 21 million Bitcoins and they will be issued at a known rate. That contrasts with fiat currencies, where an increasing money supply can stoke inflation, devaluing the currency.
The value of the newer Digital Assets – such as Ethereum, Tron and Solana – are linked to their rapid growth as platforms for smart contracts.
Broadly speaking, Digital Assets offer diversification from traditional asset classes, as their prices tend to move independently.
However, Digital Asset prices are volatile, subject to rapid price swings. Due to this and to the other risks they are linked to, they should only form a limited part of an investor’s overall portfolio.
The choice of which currency to invest in is up to the individual investor. Obviously, it will change at different points in time and near-term price volatility often depends on shifts in market share or momentum.
Bitcoin is the starting point for many investors because its use case is simple, its network is among the most decentralized, and the long-term price momentum has been strong. Many professional investors, large corporations and even a sovereign nation (El Salvador) have invested in this original crypto currency.
However, it is often wise to diversify or spread your bets. While Bitcoin was the first digital asset, newer digital assets offer different use cases. Indeed, second or third generation digital asset like Ethereum and Solana are backed by more advanced technology, which may boost demand for network capacity and their tokens.
It is difficult to predict which will be the dominant cryptocurrencies in 20 years’ time. For that reason, it may be wise to invest in a basket of digital assets. Investors should always consider risks before investing in digital assets.