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What is a Digital Investor?
With the rise of technologies like blockchain and AI, a digital investor is more relevant in today’s age than ever. But what does a digital investor even mean? At Ruceto, our understanding is that a digital investor is generally an individual who invests in emerging technologies and digital assets such as cryptocurrencies and blockchain-based technologies. These investors typically focus on the long-term potential of these new technologies and have the risk-tolerance to invest in these early-stage projects.
Digital investors believe in the potential of various new emerging technologies such as blockchain and AI, and their ability to revolutionize the way businesses and individuals interact with each other. They are keenly aware of new projects and opportunities that can bring greater efficiency, scalability, and transparency to various industries. By investing in these innovative technologies, they are hoping to generate strong returns from their investments over time.
Indeed, history has shown that digital investors have the potential to benefit greatly from selecting the right digital assets. An example is the blockchain game Axie Infinity. Putting $10,000 into Axie Infinity at $0.54 on 1/2/21 and selling at peak $160.62 during 11/7/21 would have turned your investment into $2.96 million! That’s less than a 1-year holding period.
Additionally, by leveraging their expertise in these areas, digital investors can diversify their portfolios. As more people become interested in investing in cryptocurrency and other innovative asset classes, the digital investor’s role is likely to become even more important.
For those looking to get started in digital investing, it is important to have a basic understanding of blockchain technology and its potential implications for markets and investors. Additionally, having the right tools for research is essential as well. Here at Ruceto, our deep-dive research focuses on Web3 and crypto projects. Check out some of our research projects here!
How Does Digital Investment Work?
Buying digital investments involves allocating funds into digital assets with the expectation of future profit. Digital investment operates in a similar vein to traditional investment practices – the closest comparison to digital investments is opening an online broker account and buying a stock. The first step usually involves researching and selecting digital assets of interest. These might include cryptocurrencies such as Bitcoin or Ethereum, or even tokenized real-world assets.
Once a digital asset has been selected, investors will typically purchase them through an online platform, often referred to as a digital asset exchange. Again, these platforms function similarly to traditional stock exchanges but deal primarily with digital assets. Coinbase would be a prominent example of a digital platform, where an investor could transfer money from their bank account to purchase cryptocurrencies.
An important element of digital investment is the use of digital wallets for asset storage. These wallets can be either software-based or hardware devices that provide a safe and secure environment to store the private keys necessary to access the digital assets. Metamask is a widely used digital wallet that can store both cryptocurrencies and NFTs
Finally, digital investing involves monitoring market trends and adjusting portfolios as necessary. This might mean buying more of a particular digital asset, selling some off, or swapping into other types of digital assets.
In essence, digital investment is a dynamic process that requires a comprehensive understanding of the digital space, ongoing research, and a strategic approach to buying and selling digital assets.
What is an Example of a Digital Investment?
There are many types of digital investments as some consider digitalization of the stock market (buying and selling stocks online) as a category of digital investments as well. However, more typically cryptocurrencies and NFTs are forms of digital investments that come to mind.
Cryptocurrencies are one of the most notable examples of digital investments. Bitcoin, for instance, was the first cryptocurrency and remains the most valued and widely traded. Bitcoin itself does not have significant utilization. It was the first cryptocurrency that brought blockchain into prominence. An investor who bought Bitcoin in its early stages and held onto it would have seen a substantial return on their investment. Additionally, in the first half of 2023 Bitcoin has gained 83%, outperforming the 32% return from the Nasdaq.
Another example is the emerging field of non-fungible tokens (NFTs). NFTs are unique digital assets that represent ownership of a specific item or piece of content. They are stored on a blockchain, which verifies their authenticity and ownership. Artworks, music, virtual real estate, and even tweets have been tokenized as NFTs, providing a new frontier for digital investors. Opensea.io is a popular platform where investors can connect their wallets to purchase NFTs.
It’s essential to note that while the potential for high returns exists, digital investments also carry significant risk. Crypto are relatively new classes of assets and are generally much more speculative than traditional assets (despite the potential to yield high returns). An example of risk would be Terra’s LUNA currency dropping from $80 to effectively $0 within 3 days. The value of digital assets can be extremely volatile, and there’s also the risk of loss due to issues like hacking or regulatory changes. As such, any prospective digital investor should do comprehensive research and consider their risk tolerance before diving into this new investment landscape.
Advantages of Being a Digital Investor
Digital investment offers a variety of advantages compared to traditional investments.
Almost no barrier to entry – Unlike traditional private capital where you usually have to be an accredited investor, almost anyone with internet access and a computer can set up a wallet and access crypto currencies.
Speed of transactions – Digital investors can potentially enjoy quicker transactions compared to traditional methods. This is due to the online and decentralized nature of digital asset exchanges. Buying a token can be as simple as clicking a few buttons compared to the complex process of purchasing real estate.
Access to early-stage projects – Many crypto projects are start-up companies, which traditionally is difficult for retail investors to access. Crypto opens the opportunity to access a variety of early-stage startups for a retail investor.
Ability to Swap – Digital assets can be easily exchanged for other digital assets and fiat currencies. This means investors can quickly change their strategies to take advantage of market movements or diversify their portfolios.
Finally, digital investing offers greater privacy and anonymity compared to more traditional methods. As all transactions are conducted online, there is no need for a third-party intermediary to verify personal information. This helps to keep investors’ financial data secure and safe from potential hackers and fraudsters.
Disadvantages of Being a Digital Investor
Despite the numerous benefits, it’s important to note that digital investing also comes with its own set of drawbacks:
Lack of transparency – As of March 2023, there are approximately 22,932 tokens trading. This leaves the digital investor to sift through piles of tokens – many with very little information available on the underlying companies despite being actively available to the public. Digital investors are often left to themselves to search for additional information or take a blind leap of faith.
High volatility – High volatility is a double edged sword. Since the value of digital assets is highly susceptible to market movements, digital investors can face significant losses if the market turns against their favor. This can happen almost instantaneously in the worst cases.
Complexity – Successful digital investing requires understanding of the underlying project and risks. The complexities and nuances of the digital asset sector mean that novice investors may find it challenging to navigate and make informed decisions.
Lack of Regulation – the lack of regulation in many digital asset marketplaces can make them a haven for illegal activities like money laundering and fraud. This is compounded with the fact that anyone can issue a token with very little cost.
Finally, the digital asset space is still in its infancy. This means that investors are often exposed to risks associated with new technologies, including system failures, hacking, and a lack of customer support in some cases. As a digital investor, it’s essential to conduct thorough research and due diligence before making any investment decisions in this space.
In conclusion, being a digital investor comes with its unique set of advantages and challenges. The potential for high returns, limited barriers to entry, ease of access, and the promise of greater privacy make it an appealing choice for many. However, it’s equally crucial to acknowledge the lack of transparency, high volatility, the required skill set, and lack of regulation inherent in this relatively young market sector.
Digital investing is not just about jumping on the latest trends, but rather, it involves thorough research, continual learning, and careful decision-making. It’s a bold new world of opportunities for those who are willing to navigate its complexities. Ultimately, success as a digital investor will hinge not only on the ability to exploit its benefits but also on the understanding and management of its associated risks.