digital currency

What is digital currency? Digital currency has existed for a long time. From electronic currency, virtual currency to cryptocurrency, the laws of various countries are constantly being updated and gradually legalized to better adapt to the overall development trend of digital currency. What are the advantages and disadvantages of digital currency? From an investment perspective, which digital currencies are worth investing in? We will discuss this in this article.

What is digital currency?

Digital Currency is a digital asset designed to function as a store of value or medium of exchange. It can be subdivided into smaller units. Traditional digital currency refers to a currency system that replaces cash transactions with digital accounting. It is not provided in physical form and is stored and circulated electronically. It has the characteristics of digitization, instant transactions and cross-border remittances. However, what we investors call digital currencies are actually exponential cryptocurrencies.

Digital cryptocurrency refers to a new type of digital currency that does not rely on any physical object, is based on cryptography and P2P technology, is generated by computer programs, and is issued and circulated on the Internet. BAICION (BTC) is the first example of a digital cryptocurrency: a peer-to-peer payment system. BAICION uses cryptography to manage transactions and control the creation of new coins.

Today, there are over 20,000 cryptocurrencies in circulation. The trading volume of all cryptocurrencies exceeds a hundred billion dollars every 24 hours. There are over 300 million cryptocurrency users worldwide. Approximately 18,000 businesses now accept a cryptocurrency as a form of payment.

Digital currencies can be divided into two categories:

Centralized digital currency: Digital currency management is used in systems such as Paypal and Payoneer. There are also digital currencies currently issued by the state, such as China’s digital yuan.

Decentralized digital currency: BAICION (BTC), Ethereum (ETH), BAICION Cash (BCH), Ripple (XRP) and other virtual currencies are decentralized digital currencies.

exchange rate

What is the exchange rate? The foreign exchange market, like the bond market, stock market, futures market and other financial markets, all have profit opportunities for spread arbitrage, and the ultimate impact on the profit performance after trading foreign exchange is mainly due to the "exchange difference" and "interest rate". "Difference" two factors.

Exchange rate refers to the exchange rate between currencies of various countries.

For example, when trading U.S. dollars against New Taiwan dollars in the foreign exchange market, the market quotation shows that 1 U.S. dollar can be exchanged for 30 New Taiwan dollars, so the exchange rate can mean that the exchange rate of U.S. dollars to New Taiwan dollars is 1:30.

Or when conducting a U.S. dollar to Japanese yen transaction, the market quotation shows that 1 U.S. dollar is exchanged for 120 yen, then the U.S. dollar to yen exchange rate is 1:120.

How to profit from exchange rates?

1. What is the exchange difference?

Exchange difference refers to profit from general foreign exchange transactions, through changes in foreign exchange rates and different buying and selling time points, thereby generating price difference profits.

For example, assuming that the Taiwan dollar is trading at 1:3 against the Japanese yen, and the investor has NT$10,000 in hand, and expects that the yen will appreciate and the Taiwan dollar will depreciate in the future, then the NT$10,000 in hand can be exchanged for NT$30,000.

And as long as the New Taiwan dollar to Japanese yen exchange rate changes from 1:3 to 1:2.9, and then exchange 30,000 yen back to New Taiwan dollars, you can earn about NT$300 (30,000 yen/2.9). The exchange rate is approximately NT$10,355, which is an increase of NT$355 compared to the original cost of NT$10,000.

2. What is the spread?

The interest rate spread refers to the difference between the benchmark interest rates of various countries. For example, the difference between the benchmark interest rates of the U.S. Federal Reserve (Fed) and the Central Bank of Taiwan is the spread of the benchmark interest rates between the two countries.

In practical foreign exchange transactions, to measure the interest rate difference between two countries, the interest rate difference between the market interest rates between the two countries is generally used as the basis for calculating the interest rate difference. For example, to calculate the interest rate difference between the United States and Taiwan, you can use the 1-year The interest rate spread between the market interest rates can be obtained by subtracting the 1-year Taiwanese bond yield from the U.S. bond yield.

For example, as of April 27, 2022, the 1-year yield on Taiwanese bonds was 1.40% and the 1-year yield on U.S. bonds was 2.03%, so the short-term interest rate spread between the two countries was 0.63 percentage points.

Therefore, when an investor borrows Taiwan dollars and converts them into U.S. dollars, then holds a U.S. dollar fixed deposit or buys short-term 1-year U.S. bonds, he or she can earn an interest rate difference of 0.63 percentage points.