Many investors are attracted to trading cryptocurrency since its an extremely volatile asset. Provided you time the market right, trading cryptocurrency can give you returns in multiples of what traditional investments offer. Cryptocurrency trading for beginners is something nearly everyone has been primed on.
There are, as a rule, a couple of rules guiding cryptocurrency traders – the accumulation of Bitcoin or the making of USD profits. While you are in a crypto bull market, it is a surefire bet your portfolio will increase in USD value. Nonetheless, it is a bit of a challenge for Bitcoin value to increase. To be able to track your portfolio’s Bitcoin value, you may trade altcoins against Bitcoin.
You risk losing your crypto to the market by actively trading your cryptocurrency. It is common enough for traders to lose money quickly trading cryptocurrencies since cryptocurrency prices are so volatile. So just HODL their Bitcoin – that’s second nature to Bitcoin zealots.
What is cryptocurrency?
In spite of there being different kinds of cryptocurrencies, there is one feature that binds them in commonality – they work on blockchain technology, which makes them decentralised.
Decentralisation of financial operations through cryptocurrencies has several advantages over the traditional financial system, including:
- does away with almost all the overhead costs associated with banks
- Less expensive transactions that can be sent and received internationally
- Inflation or finite supply that’s as good as coded — no need to bank on the Federal Reserve
- Financial derivatives like trading strategies and loans can be coded directly onto certain cryptocurrency blockchains, doing away with the need for financial intermediaries.
The largest cryptocurrency is Bitcoin, and it’s used as a form of “digital gold.”
Significantly, Bitcoin is a commodity used as a store of value. Ethereum is the 2nd-largest cryptocurrency. Developers may develop smart contracts on Ethereum’s blockchain, creating decentralised alternatives to traditional banking functions, such as lending and trading.
Choosing a cryptocurrency
There is no single best cryptocurrency, but there exist the best cryptocurrencies for certain use cases. For instance, Bitcoin is the best cryptocurrency to use as a reserve asset. This is because it has the most widespread adoption and a finite supply.
The majority of the best cryptocurrency projects are in the top 50 market capitalisation of cryptocurrency. Most small market cap cryptocurrencies have questionable use cases or have underdelivered on their promises. Small market cap cryptos are comparatively riskier relative to larger market cap coins like Bitcoin and Ethereum..
It’s vital to invest in cryptocurrencies that have a solid team backing the project. To get information about a cryptocurrency, it’s best to read the cryptocurrency’s whitepaper. This will acclimatise you to crypto faster.
Decentralised finance (Defi) cryptocurrencies are some of the most popular altcoins of 2021. Altcoins are a general term for any cryptocurrency that’s not Bitcoin. Defi tokens are, as a rule, built on Ethereum’s blockchain, substituting traditional banking functions with code. Popular Defi tokens like yearn. finance, Compound and Uniswap are up over 500% in the past six months.
How cryptocurrency works
Non-Defi altcoins have undergone a major increase in value over the past 12 months. Ethereum, the largest altcoin by market cap, has risen from $90 to over $1,800 in less than 12 months. The cryptocurrency has gained a lot of interest due to the variety of financial applications being built on its blockchain.
Cryptocurrencies are digital assets powered on the blockchain. Blockchain technology stores a ledger of every cryptocurrency transaction on every node powering the blockchain. Nodes are computers that are connected to Bitcoin’s network, mining Bitcoin. In case one of these miners attempts to enter false transactions, it will be nullified by the correct ledger.
The correct ledger is decided by the majority of miners’ records. Theoretically, you could hack a blockchain by controlling 51% of the cryptocurrency’s network in a process called a 51% attack. Nevertheless, this process is economically infeasible. It would require an extremely choreographed hack with billions, if not trillions, of dollars worth of computer hardware.
For transacting with a cryptocurrency, you require a set of public and private keys. These keys are akin to passwords generated by your cryptocurrency wallet. Your public key is connected to your wallet’s address, enabling people to send you cryptocurrency. Your private key actively approves transactions being sent from your wallet. It’s only you that has access to your private keys.
As opposed to popular belief, many cryptocurrencies don’t have an infinite supply. Bitcoin’s total supply is capped at 21 million coins, but many altcoins (like Ethereum. ) have a set inflation rate with no cap on total supply.
cryptocurrency trading steps
#Starting a cryptocurrency brokerage account
Unless you already own cryptocurrency, you’ll need to make an account with a crypto brokerage.
To open an account, you’ll need to submit your crypto brokerage with personal identification information, similarly to opening an account with a stock brokerage. Some general information you need to give when setting up your account includes your Social Security number, address, date of birth and email address.
Once you’ve signed up with a crypto brokerage, you’ll need to connect your brokerage account with your bank account. Most crypto brokerages provide bank funding via debit cards and wire transfers.
# choosing crypto to trade-in
Most active cryptocurrency traders set aside most of their capital for Bitcoin and Ethereum. These cryptos move more predictably than smaller altcoins, so trading these with technical indicators make for more predictable outcomes.
Many crypto traders allocate a portion of their capital to smaller altcoins. Although small mid-market cap cryptos are riskier relative to large-market cap cryptos, they provide higher upside potential. Many small altcoins have risen over 1,000% in a matter of months.
#opting for a strategy
There are plenty of trading indicators to choose from, and most traders have to take into consideration many factors.
If you’re an experienced trader, you may already have a strategy you use to trade stocks. Stock trading strategies are also commonly used for cryptocurrencies. A personal favourite trading strategy that many traders use is Elliot Wave Theory. The latter focuses on the psychology behind market sentiment.
#Storing your cryptocurrency
If you’re actively trading your cryptocurrency, you would need to store your funds on the exchange to have access to them. On the other hand, if you’re buying your cryptocurrency to hold for the mid to long term, you should hold a cryptocurrency wallet.
Cryptocurrency wallets are available as software wallets or hardware wallets. Both are secure, but hardware wallets offer the best security since they store your crypto on a physical device, offline.
Cryptocurrencies are popular among investors for several reasons. Following are among the foremost: Supporters look at Bitcoin and others as the currency of the future. They follow this digital gold, buying up before the cryptos become even more valuable; Some investors appreciate the fact that cryptocurrency does away with central banks on money supply management. Arguably significant bank policies do lead to a reduction in the value of money over time; Many investors like the fact that cryptocurrency is tech-intensive. They see the blockchain as the foundation of the most secure payment system in human economic history. Beginners will have to take care that they have the necessary attitude to risk for cryptocurrency trading.