Many investors would like to trade cryptocurrency because it’s such an unpredictable asset. As long as you can analyze the market correctly, trading crypto can provide you with much better results than traditional investments.
One of the most common goals of cryptocurrency traders is to accumulate Bitcoin or make a profit in USD. The value of the crypto market is much easier to increase in USD, though it is more difficult to increase Bitcoin value. If you use an exchange like Coinbase Pro, you can trade altcoins against Bitcoin to track the value of your portfolio.
If you actively exchange cryptocurrencies, you might end up losing your cryptos to the market. Cryptocurrency value is highly volatile, which is why traders can experience a sudden loss of money after trading digital assets. That’s why crypto enthusiasts HODL their Bitcoin.
What are Cryptocurrencies?
Cryptocurrencies come in many different types, but their one thing in common is that they operate on blockchain technology, making them decentralized. With cryptocurrencies, the financial system is decentralized, which has several advantages over a traditional financial system, such as:
- It eliminates almost all the expenses related to banks
- It is less expensive to send and receive international transactions
- There is no need to trust the Federal Reserve because inflation is coded and finite supplies are guaranteed by code.
- Many financial derivatives such as exchanging strategies and loans can be programmed directly on a specific cryptocurrency blockchain, eliminating the need for financial intermediaries.
One of the largest cryptocurrencies, Bitcoin, is used as “digital gold”. Ethereum has a market cap of $210 billion, which makes it the second-largest cryptocurrency. On the Ethereum blockchain, developers can create decentralized banking functions like lending and trading through smart contracts.
Selecting a Cryptocurrency
No single cryptocurrency is the best, but certain cryptocurrencies are better suited for particular uses. For instance, Bitcoin is the best cryptocurrency as a reserve asset because it is widely-used crypto and it has a limited supply.
Most of the greatest cryptocurrency projects are listed in the top 50 of cryptocurrency market capitalization. Small market cap cryptocurrencies either have questionable use cases or have failed to deliver on their commitments. Small market cap cryptocurrencies are usually riskier than large market cap coins such as Bitcoin and Ethereum.
We should invest in cryptocurrency projects with a strong team behind them. We recommend reading the whitepaper of each cryptocurrency to find out what it’s all about. This will clarify how the crypto works and what its purpose is.
Decentralized finance cryptocurrencies, also known as DeFi, are the most popular altcoins of 2021. Cryptocurrencies other than Bitcoin are called ‘altcoins’. Ethereum’s blockchain powers DeFi tokens, which replace old banking functions by code. Yearn finance, Compound, and Uniswap are among the top DeFi tokens, these tokens up more than 500% in the past 6 months. Here is a list of the highest value DeFi tokens by market cap:
- Uniswap (UNI)
- Maker (MKR)
Over the past year, altcoins that are not DeFi have seen an improvement in value as well. As we mentioned before, one of the largest altcoins by market cap is Ethereum, which has increased from $90 to over $1,800 in less than one year. Because of the variety of financial applications built on Ethereum’s blockchain, It has got lots of attention.
How Does Cryptocurrency Work?
Coins and digital assets powered on blockchain technology are referred to as cryptography. Blockchain technology keeps a record of every crypto transaction on every node based on the blockchain. A node is a computer that is part of the Bitcoin network which can mine bitcoins. A false transaction entered by one of these miners will be invalidated by the correct ledger.
Based on the majority of the miners’ records, the accurate ledger is determined. It is theoretically possible to hack a blockchain by controlling 51% of the cryptocurrency’s network, This is known as a 51% attack. by the way, such a process would be economically impracticable, since it would require billions or trillions of dollars worth of computer hardware.
A cryptocurrency system requires a set of private and public keys to allows transactions. Your private key is uniquely associated with your cryptocurrency wallet address and permits people to send you cryptocurrency. Only you have access to your wallet’s private keys, which are used to approve any transactions sent from the wallet. in contrast to common opinion, Most cryptocurrencies aren’t finite. The Bitcoin total supply is limited to 21 million coins, but many altcoins, like Ethereum, have no cap on total supply.
Investing in Cryptocurrencies: Pros and Cons
Many investors are attracted to cryptocurrency for its volatility. It’s not unusual for a cryptocurrency’s price to fluctuate more than 10% in a single day. This is great for investors seeking high returns, but for a risk-averse investor, investing in cryptocurrency is not recommended.
Investing in cryptocurrencies: Steps to follow
See how to trade cryptocurrency in 5 steps.
- To begin, create an account with a cryptocurrency brokerage
If you don’t already own cryptocurrency, you’ll need to create an account with a crypto brokerage. some of the best crypto brokerages on the market are listed below:
You can choose from the above options because all 3 offer simple user interfaces, Also a variety of altcoins. To create an account, you will need to supply your crypto broker with your identification information, just the same you would with a stock broker. Setting up an account requires some other common data, such as:
- Social Security number
- date of birth
- email address.
- Your account needs to be funded
After registering, to start, you need to connect a bank account with a crypto broker. Most crypto brokerages provide access to bank funding through debit cards and wire transfers. Generally, wire transfer is the cheapest method to fund your account. for free wire transfer, you can use Coinbase or Gemini.
- Make a decision, which cryptocurrency do you want to invest in?
Among active cryptocurrency traders, Bitcoin and Ethereum are the most popular crypto coins. This decision makes trading with technical indicators easier because these coins move more predictably than smaller altcoins.
Most crypto traders allocate a small portion of their funds to smaller altcoins. While it is true that smaller altcoins come with higher risk, they also offer higher upside potential. In recent months, many small altcoins have experienced growth of more than 1,000%, which makes them attractive investments for risk-lover investors.
- Pick a strategy
If you’re not familiar with trading, you may consider purchasing a cryptocurrency trading course. As an experienced trader, however, you may already have a trading strategy. A lot of cryptocurrency trading strategies are influenced by stock trading strategies. Elliott Wave Theory is a very popular trading strategy used by many traders. Since Elliott Wave Theory is a psychological analysis of market viewpoint, it works most reliably for risky assets such as cryptocurrencies.
5.Store your cryptocurrency
Actively trading cryptocurrency makes it necessary to store your funds in exchange to access them. When you purchase a cryptocurrency, you ought to get a cryptocurrency wallet if you intend to hold it for a long time. There are two kinds of Cryptocurrency wallets, including:
- software wallets
- hardware wallets (such as Ledger)
They are both secure, but the hardware wallets are best because they hold your crypto offline on a physical device. Many investors rely on Ledger’s hardware wallets to store their digital currency assets. There are several options for software wallets on iOS, Google Chrome, and Android that are free.
Top Cryptocurrency Brokers
Cryptocurrency brokerages offer a ton of options. Investing in cryptocurrency through Coinbase is ideal for new investors. Coinbase offers a free cryptocurrency conversion service where you can convert your crypto for any other token supported by Coinbase. The following crypto brokerages are great for intermediate traders:
Though Robinhood supports only 5 alternative cryptocurrencies.
Investing in cryptocurrencies vs stock
Trading The cryptocurrency market is often riskier than stock trading, but this depends on what kind of cryptocurrency you’re investing in and how you’re doing it. Trading cryptocurrency could involve the risk of losing your money, so you should hold on to your assets for the mid to long term rather than trying to time the market, especially if you can’t accept that you may lose your money to the market.
F.A.Q: Frequently Asked Questions
What was the first cryptocurrency?
A mysterious figure known as Satoshi Nakamoto invented Bitcoin in 2009. Since then, bitcoin is recognized as the first digital currency.
Are cryptocurrencies real money?
Cryptocurrency is a type of digital asset. Some are considered money, while others are used for identity, governance, data storage, and much more.
How much can I invest in Bitcoin?
For example, if you have $100 in your bank account, you can buy $100 in bitcoin. Bitcoins can be split up to 8 decimal places. The smallest bitcoin unit is called a Satoshi, which is 1/100 of a bitcoin.
Take a look at Gemini
You can use Gemini’s crypto products to buy, sell, and store bitcoin and cryptocurrencies. Buy bitcoin instantly and get access to the tools you need to understand the cryptocurrency market and start investing through an easy interface. The Gemini Crypto Platform offers clear, easy-to-use account management options. Manage your account immediately, monitor 24-hour balance changes, and view percentage changes.