4 Simple Points to Note Before You Start Trading Cryptocurrencies

Cryptocurrencies led by Bitcoin and Ethereum have enmeshed themselves in the fabric of the global economic and financial spheres. Cryptocurrency is simply decentralized money free from government interference and its value is determined by the forces of demand and supply. There are different ways to become a part of the cryptocurrency industry—you can trade or invest cryptocurrencies, get paid for products/services in cryptocurrencies, and you can choose to become a miner by investing in a mining rig/farm.

If cryptocurrency trading sounds interesting; you’ll be quick to find out that cryptocurrency trading is significantly different from stock trading. The fundamentals are different, and some people would argue that there are no cryptocurrency fundamentals to begin with. This piece provides insight into four things you must understand before you set out on your cryptocurrency trading journey.

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1. Cryptocurrency exchanges are not regular stock exchanges

A knowledge of the stock market might help you gain a shorter learning curve into how cryptocurrencies work but you can’t rely on your knowledge of the stock markets alone to navigate the cryptocurrency markets. Stock markets typically require a degree of formal accreditation and tend to be localized; in contrast, the cryptocurrency markets appear to be a free-for-all global market without gatekeepers and intermediaries.
You’ll need to go through a broker to buy/sell a stock but you can buy cryptocurrencies directly on an exchange or from the issuing company during an ICO. In addition, cryptocurrencies tend to have a fixed asset supply; the total coin supply of bitcoin for instance is capped at 21 million. In contrast, stocks don’t seem to have any cap on their supply, companies can decide to issue new stock or buy back their stock to influence market pricing.

2. Beginners might want to explore cryptocurrency stocks

If you want to trade cryptocurrencies within the scope and confines of Wall Street – you may want to consider trading cryptocurrency stocks. You may want to start with Bitcoin Investment Trust (GBTC), which owns Bitcoin on behalf of it’s investors while functioning as a fund of sorts. You may want to try Bitcoin Services Inc. (BTSC), which engages in Bitcoin mining and operations while also offering blockchain development services to other businesses. You may want to look for fund that has decent exposure to cryptocurrencies so that you can track your performance against the NYSE Bitcoin Index.

3. Coinbase is beginners friendly and Binance for more hands-on traders

Eventually, you’ll need to decide on your choice of cryptocurrency exchange – most people in the U.S. will need a choose between Coinbase and Binance – but what the two offer traders vary along a spectrum of experience. As a beginner cryptocurrency trader/investor, Coinbase appears to be the best place to start. It has a simple, clean, and intuitive user interface and it allows you to start buying and selling cryptocurrencies in a matter of minutes. If you want a more immersive trading experience, you’ll be better off setting up shop on Binance. Binance is a bit more complex to navigate and use what it lacks in simplicity, it makes up for in providing access to hundreds of cryptocurrencies; in contrast, you can only trade Bitcoin, Ethereum, Bitcoin Cash, and Ripple on Coinbase.

4. You should be ready to live with volatility

Cryptocurrencies are incredibly volatile – irrespective of whether you are participating in the market as a trader or investor, you’ll need to brace your mind of a high degree of volatility in short time frames. In the year-to-date period, the price of Bitcoin has declined by more than 57% and the market cap of the entire cryptocurrency markets has declined from $612B in January to around $222B now.
The poor performance of cryptocurrencies this year contrasts sharply with the impressive gains that cryptocurrencies recorded in 2017. One of the reasons behind the volatile nature of cryptocurrencies is that the market is mostly driven by hype and speculation; hence, cryptocurrencies will continue to remain volatile until the industry builds the critical mass for mass-market adoption and there are more widespread applications of Blockchain technology.

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