Cryptocurrencies have been steadily growing in popularity over the past few years, and for good reason. These digital means of exchange have features that could make them far superior to our traditional fiat currencies.
The growth in the popularity of cryptocurrencies has caught the eye of many investors and traders and now crypto trading has become quite popular. Cryptocurrency markets are highly volatile but volatility in markets also produces some great opportunities and that is why crypto traders all across the globe are looking to throw their hats into the ring.
What is crypto trading?
Crypto trading just like any other trading is the exchange of one cryptocurrency for another or fiat currency. There are a number of cryptocurrencies on the market these days and they all have different values, so if you trade one cryptocurrency for another there is a good chance you could make a profit.
What determines the value of a cryptocurrency?
Cryptocurrencies do not carry any intrinsic value as they are not backed by any assets or governments. Traditional fiat currencies are usually backed by governments or gold or some other form of asset. The fact that a government has stated that a currency possesses value and two parties to put their trust in that value gives traditional currencies their values.
Cryptocurrencies, on the other hand, are not issued by governments, they are created within blockchain networks. The original cryptocurrency, Bitcoin, was created to incentivize users to contribute their computing power to authenticate transactions on their Blockchain network. So how are cryptocurrencies valued? Let’s take a look at a number of factors that affect the value of a cryptocurrency.
Supply and Demand:
One of the main factors that determine the value of a cryptocurrency is the supply and demand for it. If a cryptocurrency has a high token supply and low demand, this will cause the value of the cryptocurrency to drop as well, the converse is true as well. If a crypto-token is in short supply the value of the cryptocurrency will tend to rise. The limited supply of tokens can also drive the price high, as was observed with Bitcoin, which has been capped at 21 million tokens.
Public Sentiment and Media:
The media plays a large role when it comes to perceptions. Negative publicity for a cryptocurrency can see the value of its tokens plummet, especially since the cryptocurrency market is still in its nascent stage any bad publicity can cause the public sentiment to shift easily. The converse, in this case, is true as well, if a cryptocurrency gets some good publicity, it’s almost certain the demand for it will increase and, thereby, the value of the cryptocurrency will also rise.
Nature of the Blockchain:
The nature of the blockchain the cryptocurrency is created for also plays a large role in its valuation. Blockchains that solve real-world problems are assumed to be more robust and will tend to stand the test of time, therefore, making these cryptocurrencies a little less volatile than others. The stability offered by cryptocurrencies that maintain important blockchains can be more appealing to crypto-investors and will thereby drive the price of that cryptocurrency up.
The difficulty associated with mining Proof-of-Work (POW) tokens is a major determinant of the value of a cryptocurrency. Cryptocurrencies that have a high mining difficulty for POW tokens indicate that the supply of such tokens is scarce, and this can cause an upward movement in the value of the cryptocurrency when demand for tokens rises.
How to become a crypto-trader?
The cryptocurrency market has been growing over the past few years and more and more people are getting interested in these digital assets. There are a number of people who are grabbing the new investment opportunities cryptocurrencies have to offer and are making a killing on it. A person who transacts in cryptocurrency frequently, with the purpose of making a profit can be considered a crypto-trader. Participating in the crypto market is relatively simple when compared to traditional financial markets. Let’s take a look at how you can become a crypto-trader.
Select a Cryptocurrency
The first step to becoming a crypto-trader is probably the most obvious one, select a cryptocurrency. This is one of the most important steps to trading in cryptocurrencies successfully. The crypto-market is full of opportunities and there are new virtual currencies on the market almost every month.
There are presently around 2,000 different cryptocurrencies on the market today and, even though Bitcoin, Etherium, and Litecoin lead the market when it comes to valuation, there are a number of smaller ones that carry great potential. So it’s crucial to do your research so that you don’t miss out on any new opportunities this market has to offer.
Find the Right Exchange
For a crypto-trader, there is an almost unlimited number of exchanges to choose from. These exchanges have their own pros and cons depending on the type of trading you are doing and the cryptocurrencies you hold.
Exchanges for Beginners
As a novice crypto-trader, you will probably want to purchase a popular cryptocurrency. Exchanges like Binance and Coinbase have easy to use interfaces and have a large catalog of coins that you can trade with. The easy-to-use interface and the large variety of cryptocurrencies available on these exchanges make them perfect for rookie crypto-traders.
Exchanges for Experienced Crypto-Traders
The slightly more advanced crypto-exchanges have a large catalog of cryptocurrencies that you can choose from, but these exchanges do not have the easy-to-use interfaces that beginner crypto-exchanges have. Exchanges like Bittrex and CuCoin charge lower transaction fees than other exchanges, but you will need to hold crypto-tokens to trade on them as these exchanges do not allow you buy cryptocurrencies with fiat currencies like the US Dollar.
Exchanges for Veteran Crypto-Traders
Decentralized Exchanges (DEX) allow crypto-traders to trade in small-cap coins and tokens. These small-cap coins are usually not available on centralized exchanges like Coinbase and allow you to trade directly on the blockchain. Tools like Metamask will help you execute trades, if you are looking to invest in some small-cap coins exchanges like Ether Delta and IDEX are good options.
Select the Right Wallet
A crypto-wallet is essential for any crypto-trader. Crypto-wallets store the public and private keys of your token and can be used to transact and track the ownership of cryptocurrencies. There are 4 mediums you can use as crypto-wallets.
Exchanges can be used as crypto-wallets as they do store the private and public keys for your tokens. The downside to using a crypto-exchange as your wallet is that they are susceptible to attacks by hackers. It is a good idea to keep a small number of your tokens on the exchange to maintain good liquidity while trading.
Online Wallets are the next best option to store your crypto-keys. These wallets offer a higher level of security when compared to exchanges as they are stored on a separate entity. But since these wallets are online they are still susceptible to malicious attacks.
Software wallets are one of the most preferred ways of storing cryptocurrencies for most crypto-traders. These wallets usually store the crypto-keys locally on the device to which they are downloaded, but even these wallets can be attacked through malware.
Hardware wallets are specialized pieces of hardware designed to store cryptocurrencies. Most of these wallets come in the form of USB sticks and are considered the safest way to store cryptocurrencies. Even though they are the most secure way of storing cryptocurrencies these wallets can also be compromised. If the company you procured the wallet logs all the private keys you store on it, it could raid your wallet at any time.