These days with bitcoin’s price hovering above the $9000 mark again and mentions of blockchain and bitcoin making an appearance in the election campaigns of US presidential candidates, cryptocurrencies seem to gain more traction. Apart from that, some banks in Europe started charging negative interest to even retail customers and other financial markets don’t promise the same returns as crypto markets.
Especially for Millenials, the stock markets have constantly underperformed, so much so that in the 2018 Edelman Millenials with Money study 31% stated that they were interested in using cryptocurrencies.
If you’re currently contemplating to start trading cryptocurrencies, there are a few things you should know before you start. Mainly because you wouldn’t want to invest in something, you don’t really understand.
Don’t worry. In the following paragraphs, we will guide you through the most important things you’ll need to know about cryptocurrencies and what speaks for trading them.
What are cryptocurrencies?
Cryptocurrencies are digital currencies designed to work as a medium of exchange and secured by cryptography, which makes it nearly impossible to create counterfeits or spend the same money twice. Most cryptocurrencies are built on blockchain technology, making them decentralized and immutable. Unlike government-issued currencies such as the dollar or pound, cryptocurrencies are generally not issued by a central authority, which makes them immune to government interference.
Some characteristics worth noting
Some of the characteristics of cryptocurrencies are worth noting before starting to trade.
- Cryptocurrency transactions are irreversible, therefore always make sure the address you’re sending money to is the correct one or your crypto will be lost forever.
- Cryptocurrency transactions are pseudonymous: all transactions are stored on a public ledger including your wallet address. However, this wallet address does not contain any data that could directly identify you, making it a pseudonymous system.
- Cryptocurrencies are global and fast: when transferring cryptocurrencies, country-borders don’t make any difference in speed or transaction cost. If you transfer to your neighbour or to your friend on the other side of the ocean, the transaction will certainly be faster than traditional bank transfers and most likely a lot cheaper.
- Cryptocurrencies are permissionless: anyone in the world can start using cryptocurrencies, no permission required.
Why trade cryptocurrencies?
There are some advantages for traders when trading with cryptocurrencies compared to more traditional assets.
- Easier to enter: the barriers to starting trading cryptocurrencies are a lot lower than if you want to start trading stocks. On Bitcoin.com Exchange, for instance, you’d only need to verify your mail and set-up 2-FA to start trading and with just $10 you could place your first trade.
- Smaller market spreads: spreads in cryptocurrency markets are smaller than in forex markets, making it more likely for you to be able to sell/buy at the price you want
- Margin and Leverage Trading: on many crypto-exchanges even as a small trader you can make use of features like margin and leverage trading.
- High volatility: can be a blessing and a curse at the same time. But if you’ve set your parameters and follow your trading strategy, high volatility will be more of a blessing.
- 24/7: Cryptocurrency markets never sleep so you can trade at any time, no matter where in the world you are.
- Be at the edge of technological advancement: Blockchain and cryptocurrencies are often seen as tools that will shape the future of finance.
Do your own Research aka #DYOR
Just buying something because your co-worker recommended it to you? That can work well if you get lucky. Especially in the world of cryptocurrency, one should be a little bit more careful with recommendations by others, not least because often the people advising you to buy something, could be the ones most profiting from your purchase.
Instead of relying on others, we highly advise you to always do your own research. To get you started, we’ve listed up a number of cryptocurrency-related publications you can use to learn more about a certain cryptocurrency before investing in it. They’ll also give you a better understanding of trends in the industry which will help you make more informed trading decisions.
And if you’re a busy person and can’t scroll through all these media, set-up an account on feedly, create a list of publications you want to follow and get all relevant articles in one go. The best part is, they’re free to use and have a well-designed app.
Please note, this is by no means a comprehensive list, but should merely give you an idea where to begin.
For an overview of price trends, trading volumes and exchanges you can start with these platforms:
With the above information, you should have a good first idea of what cryptocurrencies are and why it can be an interesting idea to start trading them. If you feel confirmed in your desire to start trading, go for it.
We’ll be introducing you to all the things you need to set-up in order to trade cryptocurrencies in our next post. Stay tuned!