Cryptocurrency Trading: How to Choose a Coin and Be Comfortable with Exchanges
Cryptocurrencies are a new asset class that behaves like other risky assets- with an added level of technical difficulty
What would you do if you knew that in a month, inflation in your country would be 1,000 percent? There are very few good answers to that question, but a lot of people would desperately try to move to another asset class and avoid the official currency. While the unfortunate central bank would labor and sweat to rein in the hyperinflation, owners of cryptocurrencies may find the value of their assets protected.
This is just one reason why people may adopt cryptocurrencies. They are the digital age's answer to the weaknesses in traditional asset classes.
What is a Digital Coin
Trading cryptocurrencies starts with understanding the technology behind digital coins, but also the philosophy behind the technology.
Up until 2009, an asset would have a centralized record. Even "virtual currencies" were centralized and amounted to little more than in-game purchase tokens. But what differentiates Bitcoin is that its record is fully decentralized, depending on calculations performed on machines all over the world. There is no one entity that is in charge of recording transactions, money supply or ownership. Every Bitcoin transaction is self-verified, encoded with a time stamp and the owner's unique digital signature.
Bitcoin is protected by cryptography and only gigantic technological effort could break the security of the chain and abduct the transactions.
But all of this is just the shiny surface of the sea, while underwater rocks threaten the investor's ship. Scams, theft and shady altcoins may turn immediate loss for anyone touching the cryptocoin market without preparation. Even the usual daily fluctuations may prove too stressful for those used to trading fiat currencies or other asset classes- a 10% drop in price is nothing, and there is constant talk of bubble conditions and an imminent crash.
The cryptocurrency market consists of many bigger or smaller exchanges, and pairs are traded just like on the Forex market. But volatility is much higher.
A wallet is a necessity when picking a cryptocurrency. You need a special client to store and move your funds. Wallets come with different functionalities and levels of difficulty- some are a breeze, others require technical knowledge. Some wallets are extremely risky, and tokens may not have a proprietary wallet to be stored. Cryptocoin exchanges offer an online wallet for fast trading, but those are the most risky storage solutions.
Cryptocurrency Trading Mindset
All that said, a well-prepared investor could venture into cryptocurrencies, being well-prepared to act quick and avoid losses. The cryptocurrency ecosystem allows for many roles, and the level of risk of each role varies. Buy-and-hold may work excellently as a strategy for some currencies, while others would require vigilant monitoring and a quick reaction. Initial Coin Offerings come with much hype, but also the potential to wipe out value within minutes. Low-volume trading is the bane of obscure coins.
Those are just some of the issues you will encounter in this course, as you become more confident in trading Bitcoin and what is known as "altcoins". You will become aware of exchanges, social trading platforms, the risks of online exchanges and the profits and losses of mining cryptocurrencies.
Cryptocoins seem simple on the surface but the matter quickly grows complicated. Our aim is to break down the major problem issues, so that the user, investor or trader always has a strategy to resort to and perform the trades with speed and confidence.