In Part:1 of this series, you got introduced to the basic characteristics of cryptocurrencies and blockchains, delving further into their history, the popular cryptos, use cases of blockchains, and more. These would form the bedrock for this part, wherein you would become familiar with the investing and trading aspects of these digital assets.
Let’s get started.
Let’s understand how to buy cryptos. Ideally, you can purchase cryptos from a cryptocurrency exchange. These platforms store cryptos and trade in them to let you buy or sell them in exchange for cryptos or fiat money. There are many such exchanges - Binance, Gemini, Kraken, Coinbase - to name a few.
Follow the below simple steps to get started with crypto purchases:
Cryptocurrency is a valuable asset, you need to store it securely. Cryptos are stored in specific wallets known as crypto wallets, which are devices or software. These programs ensure that your crypto assets, private and public keys, are safe and in one place.
Wallets are of various types - hosted, non-custodial, and hardware wallets.
General guidelines for setting up wallets:
The cryptocurrency realm is lucrative, but you need to be aware of certain inherent risks. Some of these are:
This is a key characteristic of cryptocurrency, which makes most traders take only calculated risks. Even the most popular Bitcoin has witnessed drastic ebbs and lows in its journey, with its prices plummeting dramatically, resulting in a market meltdown.
While cryptocurrencies underpinned by blockchains are secure and tamper-proof, some incidents of scams, frauds, and market crashes have caused concerns about their security aspects. Check well on the related issues before investing in crypto.
Unlike fiat currency, crypto is still in the process of gaining mass adoption. Most countries in the world are only considering whether to accept cryptos. That said, the lack of proper regulations concerning crypto makes people deterred from using them. While countries like El Salvador have adopted Bitcoin as a legal tender, there are those like China, where crypto trading is prohibited.
Long-term crypto investors focus on holding the crypto assets for an extended period, waiting for the right time to sell them. They are not concerned about daily price changes and look for long-term gains. Some strategies include - HODLing, Diversifications, and staking.
Short-term crypto investors use technical analysis and other tools to study and make decisions based on hourly or daily price fluctuations of the assets. This could bring in substantial returns if planned properly. Setting clear goals, staying updated with market trends, and thorough research are ways to emerge successful.
Crypto investing comes with some risks and uncertainty. The primary reason for this is the volatility of the crypto assets, whose prices rise and fall drastically. However, that shouldn’t deter you from investing. There’s a lot of money one can make through crypto investing if carried out smartly.
One of the ways to deal with the riskier tendency of these digital assets is to diversify your portfolio. A portfolio is the various categories and amounts of each asset that you own. In crypto, most people commit the mistake of relying on just one coin like Bitcoin. The drawback is your returns will be adversely impacted if Bitcoin’s price falls dramatically.
Through diversification, you can focus and invest in multiple crypto assets like Bitcoin, Ethereum, Polkadot, etc. That way, even if one plummets in price, you have others to compensate for the losses. Additionally, you enjoy the different benefits of each cryptocurrency.
Crypto trading has gained significant momentum with the evolution of Bitcoin in 2009. Lately, other cryptos like Ethereum, Cardano, and Polkadot have also garnered attention. Crypto trading platforms focus on understanding the price fluctuations in various crypto assets and enabling traders to buy or sell them. Some reputed trading platforms are - Binance, Kraken, Gemini, Robinhood, eToro, and more.
While there are many trading strategies, commonly used ones by traders in crypto are:
In this, traders do dozens of trades in a single day. They rely heavily on technical analysis and charting patterns to make trading decisions. It is an exciting and fast-paced approach.
This trading spans days to weeks, and there’s no need to stay glued to computer screens. It is relatively less risky, requires little upfront investment, and swing traders set up stop-losses to conduct the trades.
It is a long-term trading strategy where the traders believe in holding the specific crypto asset for longer to make future profits instead of selling it off.
As a trader, you must have a sound trading strategy in place. Otherwise, you are bound to incur significant losses. Chalk out your strategy, which guides you on when to buy or sell the various cryptos in your account.
Conducting extensive research before investing is very important. Understand the market dynamics, how the various crypto assets are performing, and such.
Various indicators are used in crypto trading – which act as signals to traders, helping them make informed decisions. Lack of thorough knowledge of these metrics could prove detrimental to your trading process.
Fear Of Missing Out (FOMO) is a common phenomenon encountered in crypto trading. While it might seem lucrative in the short term, always analyze the project, its objectives, its team, and more before making a buying decision.
Investing and trading cryptos, key trading strategies, practices to avoid common mistakes, and ways to manage risks are covered in this part of the series.