Cryptocurrency has given us more millionaires (and even billionaires) in the last few years than probably any other up and rising FinTech product. There is a fair reason why it is such a darling of the world’s biggest names and is slowly making its way into the pockets of the commoners. Trading crypto makes up a topic for a passionate conversation. While traders have grown in numbers, the market knowledge about cryptocurrencies and the nuances of trading crypto still remain fairly undiscussed. It is something that you learn by doing or by closely studying any literature that there is about this topic.
If you are someone who believes in learning while doing, we can get you started real quick with CoinField. Signing is simple, easy and free.
1. Understand How Crypto Markets Work
It is important to not only understand how cryptocurrency markets work but to develop a knowledge of how cryptocurrencies themselves work. Anyone who has been around a while in the crypto world would know that blockchains are the main constituents of cryptographic money. Blockchains are in fact the system which gives cryptocurrencies their essential quality – cryptography.
Cryptocurrencies are different than digital currencies in the sense that they:
- are cryptographic in nature.
- are based on blockchain.
- are decentralised.
Cryptocurrencies eliminate the need for a third party by being democratic peer-to-peer networks. Blockchain is the essential system which makes sure that this technology is fool-proof. On the blockchain, every transaction is unique and has complete information of the source and the recipient. It also makes sure that no transaction gets repeated over time.
By creating a chain of ownerships, each code that appears on the blockchain gets saved on a different computer, with the rightful ownership. For hackers to change this data, they would have to hack all the computers that the data gets stored in. This is why blockchains are so secure.
The only way to make a change in the existing code is when an owner uses a cryptographic key to change it. The code changes in all the computers simultaneously to record a transaction or change in detail. This change is only additive. That means, if you sell your coins to someone else the data change will only be an addition of a coin and not a subtraction. This is what makes this peer-to-peer network more secure than any hacker’s intentions.
What Is Cryptography Anyway
Cryptography also makes a blockchain safe. To put it simply, different ‘blocks’ in a blockchain get linked together by cryptography. Which means that there is a complex encryption taking place between two blocks in terms of codes. If someone makes an attempt to alter the data and to disrupt the cryptographic link between two blocks, it is easy to spot and quick to identify within the blockchain.
In a peer-to-peer network, it is important that the peers trust the network. That is one of cryptocurrency’s claims to fame. As explained above, it presents a network which is reliable.
People were not very sure about cryptocurrencies to begin with. Bitcoin was the first crypto to make a hype and create an uproar. With its rise in popularity, some myths began to start shedding off. In its early days, people looked at bitcoin as the money for gamblers and gamers – something either shady or not of serious significance. More than that, people did not see the need for it. The fiat money works just about fine.
Conceived in 2009, Bitcoin took a fair time for the media to pick up on it as something ‘cool’. Television drama ‘The Good Wife’ featured bitcoin as the main subject in its third season with the episode “Bitcoin for Dummies”, somewhere around January 2012. Another popular sitcom, The Big Bang Theory also featured the lead characters (who were bonafide as nerds) ‘geeking out’ on cryptocurrencies. Because for the first time, it looked like the nerds will literally be making money with mathematics (mining).
Same year, Jim Cramer made a scene (figuratively and literally) in CNBC’s Mad Money by not granting bitcoin the status of true money. He said, ‘There’s no central bank to regulate it; it’s digital and functions completely peer to peer.’
While Jim Cramer knew the right things, he assumed the worst of them. Decentralization and the democracy of a peer-to-peer network is exactly what caught the eye of present day traders and investors.
Gaming companies like Zynga, widely famous companies like Dell, trusted service providers like WordPress and even OKCupid began romancing Bitcoin, allowing people to make payments in crypto. This led to more adoptions.
Fast forward to the pleasant month of February 2021, world’s most innovative carmaker, Tesla announces its plan to invest in bitcoin and also accept payments in it. Elon Musk’s interest in Bitcoin led to a price surge and even in the middle of a deadly pandemic, Bitcoin shooted to the moon.
The point of telling an animated story was to reach this part – the moral of it. Trading crypto is not a straightforward way – you cannot make a prediction and just stick by it. Every day is new, the world events affect the prices and predictions may go wrong. But the very fact that governments are now keen on adopting cryptocurrencies and even developing their own, means that things are looking sweet.
When it comes to crypto, the fluctuations in market caps are a feature and not a glitch – they are bound to happen. It is important that a trader has thick skin and the eyes to read the thin words.
The 5 Golden Determinants Of The Crypto Market
The economics of crypto markets is easy to understand if you are familiar with the age old but still gold rules of supply and demand. As decentralised markets though, they do remain somewhat free from many economical and political concerns.
The world is still only just warming up to the idea of trading crypto. From a report published in 2019, the estimated number of crypto traders in the world is somewhere around 51.2 and 52.4 million. And we are sure that was just the tip of the iceberg. With the recent events, more adoptions and better accessibility, trading crypto has become more attractive for newbies and experts alike.
There remains some kind of uncertainty around crypto markets though, especially in terms of understanding how this money even really works.
To understand the market though and the fluctuations of prices, here are the five most important things to know:
While we consider bitcoin as the digital gold, modelled in the same way as real gold (from an economic point of view), supply plays a super important role in understanding how the system works. The total number of coins available plays a huge role in creating value. Some coins have limited supply(like bitcoin, litecoin, etc) while some have an unlimited supply. This means that they will have a supply forever (dogecoin). Along with other factors, this is an important consideration for their overall fluctuation. Another thing that is of significance in our discussion of supply is the rate at which these coins get released, destroyed and lost. However it is practically impossible to lose a coin physically, it is very much possible that the owner forgets the key to his wallet and so his part of the coins are now not undergoing any transactions.
Market caps of cryptocurrencies are their perceived values. The values may depend on many overlapping factors and therefore fluctuate. As a general rule, you can derive any coin’s market cap by multiplying the total number of coins that are currently mined by the price of a single coin at any given time.
Adoption and knowledge are very important for cryptocurrencies. But so is the hype. More the demand, more the hype (figuratively, subject to the kind of hype in question). Just like any commodity, for cryptocurrencies to have a definite and growing value, they should be wanted. Media creates hype and makes buying, selling or trading crypto even more worthwhile. Good traders always keep an eye on the currencies that are being talked about. For example, dogecoin was much talked about in the news with famous celebrities posting or sharing about it and thus the value skyrocketed for a short while.
With adoptions seeing a snowball effect, integration takes the front seat in understanding the crypto market performance. Paypal, Apple, and many more renowned brands are looking for ways to integrate crypto into their systems. While choosing a cryptocurrency to trade or invest in, it is important to look at how it integrates with existing infrastructure and payment systems. If a currency looks promising, it may be a valuable one to look at.
The cryptocurrency market is always surrounded with controversies, discussions and technological as well as procedural advancements. It is important to look at the current world events – security breaches, regulatory updates, economic setbacks, etc. and then see a pattern they may be leading to in terms of the future of the currency you are considering.
2. Choose An Exchange And Open An Account
While choosing an exchange to create your trading account with, look for features that are appealing in terms of beginning your trading journey. If you are already somewhat experienced you must know what specifically you are looking for while trading crypto. There are many features to consider:
An important aspect to consider is the fees. Pick exchanges that give you a good deal. Trading and buying fees is the most important factor for some people too. It is however recommended to dive a little deeper and look at what some of the terms actually mean. For example, maker and taker fees or deposit and withdrawal fees. A deeper analysis will help you actually understand which exchange actually offers you the best price.
Some exchanges let you start out with demo accounts. Which means that even though you may not be a pro member, you can see and understand the exchange before you actually start trading.
Some of the salient features that make exchanges secure are 2-factor authentication, biometric authentication, transferability of funds, etc. It is important to read about them while you decide on an exchange.
Understanding how to start buying crypto can be an overwhelming task. Most exchanges have dedicated pages and people dedicated to the cause of making people learn their platforms. Choose a platform that makes the effort to onboard you as a trader or buyer.
It is important to be able to get the help you need when you need it. Exchanges put in their time and effort in creating a strong, intelligent and caring support system for their customers.
While you do need to open an account with an exchange to trade crypto, it is also important to know some terms to function smoothly.
Bullish and Bearish Markets
As a newbie trader you will hear this a lot – the market can be bullish or bearish.
A bull market can be classified an uptrend in the prices. The traders or investors may be of the opinion that the uptrend will continue and give long term benefits.
Whereas a bear market may be the one where the prices are facing a downward trend. The traders or investors in this case are of the opinion that the downtrend will continue in the longterm.
3. Start Trading Crypto: Make Your First Trade!
Now, to the exciting part! Let us get you up and start with your first ever trade. In order to begin, you need to make an account with your preferred exchange. For this short tutorial, we will make a trade on CoinFIeld.
To become a crypto trader without any prerequisites, you simply have to go to coinfield.com and sign up.
Once you have signed up and done the initial KYC, you can go to your dashboard and begin trading already.
To do this, click on ‘Trade’ on the left side of your dashboard. This will take you to your trading portal. On CoinField, there are two options to trade: Quick Trade and Advanced Trade. We will teach you how to make a trade with either of the options.
This option lets you buy and sell crypto with a Price Limit instead of market price. The trader sets the buying price and the selling price, anticipating the rise and fall of the cryptocurrency. In the Advanced mode you can make trade with the Bid (while buying) and Ask (while selling) model. If you place an order with a price and amount far from the other orders displayed at the moment, it can take longer for your order to get accepted. In this case, you can cancel your order and place another more “realistic” order to the current market.
You can also choose for the system to buy and sell your order by the best price available in the market. To do this make ‘Market orders’, where you don’t have to set a price limit. You must only inform the crypto and amount you’d like to buy or sell, and then “submit” the request.
This mode is ideal for those who do not want to set a price limit and make anticipating orders. Directly buy/sell the cryptocurrency with quick transactions at the current price. This is also the same as ‘Market Orders’ in the Advanced trading tab.
That’s all you need to begin. Go to your CoinField Dashboard, select a market to trade in and get into the game now!