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The cryptocurrency hype train is back–and with more passengers on board than ever! Recently, the likes of corporations, billionaires, top Wall Street investors and fund managers, and even celebrities have been looking into crypto trading and investments. With this much publicity, the price forecasts for coins are at an all-time-high–a stark contrast to the early days of the Bitcoin evolution, when prices were barely trading at $1. Now, it’s not rare to hear news of BTC breaking through the $40,000 mark.
But don’t get too swept away by the cryptocurrency market’s wonderful start-of-year run. Crypto trading strategies are vastly different from traditional investment options, such as stocks, bonds, and forex. For instance, there’s no way to make trading decisions based on a company’s debt-equity ratio. Tokens are a lot more volatile and are affected by different things, such as public emotion and opinion.
Here are some cryptocurrency trading tips and other general cryptocurrency tips to prepare you for a whole new investment territory.
What steps should you take before investing in Cryptocurrencies?
1. Know what you’re investing in
Cryptocurrency involves a lot of technicalities. Tokens are stored in a blockchain–a decentralized network where data blocks are created and stored. These aren’t controlled by a single authority, and can’t be edited or tampered with. Blockchains are created for a purpose, the simplest being Bitcoin’s network, which facilitates peer-to-peer transactions without relying on financial institutions. And then you have Ethereum, which allows developers to create decentralized applications (dApps) and tokens on its network.
Other blockchains offer varying value propositions. But what’s important to know from an investment standpoint is that the key feature offered by a blockchain may affect its corresponding token’s prices. For example, on the Ethereum blockchain, Ether (ETH) is used to power the creation and maintenance of dApps. As a result, ETH is necessary as long as developers use the network. In other words, ETH will remain relevant and may even go up in value as long as Ethereum stays on top of the charts.
With that said, one of the most important cryptocurrency investment tips to remember is that you have to know exactly what you’re buying. That way, you won’t succumb to panic selling when your coin takes a small price dip after a few months of stagnation–because you know that’s how the particular coin normally behaves.
2. Don’t believe everything you read or hear
The problem with cryptocurrency is that it’s so new that there aren’t many people who know it from the back of their hands. Unlike forex trading, for example, where you can ask your mom or uncle to help you out, getting credible coin-related information from friends and family isn’t that simple. A piece of important crypto advice to keep in mind is to not believe everything you hear without firsthand verification–especially now that coins are all over the media and all over people’s minds.
Remember that cryptocurrency is extremely volatile, and the industry is so fast-moving that news from two days ago might be irrelevant today after a blockchain’s overnight development. Likewise, when you hear a friend claiming that this exact moment is the best time to buy Bitcoin because it was at its lowest possible short-term price last night, you might want to double-check the market because a few hours can mean big differences in cryptocurrency prices.
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3. Know the differences between cryptocurrency usage
Each cryptocurrency exists on a different blockchain, and each of these blockchains offers different purposes to different audiences. That’s why no two tokens are alike, and most serve varying purposes. For example, stablecoins are pegged to an asset of a specific value. Tether (USDT) is the most popular derivative and holds the #3 spot by market cap. Each USDT is equivalent to an asset valued at 1 USD. So if you own 1 USDT, you automatically own 1 USD–in token form.
On the other hand, traditional tokens like Bitcoin’s BTC are stores of value. Their value is derived from various things, from public interest to demand, scalability, and community involvement. BTC is considered “digital gold,” which means it primarily serves as an investment asset. Cryptocurrencies from more scalable blockchains like Ripple are, in contrast, more likely to be considered as a digital currency than “digital gold.”
And there are blockchains like Ethereum and EOS, which offer developers a platform to create decentralized applications. They rely on their native tokens, Ether (ETH) and EOS, respectively, to power these developments. So ETH and EOS essentially hold two purposes: a store of value and a power source for dApps. It’s important to understand these distinctions before you get into crypto day trading, so you know what you’re putting money into.
4. Beware of fraudulent practices
Despite all the good qualities of open-source networks, they aren’t necessarily completely fool-proof. For instance, anything in the digital sphere is open to DDoS attacks from persistent hackers. They’ve stolen hundreds of millions of coins before–with the most famous being the Mt. Gox incident of 2013-2014–so you must choose highly secure wallets and exchanges. Choosing the right platform will keep your assets safe from fraud.
It’s also important that you take ICOs and lesser-known altcoins with a grain of salt. It’s very common for blockchains to come out with amazing propositions to lure investors in–only for them to disappear after collecting funds. If you’re a complete beginner without much knowledge about the community, it’s best to stick to mainstream options when trading in cryptocurrency. Choosing from the top 20 by market cap is always a good place to start. ICOs and newer altcoins can come later in your investment journey.
In conclusion, while researching cryptocurrency before trading can take up a lot of your time, it remains a necessary step to stop you from losing a lot of money. The cryptocurrency tips above should help ease yourself into what to look out for, so you can choose the best options that align with your investment preferences.