IMPORTANT THINGS TO KNOW BEFORE INDULGING IN CRYPTOCURRENCY TRADING

IMPORTANT THINGS TO KNOW BEFORE INDULGING IN CRYPTOCURRENCY TRADING
Posted on 6.9.2018
Written by Eva Ciga

Over the years the stock market has reigned supremacy in generating long-term wealth and standing the tides of business volatility to deliver impressive returns. However, the entry of cryptocurrencies has given these markets a stern test and turned the table in favor of the crypto markets. The digital currencies have steadily risen in popularity and are gradually becoming irresistible to investors looking to take advantage of the price swings.

However, the conversation about taking a plunge into crypto markets is encouraging and confusing in equal measures. While the business world has seen virtual currency investors pursue these trailblazers, many are skeptical, and it’s easy to understand why; sources of authentic cryptocurrency information are hard to find.

Warren Buffet once said, “Never invest in something you don’t understand.”  Although the saying applies to all forms of investments, it sounds perfect for anyone thinking of cryptocurrencies investments. Confused about cryptocurrencies? Are you a seasoned trader or an investor eyeing a deal in the virtual currencies? Here are the pertinent tips and specifics you should know before investing.

  1. Understand cryptocurrency terminologies

Before you examine the dos and don’ts of cryptocurrency trading, you must first understand the terminologies used by traders in the arena. You will need to become “literate” otherwise you will dive into a peculiar world where everyone is using jargons and vernacular you’ve never heard before. Here are some of the most prevalent terms that will bring you up to speed with the cryptocurrency trend.

ATH: This the abbreviation of All-Time-High. In the cryptocurrency context, this term denotes the highest price milestone a token or coin has ever reached. When a cryptocurrency hits new ATH investors make profits pretty regularly and makes it difficult for new investors to enter the scope.

HODL: this is a misspelling of the word HOLD. The term refers to holding onto cryptocurrencies without the worry of the flow or the receding price tide in the market. HODL simply means “holding on to your cryptocurrency for dear life.” It is an incredible technique used by amateurs and novices who lack the experience in day-trading.

Shilling: This describes the act of marketing something for selfish gains.

Mooning: This refers to the radical increase in the price chart of a cryptocurrency.

FOMO: This is the abbreviation of “Fear Of Missing Out.” When joining the cryptocurrency trade, you must consider your position. Don’t let the fear of missing out steer you into a world where only those that are a zealous benefit. FOMO can also be described as the impulsive urge to capitalize on a certain cryptocurrency’s unexpected price performance.

Bagholder: when an investor buys a currency at an ATH, then the prices lower, he/she becomes a bag holder. The precise decision in such a scenario is always to hold the currency until the prices are favorable.

  1. There are at least 1300 cryptocurrencies

If you have been following the trends in cryptocurrency, you have probably heard a lot about Bitcoin. It’s no surprise given bitcoin was the first tradable virtual currency in the market. Currently, it controls the lion share (about 10%; at the time of writing) of the total $800 billion market capitalization of all digital currencies. However, there are more than 1300 other cryptocurrencies that you can familiarize with and buy.

Take your time and research widely to understand what each cryptocurrency entails. Remember no research is sufficient, keep updating yourself constantly (on a daily basis) because everything about cryptocurrency is changing at a fast pace.

  1. Get familiar with blockchain technology

Although trading cryptocurrencies have attracted immense emphasis, it’s actually the backbone (blockchain technology) that holds the real value.

Blockchain technology is an ingenious invention that forms the infrastructure that cryptocurrencies are established on. It’s a digitally decentralized ledger that maintains records of virtual currencies transactions in a way that is efficient and safe.  The decentralization makes this technology more exciting since information is not archived in a central hub. Therefore, there is no unified data center that can be targeted by cybercriminals.

Besides, since “miners” work around the clock to authenticate transactions. The payments and transfers can be completed much quicker than via traditional banking. Better still, Blockchain technology eliminates the need for intermediaries thus bring transactional costs down. This also offers unprecedented control and transparency by allowing members of the digital currency community to call the shots regarding the future development.

However, this is a promising technology that is still a work in progress. For this reason, it’s not perfect and is bound to experience hurdles such as verification slowdowns and transactional speed.

  1. Does your country support cryptocurrency trading?

Although cryptocurrencies are the most pursued business investments in the world right now, they are not accepted everywhere. Some countries are hesitant about adopting the digital currency idea because of their decentralized nature and the fact that they are unregulated. So before you make any move, research and determine if your country permits the use of or trading of cryptocurrencies.

In some countries such as Morroco, Nepal, Ecuador, Bolivia, Bangladesh, and Kyrgyzstan, there is an outright ban on buying of goods/services using the digital currencies. In addition, there a high possibility that this list will grow.  Other countries such as Russia have been considering outlawing the use of cryptocurrencies.

What’s more? Different countries impose different taxations when dealing with the digital currencies. In some countries like The United States, all cryptocurrency trades are treated as taxable events whereas the digital currencies are regarded as properties. This means you will have to pay capital gains when converting your cryptocurrency to USD. You will also attract taxes on any transaction made between two cryptocurrencies. For this reasons, it’s wise to consult a legal or financial advisor. You should search help you make informed decisions before you embark on cryptocurrency investments.

  1. Miners play a critical role

Ever heard of “miners” in the cryptocurrency world? Even as blockchain continues to enlarge, we cannot ignore the crucial roles played by miners in verifying and accounting for transactions and payments made in cryptocurrencies. Crypto-mining entails the use of high-powered computers that solve the multi-faceted mathematical equations on a highly competitive basis to authenticate and log all transactions.  In return, miners get rewards in the form of cryptocurrency coin or a transaction fee linked with a block. It’s a worthwhile task, but the enormous costs of the hardware and electricity can be the major stumbling block.

  1. Crypto markets have low barriers to entry

With the entry of blockchain technology in the financial service industry landscape, it’s expected that some aspects will change. However as things stand right now, there is no barrier to the entry of a new cryptocurrency. If you have the financial muscle and time, you can constitute a team of well-versed coders to write blockchain and deliver a new cryptocurrency to the market. New virtual currencies are hitting the market every month, and the rise is showing no signs to cool off.

  1. Follow cryptocurrency social media groups

The cryptosphere is complex, and it can be daunting to stay up to speed with all the happenings. For this reason, if you are planning to invest in any cryptocurrency, it’s always good to be part of a well-informed community. Join Facebook, Telegram, Slack, and subreddit groups. Interact with the community and try to understand what others think about the cryptocurrency. Ask questions and seek help as often as possible. This will keep you informed. Also it helps you gauge the authenticity of the project you have or are just about to invest in.

  1. Be wary of market manipulation and PD groups

As aforementioned, the cryptosphere is a free-for-all market, so there are a lot of weird things such as scams, fraudsters, phishing attacks, hacks, and imposters. Therefore it is highly advisable that you take stringent measures to remain safe rather than sorry.

Be wary of the pump and dump (P&D) groups. The P&D is a scenario where a group of investors coordinates and consolidate funds to buy a cryptocurrency at a specified time. The investors then jack up the prices; the sharp spike snares unaware investors prompting them to buy the coin thinking it’s hot. This raises the prices, even more, resulting in what is called the pump. The original group then sells at the increased value, thus leading to a crash or the dump. Some P&D might bring you impressive returns, but although it might be enticing, you should desist from joining these groups especially when starting.

Conclusion

Understanding the facets of cryptocurrency trading is a giant step towards identifying viable projects in the sector. It’s an unprecedented catalyst in you strides to successful investment which aligns you with the modern technological era. We hope that these facts and tips about cryptocurrency will help you embark on a fruitful journey and work your way to the echelon of renowned cryptocurrency investors.

All the best!

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