What to know before investing in Cryptocurrencies

25-05-2018 | Dojo |

What to know before investing in Cryptocurrencies

According to one of the top financial analysts at Olsson Capital, most governments are slowly embracing the use of Cryptocurrencies. On the other hand, crypto developers are working day and night to develop as many Cryptocurrencies as possible. Currently, there are over 3,000 crypto coins in the market today.

What are Cryptocurrencies?

Cryptocurrencies are digital currencies. They use cryptographic encryption technique to secure and regulate their generation and also in verifying their transfer.

Examples of Cryptocurrencies include Bitcoin, Ethereum, ZCash, Dash, EOS, NEO, Stellar, Ripple, IOTA, TRONX, etc. the list is quite huge.

Cryptocurrencies are decentralized and they are not like the normal ‘fiat’ currencies, which are regulated from a central point called a central bank.

There are still lots of critiquing going round about the use of Cryptocurrencies and some governments are see them as a threat to their fiat driven economies.  However, most are accepting them and have even come up with rules to regulate them.

Ways of investing in Cryptocurrencies

Apart from Bitcoin, most of the other Cryptocurrencies are a lot more than just digital currencies.

For every cryptocurrency, there is the blockchain network which tries to solve a specific problem facing humanity. For instance, if you look at IOTA, it has a blockchain network which provides its users with the ability to connect with their internet of things efficiently and ensure that information is shared in a safe secure environment.

Apart from the blockchain network, cryptocurrencies also have crypto coins, which are also known as tokens. The Tokens are the digital currencies which are used in transacting within the specific blockchain of every cryptocurrency. For example, in our case of IOTA, for you to use the services of its blockchain, you will require owning some MIOTA tokens.

In addition, there are also exchange platforms where the crypto coins or tokens are exchanged. Here people trade crypto coins. These exchange platforms can be grouped into two: the fiat crypto exchange platforms and the pure crypto exchange platforms

Fiat crypto exchange platforms

These are those trading platforms that allow the traders to use their fiat currencies to purchase Cryptocurrencies. For instance, the trader can use US dollars to purchase Bitcoins or any other crypto coin for that matter depending on the list of crypto coins listed by the broker (the one managing the crypto exchange).

These Cryptocurrencies are important when starting your cryptocurrency investment since you will require to first convert your fiat currency into a cryptocurrency before starting to trade. Examples of such crypto exchanges are Coinbase, Kraken, Bitstamp, Gemini, etc.

Pure crypto exchange platforms

These are exchanges which require the trader to have a prior fund of crypto coins. The trader must have some crypto coins like Bitcoins or Ethereum or any other crypto coin to begin with. This is because the only way the trader can deposit funds into their trading accounts with these brokers is in the form of crypto coins.

Examples of these cryptocurrency exchanges are Binance, KuCoin, Bittrex, Cryptopia and Poloniex.

Apart from the fact that they do not allow trading using the fiat currencies, they are some of the most developed crypto exchanges and most of them provide very good trading platforms.

Tips for becoming successful in cryptocurrency trading

Cryptocurrency trading is somehow similar to other financial market trading ventures, with the only difference being that you are dealing with digital currencies in this case.

Choose your crypto exchange platform carefully. When choosing the exchange platform, you should look at whether the broker/exchange platform is regulated and licensed, the fees charged per trade as well as the list of crypto coins offered – the more the coins the better. You also need to look at the commission, the transfer speed and their customer services.

Crypto trading is quite different since the brokers charge a fee per trade. A trade, in this case, is exchanging one cryptocurrency with another. Most of this information is readily available on the websites of the crypto exchanges and you can also look at the reviews of other traders.

And if you want to trade in a pure crypto exchange, you will still need a fiat crypto exchange.

Choose the crypto coins you want to invest in wisely. You should do a research of the cryptocurrency whose coin you want to invest in. this will help you in predicting whether its value will rise or drop.

Have a trading strategy. You should have a set of rules which will dictate when you should place a trade. You should not just buy and sell crypto coins haphazardly. There has to be a strategy behind every trade placed.

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