The high gains experienced by cryptocurrencies such as bitcoin and ethereum over the past year have created much interest and hype in this space. Even major investment banks that previously spoke negatively of the crypto movement have opened trading desks to address demand from their clients.
This article will explore why cryptocurrency trading is so popular, the difficulties involved and how to get started.
The growth of crypto
Interest in cryptocurrencies is being driven by two main factors:
- Long term growth – The value of crypto currencies has grown astronomically over the past 18 months, and this makes it very attractive to investors who speculate that it will continue to rise over the long term. People also hope to identify new coin offerings that will have the same explosive growth of bitcoin and ethereum.
- Volatility – While the value of cryptocurrencies is increasing, it is by no means a sure thing, and prices are incredibly volatile. Traders hope to use this volatility to make money in the short term, buying and selling to take advantage of the peaks and troughs.
Many see the potential of bitcoin in particular as a store of value, in the same way that gold is used today.
Cryptocurrency trading challenges
There are several reasons why cryptocurrency trading is an uncertain and volatile business:
- Complicated space – while it is not essential to have an understanding of blockchain and the specifics of how cryptocurrencies work in order to trade them, it is still beneficial to have a broad understanding of the concepts. Even at a high level, cryptocurrencies can be very complex, and the economics of how coins function differs from one coin to the next.
- Signals are not the same as stocks and shares – many of the traditional measures that traders use to assess the value of stocks and shares don’t apply to cryptocurrencies. This means that people are having to invent new ways to determine whether a coin is a good investment.
- Don’t have the historical data – Further to the fact that we don’t have good tools and measures, we also don’t have good historical data to tell us how cryptocurrencies react to different events. This makes it difficult to predict how their value fluctuates relative to geopolitical and economic inputs.
- Regulatory landscape is immature – as much of the technology that underpins cryptocurrencies is new and relatively unproven, regulators are understandably nervous. In some jurisdictions they have sought to limit trading of crypto currencies by blocking exchanges and imposing new regulation. You wouldn’t want to be holding a large amount of cryptocurrency in a country where it suddenly became very difficult to sell.
In order to buy or sell crypto currencies you will first need to register with an exchange or cryptocurrency trading platform. The best cryptocurrency exchange for you will depend on what exactly you are looking to buy and how sophisticated you need it to be.
Coinbase is generally seen as a good entry point, but you can get more advanced trading features on other exchanges.
Cryptocurrency trading Courses
If you’re new to this space, there are a number of crypto currency trading courses available that will have you get up to speed quickly and save you lots of time researching the topic.
You should view purchasing an online course as an investment in helping you to make longer term trading decisions further down the line.
Cryptocurrency Trading: final thoughts
The future of currencies like bitcoin and ethereum is far from certain, and it is even less clear for the multitude of altcoins that are now available on the market.
That being said, the huge gains that these currencies have seen over the past year will no doubt continue to draw attention to the space.
If you’re serious about investing, make sure you take steps to educate yourself before you get started, and be wary of the the commentators who think that this could turn out to be a bubble waiting to burst.