Understanding the Basics of Cryptocurrency Trading

“You will find out who swam naked only when the tide begins”                                                                                                                                                              Warren Buffett

When market grows, everyone thinks that it is very easy to make money and really a huge number of people earned a lot of money just because they were at the right time in the right place. This is like to win in the lottery, these people have no idea about money management and like many people who won in the lottery, they will start buying expensive cars, going to casino, wasting money with no sense, etc. This money will naturally disappear very quickly from them, the same thing will happen with crypto investors who think they understand what they are doing, in fact 99% of them do not and accordingly this money will be redistributed. Example :

We play poker, I am an experienced poker player and you are not, I have only 10 thousand dollars and you have a million. The more I will play with you, gradually, your money will be transferred to me, because of my experience.

As in the example, this will happen on market too.

Even if there is not going to be a strong growth wave as it has been so far ago and you will not be able to win “stupid money,” but having the trading skills and understanding of the things that stand by each coin, monitoring news, I think that in perspective you will be able to win even more. So let’s clarify the point we have mentioned above:

The theme is not new but you are not late, it is right time to focus and understand what and how works.

What is the potential of crypto currency?

Let’s move on and talk about the future of the crypto currencies. Crypto currencies are measured by their capitalization that now it’s about 144 billion dollars and is generally miserable in comparison with the amount of money, financial instruments on market. That means that theoretically, growth of the same bitcoin up to $ 25,000 or growth of ethereum up to $5,000 is very real, everything is possible and there are no limitations. We are accustomed to measure on the chart various financial instruments and we can say for sure that “Stock is overbought or oversold” but if you will look at big companies such AAPL or MSFT at the beginning of dot-com bubble when this companies were just created you will see a graph similar to bitcoin’s now. It’s 17 years since the dotcom bubble was broken and these companies are at levels higher than then-peak, with even more AAPL, for example, reaching nearly one billion capitalization. Discussions about that “crypto currencies market is a bubble” are useless, but for sure we will have ups and downs as in other markets.

Blockchain community from the start was created as an open source, that mean everyone had equal access to information in order to make bitcoin a currency with which it will be possible to act / buy and all people work to achieve this goal. We will talk about the 2 largest by capitalization currencies:

  1. Bitcoin, which many of us have already heard, is like a brand. My attitude to it is like to a trust index for the whole industry. Bitcoin is like the DowJones index, if you see that bitcoin grows be sure the other coins probably grow even faster. Here everything works like in stock market, if the largest by capitalization currency grows, other smaller currencies grow faster.
  2. Ethereum, which was created by Vitalik Buterin, which offers the opportunity to create smart contracts on blockchain. All crypto currencies are created based on blockchain technology and there are many grounded beliefs that ethereum can beat bitcoin by capitalization. One of these beliefs is that you can build economy on ethereum because of a technology property that you cannot change history, based on these smart contracts you can do business very easy on internet.

Most people believe that the ethereum capitalization will outperform the bitcoin’s capitalization. It’s important to note that the current capitalization of bitcoin is $ 66,925,283,129, accounting for 46.5% of the entire market and if we look in the past, we can see that this dominance is decreasing, which means that more people learn about alternative coins, that are called altcoins, in order to diversify their risks. This is the reason why in our articles we will focus on this type of coins, if you want to know more about it, we invite you to read the rest of our articles.

We have already mentioned in the above that many bitcoin owners sell it and buy altcoins in order to diversify risks, also the first global idea that I would like to share here is that people sell bitcoins to buy ethereum because with its help it is possible to create many interesting things and I personally, agree with them.

Why it makes sense to invest money in altcoins?

Problems

This summer all players have been looking forward for a possible softfork or hardfork (split from 1 coin into 2 coins) on bitcoin conditioned by the problem that on bitcoin are made a huge amount of transactions, increasing the commission in the network as well as increasing the amount of unprocessed transactions. The main idea is that a bitcoin block has only 1 MB where a limited amount of transactions can be stored.

Solutions

They all wanted to do segwit – move the transaction signature that is inside the block to outside called “onchain signature”, these was some changes what was needed in bitcoin. No one did know what to expect and how to react after this. The second important moment is that ethereum will move from “proof of work” to “partial proof of stake”.

What does all this mean?

All of the above mentioned means changes, changes mean additional risk, people understand this and start to diversify their risk investing in altcoins. Examples:

  • From bitcoin they move to different bitcoins forks like DASH and LiteCoin in order to survive the next storms caused by the news that appear and will appear, investing in alternative currencies. If you will look at the graphs of DASH or LiteCoin for June and July, you will see how this process started.

basics dash charts

  • From ethereum all people are moving to ethereum classic, even a very large private fund was created based on ethereum classic by the same person who have created an ETF on bitcoin for trading called “GBTC”, those who have access to the OTC market can trade this as an alternative. This fund analyzes bitcoin movements, volatility is extremely high and is very similar to what’s happening on the cryptocurrencies now. Ethereum classic is a fork of ethereum with smaller capitalization and he can grow x10 without any problems and in connection with the changes that will take place on ethereum, ethereum classic is a good alternative to survive this hurricane.

basics etc

Summary

I my opinion these are the basic things that every crypto trader should now know and based on them you can do some analyze and have a better understanding of situation. Further we will talk about how to buy your first coins and how to trade *and make money.