The financial world has witnessed a plethora of changes, one of which is the introduction, implementation, and rapid emergence of cryptocurrencies. Given its unique nature and growth over the last decade, it has managed to grab the attention of amateur crypto traders and veteran crypto traders alike. If you want to become a crypto trader and a good one at that, this article should tell you what you need to know.
What is Crypto Trading?
Just like any other form of trading, crypto trading is the exchange of one cryptocurrency for another cryptocurrency or conventional fiat currency.
There are a ridiculous number of cryptocurrencies on the market today, and the number seems to be on the rise with every day that passes. Each cryptocurrency is valued differently from the other, which means that you will have to carefully choose the cryptocurrencies you want to invest in to make a profit.
What affects the value of a cryptocurrency?
It is critical to keep in mind that cryptocurrencies do not possess any intrinsic value. In other words, they are not backed by the government or any other regulatory body. This is unlike traditional fiat currencies like the US Dollar (USD), which is backed by the government.
Governments do not issue cryptocurrencies. They are created in blockchain networks using blockchain technology. The first cryptocurrency, Bitcoin, was born in 2009 out of blockchain technology.
As mentioned, cryptocurrencies do not have any intrinsic value. So how are they valued? Here are the primary factors that determine the value of a cryptocurrency:
Supply and Demand
Supply and demand is, by far, one of the most critical factors when it comes to cryptocurrency value. If a cryptocurrency is easily available and in low demand, its value will drop. On the other hand, if it is scarce and in high demand, its value will shoot up. Another thing you need to keep in mind as a crypto trader is that there is a limited supply of cryptocurrency tokens, which is instrumental in dictating the price of the cryptocurrency.
Difficulty of Mining
The value of a cryptocurrency is affected by how difficult it is to mine Proof-of-Work (POW) tokens. Cryptocurrencies that are difficult to mine POW tokens for tend to be valued higher as their tokens are considered a scarce resource.
Media and Public Sentiments
The media plays a crucial role in furthering and creating perceptions. It does not take the media much time to whip up a frenzy and cause havoc. One viral, negative piece of news about a cryptocurrency can cause its value to drop before you know it. Public sentiment is critical since most people do not take the time to find the facts. The most viral and accessible information is likely to get the public to jump to conclusions before the facts do. On the flip side, positive publicity for a cryptocurrency can cause its value to skyrocket.
Nature of the Blockchain
The nature of the blockchain created for the cryptocurrency also determines its valuation. Blockchain technology is used to solve a plethora of real-world problems and is assumed to be highly secure. In other words, blockchains are perceived to be stable, which is why cryptocurrencies with stable blockchains are more appealing to crypto traders.
One can also calculate there crypto tax by using free crypto tax calculator available in the market.
How do you become a Crypto Trader?
There are a few steps you can follow as you begin your journey of becoming a competent crypto trader. Here’s how you start:
Select the Cryptocurrency you want
Start by choosing the cryptocurrency you want. There is a whole buffet of cryptocurrencies to choose from on the market. Bitcoin is the first and the most popular cryptocurrency today and has been for a while. You will have to do your research and cautiously select the cryptocurrency you want based on mining difficulty, the public’s view on the cryptocurrency, and a bunch of other factors. It is a time-consuming process but you will have to do your research to take calculated risks.
Getting the right exchange
There are a variety of crypto exchanges that you can choose from regardless of your experience level as a crypto trader. Depending on the type of trading you are doing, you will have to do your research and list down the pros and cons of the exchanges you are considering.
Exchanges for Amateur Crypto Traders
As a newbie, be sure to look out for relatively more popular cryptocurrency exchanges. Examples of such exchanges are Binance and Coinbase. These two exchanges are well-known for their large catalog of coins and accessible user interfaces. As an amateur crypto trader, you cannot go wrong with a crypto exchange that is easy to navigate.
Exchanges for Intermediate or Experienced Crypto Traders
If you find yourself further along than the novice crypto trader, you can tap into the relatively more advanced crypto exchanges. These exchanges have an extensive catalog of cryptocurrencies at your disposal. However, they are not as easy to use or navigate as the exchanges recommended for beginners. Examples of advanced crypto exchanges are CuCoin and Bittrex. However, it is important to note that you will need to have crypto-tokens to trade on these exchanges as they do not support fiat currencies such as the US dollar.
If you are just getting started as a crypto trader, this should help you navigate any crypto-related confusion that may come your way and prevent you from making the same mistakes most amateurs tend to make.