An Introduction to Cryptocurrency Trading: The Present
Since their introduction, cryptocurrencies have gradually advanced from a fascination of the developer community behind its introduction to a product that is embraced by investors and some of the globe’s largest financial institutions. By finding their way into the mainstream, thanks in large part to the ebb and flow of news cycles characterizing their benefits and drawback, cryptocurrency accessibility has also improved with the passage of time.
Where are Cryptocurrencies Traded?
There are multiple places where interested investors and traders can get involved with trading cryptocurrencies.
The most popular destination for people just getting started is the exchanges that have sprouted up across the globe. These exchanges generally handle all the compliance involved after a user’s identity is verified and fiat funds are transferred.
Some exchanges do not accept fiat currency, and strictly exchange one cryptocurrency for another. While it reduces the need for compliance and increases anonymity for users, it also adds steps to the process. Furthermore, funds or cryptocurrencies can be transferred to exchanges from cryptocurrency wallets which are commonly referred to as ewallets.
Some online brokerage houses also offer trading in cryptocurrencies, making it fast and easy to get involved. However, the one drawback investors may encounter is higher fees. While these entities oftentimes make it easier to short cryptocurrencies and benefit from leverage (otherwise known as margin trading), these strategies present a double-edged sword.
The final place to trade cryptocurrencies is in more traditional financial services arenas. These may include European bourses or even the Chicago Mercantile Exchange and Chicago Board Options Exchange which introduced futures. Nevertheless, there are many barriers to joining these venues. Getting involved with these institutions requires strict licensing and high capital requirements, raising the barriers to entry.
Furthermore, they are tightly regulated products, have exhibit rules relative to crypto exchanges, and are only accessible for trading only during specified timetables.
Multiple Ways to Participate
Buying and selling cryptocurrencies is the most straightforward way to participate in the revolution, but there are other ways to get involved as well.
For more tech savvy individuals, mining cryptocurrencies is one way to be rewarded. By sharing computer processing power to help confirm blockchain transactions and mine new coins, miners are rewarded with cryptocurrency.
What are the Different Forms of Cryptocurrency Analysis?
Although different from most traditional investment products because of their unique attributes, trading cryptocurrencies follows most of the same conventions. Analysis generally falls into two broad categories: fundamental analysis and technical analysis.
Cryptocurrency Fundamental Analysis
Fundamental analysis is a form of analysis dedicated to understanding intrinsic value.
Determining intrinsic value basically means assessing the true value of an asset. When an asset is perceived as undervalued, investors and traders typically want to buy the asset. This is anticipation that it’s value will rise towards its intrinsic value over time. When an asset is viewed as overvalued, investors and traders will typically want to sell the asset. This is due to the expectation that prices will decline towards the intrinsic value as time passes.
Unlike most currencies which typically respond to changes in monetary policy (interest rates), fiscal policy (taxes, government spending), politics, and even economics (inflation, GDP growth, and unemployment), cryptocurrency fundamentals rely on a different set of variables.
Because there is no centralized institution(s) governing their exchange and trade, cryptocurrencies are much more sensitive to the total coins in circulation. Furthermore, they are impacted by deflation, how many coins have been mined, mining difficulty, the velocity of coins (how quickly they move around the system and the frequency), and most importantly, sentiment.
Emotion plays a larger role in trading cryptocurrencies relative to other assets, making it essential to keep an eye on both the news, new technologies, and how the market feels about current events.
Cryptocurrency Technical Analysis
Technical analysis by definition is the study of price behavior and how prices are changing over time.
Although past performance is not always indicative of future price behavior, it is a good barometer for assessing how prices moved in the past and how they might act in the future.
While still a very young marketplace, cryptocurrency is a promising playground for technical traders seeking to employ more traditional price analysis strategies. Due to the fact that pricing is readily available via charting software, adding technical indicators is a breeze, making them a useful tool for evaluating price action, volume, momentum, and a number of other characteristics that are important for technical traders.
Start Trading Cryptocurrency Today
With all the options available at your fingertips, there is no time like the present to get started trading cryptocurrency. Begin taking advantage of one of the most exciting global marketplaces. Armed with an exchange account, your possibilities as an investor are truly limitless as you enter the future of finance.
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