Intro to Crypto 2

For an aspiring blockchain enthusiast it is inevitable to know the basics of the crypto market, why is it important, main tools and happenings. After an introduction to the basics last week, we are going to continue today in exploring the hype in how to make money in the crypto world.

For crypto trading and investment there are 2 tools you should be familiar with- wallets and exchanges, which are our first stop today. Then we see the two different approaches on how to make crypto profits- trading and investment. We are going to see, how exactly do these work, advantages and disadvantages, and explore some resources to know more.

Let's dive in!

Crypto tools

Wallets

Public and private key of a wallet

Crypto wallets are a tool for storing your coin and token assets. Crypto wallets form part of a certain blockchain, and they are the ones holding the coins for you. The wallet splits in different compartments according to how many coins you put in- as each coin is accounted for on a different address. The different coins are parts of their own blockchain, and much like fiat currency bank accounts, they can not be mixed. The wallet is encoded with public key cryptography, where the public key is your address, and the private key is the super secret key to your funds. Although it is very hard to discover the private key just by guessing, private keys which are not properly saved by us are the prime target of hackers. This is why different solutions have developed, such as online wallets, desktop wallets, or hardware wallets. I recommend this comprehensive wallet guide on Medium to know more.

Exchanges

Crypto exchanges are a gateway from the real to the crypto world, and the main platform where prices are created, changed and influenced. Crypto exchanges provide a possibility to exchange traditional fiat currency to crypto coins, and exchange one token or coin for another. The movements on these exchanges are in the end what greatly define market value. There are several platforms out there, and plenty in development, such as Binance, Bitfinex, Bitrex, Bancor. They differ in what coins do they host, how much transaction fee is charged, community hype, and mostly safety-security measures. To be able to trade on a platform, a lot of users store at least a certain amount of coins on the exchange, which makes it a preferred target for hackers.

Trading

Cryptocurrency trading is a way of leveraging the high volatility on the market. It is a way to make profit by buying assets on a low value and selling them when the value goes high.

There are several types of crypto trading:

  • Scalping- reaching for small profits on many trades

  • Momentum- riding a short trending currency until maximum price

  • Technical- following the signs of diverging and converging trades

  • Fundamental- trading based on deep knowledge and analytics, listening to news, rumors and the ability to interpret all this information into market insights

  • Swing- similar to fundamental trading with shorter time period

It is worth mentioning, that there are also many pump and dump groups exploiting the crypto market. These are individuals who team up and pump high the value of a coin in a short time, then abandon at a very high price point in the same moment, letting the price steeply drop. This means manipulation with market values, and is considered an unethical approach.

The key to successful crypto trades is technical analysis- a tool which uses statistics and analytics to evaluate securities and identify trading opportunities. The same principles are used as in stock trading. These are tools such as MACD- moving average convergence/ divergence, which helps identify changes in strength, direction and momentum of a price. EMA- exponential moving average, made for 12-26 days, or 50-200 days for long term, and can serve as a base trigger for buy/sell decisions.

Candlestick chart

Cryptocurrencies are most often displayed on candlestick charts- a method originating from Japan, invented about 300 years ago. Candlestick charts indicate changes within the trading period and the direction of the price. Red candlesticks signify dropping price levels, while green or clear candlesticks are growing prices.

There are vital patterns, which signify where the market is growing. Bullish tendencies mean price growth is anticipated, while a bear market is where prices are decreasing.

There is plenty to know about cryptocurrency trading, but keep these points in mind:

  • Crypto trading requires analytical capabilities and courage

  • Trading is a skill improved with plenty of practice

  • Homework is crucial- to know and keep on being constantly updated about the news and happenings in the crypto field before starting to trade

  • Time - successful crypto trading requires you to be informed and practice, both of which require enough time invested to be profitable

  • Trading is very exciting, but the high volatility and quick changes in the 24 hour market can be stressful especially when trading with high stakes

Investing

Another strategy to make money in the crypto market is investing in startups and projects with purchasing tokens.

Blockchain and the crypto market has opened the door to plenty of new ideas, ventures and budding companies, similarly to the .com boom in the beginning of the millenia. The major difference right now, is that with the spread of internet and crypto investment can come from anywhere, and vica versa, we have the possibility to invest in a myriad of startups via tokens and ICOs. We invest in these ventures, in the belief that their future value will way surpass what we contribute now. We the hope that our investment will grow to be the future Google or Amazon. There are 2 main entry points on the market.

First, we can invest in a crypto token when there is a drop in the price, and we can jump in in these bearish moments. This strategy applies to projects which are already established, and the coin is listed on some exchanges.

Secondly, we can take part in ventures in their starting phase in an ICO. ICOs are initial coin offerings, are tools for fundraising for development in the company, in exchange for tokens which can be considered as stake in the venture, or as utility to be used on the network once established. The company at this point is not established, there might not be any product yet, so besides the potential and the idea there are not many guarantees for our investment. On the other hand, this gives us the possibility to participate early on, which in a few years can grow greatly, and we can have a rich return on our investment.

For example, we can have a look at the return on investment of ICOs completed before on coinist.

The key to a successful investment on the crypto market, is yet again information, and doing our due diligence when it comes to investing. When considering investing in an ICO it is crucial to carefully examine:

  • The project idea, and whether the product is bringing value- read carefully the whitepaper to get to know and evaluate the idea

  • How does this project idea compares to others on the market, and can this grow into a widely adopted solution and disrupt an industry

  • Are there any threats in regards of country or international regulations in regards to the project

  • The team behind- what kind of experience do they have, is there any relevant degree, did they participate in previous blockchain ventures, and if there is a star member or advisor backing the project

  • Community- how does the public feel about the project, did they manage to build support? A strong community puts value behind the project and drives investment and excitement

  • News- do check what the press says about the company and the ICO, but do watch out for paid marketing articles

  • Ratings- more and more companies and websites provide expert analysis and ratings of ICOs, and give you insight on how this project compares in the market; such as ICObench, ICOrating.

It is crucial to do this research, as there are plenty of scams, and even from the legitimate startups only 44% of these ventures survive past the ICO. Our research will not guarantee our future fortune, but it does help against throwing our money at a scammer or at a bad project.

There is plenty more things when it comes to crypto trading and investment. If you are interested in knowing more, perhaps want to jump in on this new exciting venture, then I have the perfect thing! This Udemy course named 2018 Cryptocurrency Masterclass: Trading and Investing is fantastic, informative, practical and interesting! Let Alex and Stan take you through the world of crypto and teach all you need to know!

With this we conclude out intro to crypto! If you have any questions, comments, or you would like to learn more, then go ahead and reach out!


Happy crypto journeys!

Barbora