4 Things To Know If You’re Trading Cryptocurrency

The boom in mainstream cryptocurrencies has become virtually impossible for even casual traders or investors to ignore. In the late months of 2017 we’ve witness bitcoin and some of its main alternatives (known as altcoins) climbing to incredible highs. If you were watching and you hadn’t invested before, you had to at least ask yourself the question: should you start trading these digital currencies before their values skyrocket even higher?

I can’t answer that question for you. Investing is ultimately a personal decision and should be done with the utmost care and consideration. However, with the knowledge that people all over the world are now weighing the decision of whether or not to “buy in,” so to speak, I can briefly discuss a few things it’s important to know if you’re even considering it.

1) You Probably Won’t Buy “A Bitcoin”

This is a concept that a lot of people who are familiar with bitcoin tend to dismiss with an eye-roll or something similar. However, if you’re not used to cryptocurrency yet, it’s something that’s important to recognize. Simply put, you do not need to buy an entire bitcoin (which right now means spending nearly $20,000) in order to invest in cryptocurrency. A famous teenage investor who’s already made over a million dollars buying bitcoin put it about as clearly as it can be put: you can actually buy a fraction of a bitcoin. He recommended buying $100, $50 worth of a bitcoin as a “stocking stuffer” during the current surge, implying he believes it’s still a good time to buy. That specific advice isn’t the point here however. The point is that you can follow the advice if you choose to because you can buy a tiny piece of a bitcoin. Knowing this just makes the market that much more accessible.

2) Your Wallet Matters

When you buy and store cryptocurrency, what you’re really doing is securing your access to a given amount that you paid for. That access is controlled via your cryptocurrency “wallet,” which in function operates more like a digital currency bank account than anything else. A guide to bitcoin wallets will tell you that there are various kinds: hardware wallets, software wallets, and even paper wallets. These all have different ways of working, different security concerns, and different levels of convenience. But the one you choose matters. For example, a software wallet has internet access and might be the best choice for you if your goal is to trade regularly; transactions can be conducted quickly, and sometimes there are even some analytical tools included in a wallet program or app. However, a hardware wallet (a paper wallet or a USB device with no direct internet
access) might be better for long-term storage; it won’t need quick transaction access, and it’s more secure due to its separation from the internet. Ultimately, researching your wallet options is as important as analyzing the currencies themselves when you get started.

3) Many Aren’t Buying The Current Surge

Right now it’s hard not to be excited about bitcoin and other cryptocurrencies. With their values soaring, investors becoming wealthy, and more investors teasing that this is only the beginning, it’s certainly tempting to hop aboard while there’s still money to be made. If you search around the internet you’ll find predictions that bitcoin could reach $100,000 in 2018, or even approach $1,000,000 by 2020. At the same time, however, it’s a good idea not to get completely caught up in the wave of optimism, because there are plenty of knowledgeable, experienced analysts who see things very differently. Most notably, Warren Buffett, perhaps the most famous investor on the planet, has referred to bitcoin as a “real bubble,” warning that a sharp decline may be coming. You don’t have to believe one view or the other entirely, but it’s good to recognize that the opti
mism isn’t universal.

4) Cryptocurrencies Are Extremely Volatile

It might be most important, if you’re considering buying a cryptocurrency, to recognize that they remain very volatile. Volatility and upward trends are not mutually exclusive, which means that even as most cryptocurrencies have climbed significantly in value, there have been sharp and at times even dramatic ups and downs within the trends. A bitcoin investor today, for example, has to be comfortable with the idea that bitcoin’s value might drop by as much as $1,500 in a single day, only to rise $2,000 the next. In this sense it’s a very challenging type of asset, and one that requires firm strategies.

Important Resources

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  • Do your best to avoid day trading distractions. Especially the 10 I list here.
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