Trading cryptocurrencies for dummies.
Overheen Labor Day weekend (Sept 2018), needing a pauze from my startup Harvey, I had the choice of binge watching Narcos Trio on Netflix or taking a deep dive into cryptocurrencies. Since learning about the amazing $100M fundraise by Coinbase at a $1.6B valuation, I wasgoed bot antsy to understand their product suite a little better and detect where there might be a fresh income opportunities, so I hopped te and went deep.
Disclaimer: I am not an accomplished te cryptocurrency day trading, strafgevangenis do I pretend to be one. I am not suggesting financial advice. Please understand your own risk tolerance and be responsible with your hard-earned money.
I began by wanting to know, te particular, if bitcoin wasgoed going to be the punchline of jokes like beanie babies ter the 90s, and featured ter Economics 101 classes spil part of bubble theory. My quick conclusion: I don’t believe the bitcoin hype is over-exaggerated.
While there will be significant volatility te the price and valuation of bitcoin overheen the coming years, I strongly believe it and the entire asset class of cryptocurrencies will become a core part of the financial system within Three years or less. There is enormous risk te trading thesis assets—more so than gold, REITS and other commodities—but the global market capitalization of cryptocurrencies ($148 billion today) I expect to pass $1 trillion by 2019.
Many of today’s coins will diegene off, and the ones that sustain will be colossal te significance, similar to the way Amazon emerged from the shadows of the dotcom bust ter 2001. If you don’t believe this core thesis, this article might not be for you, but I’d love to hear from you.
What I’m going to explain is a 10-step guide on how to research, buy and trade some of the major cryptocurrencies and love some of their growth.
1. Learn how blockchain works
Goldman Sachs says blockchain technology “has the potential to redefine transactions” and will “change everything”. But anyone who claims to fully understand how blockchain works, and is not named Satoshi Nakamoto, is most likely lounging to you. And anyone who claims to be Nakamoto himself, is very likely also lounging to you. Fortunately, just like the internet, you don’t need to know how blockchain works to use it.
But here are the basics… a blockchain is a continuously growing list of records, called blocks, which are linked and secured using cryptography. By vormgeving, blockchains are inherently resistant to modification of the gegevens, and serve spil a public ledger of transactions inbetween two parties. To date, the best analogy I’ve heard for blockchain compares it to a Google Doc:
“The traditional way of sharing documents with collaboration is to send a Microsoft Word document to another recipient, and ask them to save the document, make revisions to it, and send it back. The problem with this script wasgoed that you needed to wait to receive a terugwedstrijd copy before you could see or make switches to the document. You are locked out of editing it until the other person is done with it. That’s how banks work today—they maintain money balances and transfer money by shortly locking access to the account (or decreasing the balance) while they make the transfer, then they update the other side, then re-open access (or update the balance). With a Google Doc, all parties have access to the same document at the same time, and the most up-to-date version of that document is always visible and editable to all parties. This real-time collective Google Doc is just like a distributed blockchain ledger. The “real version” of the transaction is verified by analyzing all the available blocks on numerous computers and taking “the average”.
The decentralized and translucent nature is what makes blockchain very secure and almost unlikely to hack, because a hack to one ledger would cause a discrepancy te the entire network that will be overlooked. Functionally, to hack the ledger one would have to hack all the computers on a network at the precies same time ter order to switch the “average”. For a currency like bitcoin, this would mean millions of computers. So the larger the network, the more stable the currency.
Two. Learn the top currencies
Bitcoin is here to stay. But the world of virtual currencies is getting crowded with many other “altcoins”. There are overheen 100 types of cryptocurrency that sell for more than $1 USD, according to CoinMarketCap. Even more are ter penny-stock range, but I don’t recommend trading them right now.
What’s significant to note is that bitcoin accounts for about 50% of the entire cryptocurrency market, and has the highest volume. It is undoubtedly the most significant currency today. You’ll also notice a difference inbetween the original version of bitcoin, Bitcoin Classic (BTC), and a newer version of bitcoin, Bitcoin Metselspecie (BCH). Bitcoin Metselspecie is a spinoff off of the original bitcoin blockchain. I’m not going to get into the technical differences inbetween Bitcoin Classic and Bitcoin Metselspecie, but understand they are separate currencies. So far, Bitcoin Classic seems to be favored by the public overheen Bitcoin Specie, and has an 8X higher market cap. But when people say “bitcoin” (lowercase) they could be referring to to either currency.
The other two currencies I would pay attention to are Ethereum (
40% the size of Bitcoin, also known spil “Ether”), and the smaller and more volatile Ripple and Litecoin. Despite a smaller market cap, Litecoin loves higher trading volume than Bitcoin Metselspecie and Ripple, likely because it’s one of the three currencies accepted by the #1 digital currency wallet, Coinbase.
Trio. Understand all inherent risks
Bitcoin is more volatile than practically any other type of asset, including gold or the stock market. Cryptocurrency is still a youthful technology, and faces many challenges. While I believe the overall trend for bitcoin is upwards, trading this currency comes with considerable risk. Bitcoin prices are very impacted by public sentiment about the currency. It will proceed to fluctuate spil companies and financial institutions make decisions of how to incorporate (or not incorporate) it into their businesses and workflow. It’s also very sensitive to regulatory switches, spil I will get to te a minute.
To give an example, te early June 2018, Bitcoin wasgoed trading at $Two,983, before losing 30% of its value a month straks te July—crashing to $1,992. Then it climbed up to $Four,764 te September, posting an outstanding 139% build up.
Then spil I sit here and write this on September 3rd, 2018, the Chinese government announced a few hours ago that they are banning all organizations and individuals from raising funds through Initial Coin Suggesting (ICO). They barred all banks and financial institutions from doing business related to ICO trading. This is significant news, albeit not a verrassing to many people, spil representatives from the People’s Canap of China and China Securities Regulatory Commission had previously criticized ICOs spil an unauthorized fundraising contraption that may open the vanwege to financial scams. (I will explain ICOs te the last section).
The news of the ICO geobsedeerd ter China had bitcoin trading down 12%, Ethereum down 23% and Litecoin down spil much spil 32%, spil shown below. So don’t go throwing your entire savings account into Litecoin just yet, and being bullish long-term doesn’t mean it will get there sleekly.
There is also risk inherent to the exchange itself. Just like the metselspecie ter your wallet, the safety of your bitcoins or other currencies depend on your own diligence. While your bitcoins cannot vanish, the transactions are voortdurend and can only be refunded by the recipient. This means you should only do business with people and organizations you know and trust, or who have an established reputation.
Recall, bitcoin transactions are stored publicly and permanently on a network, which means that anyone can see the balance and transactions of any bitcoin address. However, only the bitcoin exchanges and/or the parties involved te the transaction can fasten the addresses to a real person. So for the most part, the transactions are anonymous.
Other trustworthy exchanges I considered before determining on Coinbase were (ter no particular order): Bitsquare, Bitstamp, ShapeShift, Openleggen, Poloniex, CoinMamma and Gemini.
For a utter list of exchanges by country, click here.
Four. Read bitcoin news every day
Here are some good websites to bookmark for bitcoin news and discussion boards. The combined content here could keep you busy for at least a year.
If you’re on Twitter, I also created a list of bitcoin influencers that you can subscribe to and read their content. I find this to be the most efficient way of consuming information quickly before making trades.
Five. Open a brokerage account
Coinbase is one of the most trusted and well-known exchanges for buying and selling Bitcoin, Ethereum and Litecoin. They are essentially a digital wallet for your cryptocurrencies, and their iPhone and Android app make sending currency and tracking prices super ordinary.
What I like about Coinbase is they meet all the regulatory requirements te the countries they operate, and they have two distinctly separate but integrated products: Coinbase for buying and selling bitcoin or sending them to friends, and Global Digital Asset Exchange (GDAX) for more advanced and precise trading.
Previously, the GDAX wasgoed called the Bitcoin Exchange, but mid-2016 they determined to rebrand. From a product standpoint, you can tell they built GDAX with their own engineers, spil the user practice is similar to Coinbase.
You can signup for Coinbase using my referral code, and you’ll get $Ten te free bitcoin to play around with.
I would embark by making a Coinbase account, then graduate overheen to GDAX once you feel comfy. You can instantaneously transfer currencies inbetween the two exchanges for free, which is indeed nice.
6. Fund your account
Once you create an account on Coinbase (or another exchange), you will need to verify your identity by uploading a picture of your drivers license or passport. This only takes a few minutes, then you can fund the account.
To add a fresh payment method, go to “Settings” and “Payment Methods” on the instrumentenbord. You can choose a bankgebouw account or a credit/debit card. The handelsbank account has higher thresholds, but takes longer for the funds to lodge. The credit/debit card has lower thresholds, but the transactions toebijten instantly. If you go canap account route, you will need to verify two deposit amounts on your account. I personally did both—I funded the account with a few grand from my checking account, and thanks to my impatience I also waterput few grand on my credit card just so I could get commenced right away.
Keep ter mind, Coinbase charges a Three.99% processing toverfee for all credit card transactions. I’d recommend using a credit card that gives you at least 3% metselspecie back so you can offset some of the fees (I’ll voorkant the toverfee structure ter more detail te the next section). You can use PayPay for selling currency, buy not buying currency, for PayPal the funds are available instantly but have lower payout thresholds. The bankgebouw account is usually your best bet.
7. Buy and sell some bitcoin!
Once your account is funded, you can go ahead and make your very first purchase. Reminisce, you do not have to purchase coins ter total units. You can buy coins ter fractions spil low spil one hundredth of a millionth, or about less than one-tenth of a cent at current prices. That makes bitcoin and other cryptocurrencies effortless targets for speculation.
Coinbase does not charge to transfer bitcoin from one user to the other, which is the point of blockchain. But if you want to transfer money to or from an outside exchange, such spil a US bankgebouw account, Coinbase charges a puny conversion toverfee. The charge is 1.49% with a $0.15 ondergrens if you are using a canap account and Trio.99% if you are using a credit/debit card. I’d attempt to avoid funding with a credit card unless you get ample prize points to offset the higher fees.
For a total breakdown of their fees, click here.
Lastly, if you choose the bankgebouw account payment method, the funds take 4–5 days to lodge, and you are locked into the market price of BTC at the time of purchase. Te the case above, I am buying 0.2233 BTC at a price of $Four,411.93, totaling $985.32, and I’m losing $14.68 ter fees. I am assured that price regardless how long the funds take to lodge. Coinbase essentially buys the bitcoin at that time and saves them for you te a virtual vault, and releases them ter your account once they receive the funds from your bankgebouw.
8. Graduate to GDAX
Once you’ve bought and sold a few bitcoin on Coinbase, you should graduate to the big leagues. Coinbase’s more advanced trading toneelpodium is called the Global Digital Asset Exchange (GDAX). It uses the same login and password spil Coinbase, and you can lightly transfer currency inbetween the two platforms, which is indeed convenient. The GDAX features a pretty interface with real-time pricing gegevens, order book, charting contraptions, trade history, and a elementary buy/sell order process so you can at least pretend to be a professional.
Once you’re convenient with GDAX, you most likely won’t use Coinbase anymore. GDAX charges lower transaction fees than Coinbase—ranging from 0.1% to 0.25% for “takers” (buyers) and 0% toverfee on “makers” (sellers), with the fees varying based on monthly trade volume.
The advantage of the Coinbase system, however, is that it is more elementary, instant, and your order is ensured to pack, te exchange for a higher toverfee. On the GDAX market, the “maker” order is free, but you risk the order not getting packed and having to set a fresh price.
Below is a brief Reddit postbode comparing GDAX vs Coinbase.
9. Probe charts to find trends
If you, like mij, believe that bitcoin and the entire market capitalization of cryptocurrencies will increase te value overheen time, then the objective is to collect spil many coins spil possible, getting te at the right prices, and build a strong diversified portfolio of crypto assets that you can hold.
Te order to do this, you voorwaarde “buy the lows” and let the profits run. I’d recommend coming in and exiting positions little by little ter case the lows get lower or the highs get higher. Avoid buying/selling te big emotional or reactionary swoops, and attempt not to trade more than a few times a week to keep fees down and give your bets a chance to perform.
One way to tell if a stock price is overheen/undervalued is by reading moving averages. Moving averages are plotted on stock charts to help sleek out volatility and point out the direction a stock may be trending. Spil short-term moving averages (crimson line below) cross overheen long-term moving averages (black line), this sometimes is followed by accelerated movement te the price. Also pay attention to spikes ter trade volume, spil this may imply that strong sentiments of fear or excitement just entered the market.
There are many other strategies traders use to predict trends, which I won’t get into today. Thesis include Head and Shoulders, Trend Lines, Support and Resistance patterns and Candlesticks. Here’s a excellent article explaining each of thesis ter a little more detail. Within the GDAX instrumentenbord, you will find a price chart that looks similar to the one above, accompanied by four other sections te the same viewport:
- The Price Chart ter GDAX shows historical prices and volume gegevens te two views: a line chart and candlestick chart (recommended) overheen various historical time frames.
- The Depth Chart right below the Price Chart shows a detailed visual representation of the bid and ask prices overheen a range of prices. You can increase or decrease the price range for the chart by using the plus or minus buttons at the top of the chart. The price ter the middle of the chart is the midpoint price inbetween the best bid and ask prices. Moving the cursor overheen the prices will permit you to select a price ter which you can create an order. Clicking the price will pack ter the buy/sell price for you automatically ter the left sidebar. This chart is a useful to see how close buyers are from sellers ter their ask/bid prices, the greater the surface area under the curve, the more bids there are at that price.
- The Order Book shows a live view of open orders on the entire Coinbase exchange, ter what’s called an order trapje. There are three columns that vertoning the market size, price and order size of each order. You can click any row and it will pack te the buy/sell price for you automatically ter the left sidebar. Once you confirm the order, it will instantly voorstelling up on the order trap and attempt to get packed.
- The Open Orders section shows status of each of your open orders. It also shows packed orders. You can lightly cancel any order at any time.
- The Trade History on the right shows all finished orders.
On the upper-left (below) you will see a dropdown to switch the currency, with nine different options. The most common views will be BTC/USD (Bitcoin), ETH/USD (Ethereum) and LTC/USD (Litecoin).
The primary objective of thesis charts is to determine the general direction of the currency overheen a specified time period, and the prices at which you would be willing to buy and/or sell the currency before it takes a correction.
It’s significant to specify a time horizon for your investment—such spil brief term (7–14 days), medium term (1–2 months) or long-term (6–12 months). I don’t recommend trading on time horizons shorter than 7 days unless you have access to margin (you most likely don’t) or have large amounts of money to play with, otherwise, the fees will be too high relative to the comes back.
Ten. Set limit orders, and be patient.
Once you are ready to place an order, you will accept the market price or set what’s called a limit order. Limit orders provide investors and traders with a means of precisely injecting a position without being victim of fluctuating prices. For example, a buy limit order can be place for $Two.40 when a stock is trading around $Two.50. If the price dips to $Two.40, the order is automatically executed. If it’s a GTC (good ’til canceled) order, it will remain open until by hand cancelled by the investor.
Once the limit order is set, be patient. Give the price time to fluctuate—testing highs and lows—and see if your limit order catches a buyer (or seller). There is no hurry to cancel you limit orders, so fight back the urge to rapidly switch your limit order prices. Many experienced investors will set numerous limit orders at consecutively lower prices to take advantage of a big selloff or take some profits when the price tests a fresh high. Limit orders are your best friend, use them.
There are other more advanced limit order options you can make such spil IOC, FOC and Zekering Orders that are explained ter this article below.
Ter future articles I will discuss ter more detail some of the strategies I’m using to set my limit orders. But hopefully this article serves spil a comprehensive guide to getting commenced trading cryptocurrencies on an exchange.
One advice I’d give beginner traders is to avoid falling for ICOs, or Initial Coin Offerings, te the brief term and stick with the more established currencies like Bitcoin, Eurotheum and Litecoin. According to MarketWatch, an ICO is “a fundraising means te which a company attracts investors looking for the next big crypto score by releasing its own digital currency te exchange.” The ICO is similar to a initial public suggesting (IPO), but with a crypto twist and (spil of now) no regulatory hoops to hop through.
A total of $1.6 billion have bot globally raised via ICOs already, but spil I mentioned, ICOs were recently banned te China, so the Securities and Exchange Commission (SEC) is receiving immense pressure to propose similar rules to regulate the ICO phenomenon spil well. So any US-based companies programma their ICO might want to reconsider. You can find a comprehensive list of upcoming ICOs on CoinSchedule.com, albeit I recommend that you look but don’t touch. Now it not the time for ICOs.
For more information about ICOs te the US market, check out “Around the Coin” fintech podcast with Faisal Khan and Mike Jones, CEO of Science Inc, who talks about their $50M blockchain fund ICO coming straks this year.
Bitcoin, Ethereum and Litecoin have loved some of the highest comebacks te modern investment history (Litecoin +1,762.97% since last year), so there’s truly no reason not to trade them. If you’re patient and disciplined, you will have a good slok at making money, or at least have some joy trading.
If you have any questions, succesnummer mij up on Twitter or ask one of the members of my Bitcoin Influencers list, spil they’re far more experienced than I am.