There’s a lot of buzz going on about bitcoin and other cryptocurrencies. A lot of positive news have been gracing the headlines lately and it’s really hard to look away.
Cryptocurrencies indeed have been phenomenal for a while now but the positive sentiments surrounding them do not eliminate the risks involved in investing in them.
While a lot of people might be suffering FOMO’s,(fear of missing out) it is however important to make adequate personal research before delving into the volatile world crypto.
Crypto has made some people very rich. The return on investments are incredible but the losses are just as tremendous.
A newbie investor should know what cryptocurrencies are before investing or learning to invest in them. Learn the technology behind them,what they’re all about what they’re really used for and the promise they hold for global finance.
After the first hurdle of really acquainting yourself with the concept of cryptocurrencies and how they work, knowing which currency to invest in is the next crucial step.
Do your own research (DYOR)
Doing your own research is great but there are specific things to look out for. When learning about crypto, it is important to understand that you can’t learn everything at one go. You don’t become an expert by reading one blog post. Nevertheless it is imperative to make adequate research before taking action on crypto.
There’s a lot of information about crypto, sifting through and picking out the important ones could save a beginner a lot of time and boredom.
When selecting a currency to invest in; know the market cap. The market cap is the total number of circulating coins multiplied by the current price. Large market cap means there’s a likely chance it will do well. This does not mean coins with low market cap won’t do well – it’s only best to be safe.
The amount of coin in circulation also tells a lot about a coin. Bitcoin for instance has approximately 18 million coins in circulation. This number will reach a maximum of 21 million in a couple of years. Bitcoin will therefore be a very scarce coin hence one of the reasons its price is high. It’s best to avoid coins with circulation, an amount already in the billions. Again this doesn’t guarantee their inability to grow but it’s safer for a newbie investor to avoid them.
Know how many exchanges the coin is on. Virtually every exchange can hold and trade bitcoins. There are other currencies that are popular on most exchanges. You’ll easily find ethereum, XRP and bitcoin cash on a lot of exchanges. Currencies that are rarely traded or held by a lot of exchanges should not be a top pick for a newbie investor.
Market cap, circulating supply and exchange hold/trade rate are basics that help in making informed decisions on choosing a coin to invest in.
Researching a coin further could also give insights into what its future looks like. A good place to start deep research into a coin is to read the white paper. A white paper tells prospective investors what a coin could be used for. It tells them of the purposes it will serve and how these purposes will facilitate constant usage therefore driving its growth. A Cryptocurrency’s growth depends on how many practical use cases it gets.
A coin with no competitive advantage over most coins will stall in growth. If there’s no reason to use it, it’s not going to grow.
Researching the team behind a coin or currency could provide a glimpse of what the future holds for the coin and how credible the coin.
Learn basic terminologies
There are terms frequently thrown around in the crypto world. As a new comer, learning these terms helps to keep up with the conversation.
The virtual wallets in which cryptocurrencies are stored have unique addresses. These addresses are just like account numbers. However, they are made up of letters and numbers and are longer than bank account numbers. In order to send crypto from one wallet to another, all that is needed is the address of every wallet.
An exchange is a platform where crypto transactions take place. Buying, selling trading can be done on these platforms. Popular exchanges include coinbase, Binance etc.
Market capitalization is the total value of a currency.
A noob is a newcomer in the crypto community.
Altcoins are other currencies other than bitcoin. There are 8,222 cryptocurrencies listed on CoinMarketCap. The market cap of all these currencies including bitcoin is now over a trillion dollars.
A bullish or bull market is a market with very optimistic traders. There’s a strong belief that the future of an asset is very bright. The bitcoin market is currently very bullish.
A bear or bearish market is the opposite of a bullish market. Traders are not confident about the future of an asset. When traders have that kind of mindset about an asset it doesn’t do well for that period of time. Markets go from bullish to bearish time to time.
FOMO stands for fear of missing out. Investors tend to buy large volumes of an asset that suddenly spikes in value with hope of getting high return on investment. This fear of missing out can be dangerous as sudden spikes could be as a result of market manipulations.
It is not uncommon to have your fears when it comes to investing in crypto. The term FUD means fear, uncertainty and doubt. FUD arises when there’s pessimism surrounding a currency. Some people intentionally make an asset look bad to drive down its value so they can buy the dip.
The term HODL looks like a misspelled hold – and that’s exactly why it is. The meaning when it comes to crypto however is a little different. To HODL an asset means to buy it and hold for a long period of time. This is considered to be safer than trading.
To be an hodler however one has to exercise a lot patience and self control.
This simply stands for all time high. The term is used when a currency reaches a value that it hasn’t reached before. Bitcoin for example reached an all of $41k few days ago.
A whale is a person or institution that makes very high valued crypto transactions. Whales can influence the market because they hold very large amounts of crypto assets.
Crypto market psychology
Emotion is a powerful force that drives the actions of investors in the crypto market. Market sentiment is created by the feelings and expectations. When the general feeling is that prices will rise then we have a bullish market.
Emotions of greed, trust and general excitement about an asset can lead to a bullish market.
A bear market however, has a traders feeling fear, denial, distrust and panic.
Fundamental and technical analysis as a means of understanding crypto market psychology.
Fundamental analysis is an indispensable tool for a crypto trader. Fundamental analysis helps to determine if a business is overvalued or undervalued.
In fundamental analysis, traders use the business metrics to determine what the real value of a business is. They study the balance sheets, cash flow etc to get a feel of how profitable the asset or business is.
Fundamental analysts believe that the price of an asset isn’t essentially the value of an asset. They study an asset or company in relation to the market or industry it’s operating in.
Technical analysts on the other hand just try to predict future prices based on market tends and past prices. The main idea behind technical analysis is that price fluctuations no matter how often aren’t by accident. These fluctuations become a trend over time. Studying this trend can therefore provide an avenue to predicting prices at a particular time.
A golden rule in crypto is never to invest more than you’re willing to lose. It is advisable not to go all in when it comes to crypto.
The volatility of cryptocurrencies requires extra care when dealing with them. It is important for traders to have an exist stretegy when dealing with cryptocurrencies.
Investing in crypto like requires practice. A more profound understanding of the industry develops as a result of constant interaction with crypto and crypto enthusiasts. Follow relevant new Twitter accounts, turn on notifications from trusted crypto news websites. The crypto community is could help understand more crypto assets and make better investment decisions.