A beginner’s introduction to cryptocurrency trading and investment

The basics of cryptocurrency trading – what you need to know -G7FX Reviews

A beginner’s introduction to cryptocurrency trading and investment

Bitcoin is back up with its value increasing massively in less than 12 months. We’ve been here before, with Bitcoin rising to unprecedented value and then falling again. However, there’s no doubt that cryptocurrencies are now here to stay.

The underlying blockchain technology is also of vast interest to investors for its many and varied potential uses that go way beyond Bitcoin mining. Here’s a very introductory guide to Bitcoin and whether you should invest in it or in other cryptocurrencies.

Is cryptocurrency trading right for you?

Social media always makes a lot of noise about making lots of money from Bitcoin. So, is it time to join the chorus? Well, the established investors are far less enthusiastic. There is a strong faction within the traditional ecosystem that views Bitcoin as a bubble – and a bubble that will burst and lose you lost of money. Regulators officially warn against the danger of speculating in cryptocurrencies and tell investors to be prepared to lose it all.

As always, in between the two extremes are plenty of potential traders stuck in the middle. Many aren’t fully sure what Bitcoin even is, how it works and how it could make them money. Since 2017, Bitcoin’s value has increased by more than 3,000%. It remains the most well-known digital currency available, but where did it start?

Launched onto an unsuspecting market in 2008 by either one person or a group of people whose identities are still unknown, Bitcoin immediately attracted a kind of online cult of traders. These Bitcoiners almost instantly bragged of gains and Bitcoin’s predominance in this totally new market. Today, Bitcoin has much more widespread and mainstream appeal with one of the most popular exchanges (Coinbase) claiming more than 35 million traders.

Old school financial icons like Warren Buffet have been clear in their dismissal of Bitcoin, citing its extreme volatility as a problem. On the flipside, more maverick billionaires like Elon Musk are in. His company, Tesla, has invested more than $1.5 billion into Bitcoin and Twitter CEO Jack Dorsey has done the same through his digital payments business Square.

How do cryptocurrencies work?

Bitcoin is one of many cryptocurrencies. This means that encrypted blockchain technology is used to record every single transaction that happens online. These transactions are securely recorded in a way that can’t be altered. They are added to a digital ledger (also called blockchain, which is open for every single user to see. So, each time someone sends or receives Bitcoin, it’s recorded in a block of information that cannot be removed.

And this is a major part of the appeal for Bitcoin users. They feel that it is transparent, secure and far less vulnerable to widespread fraud that affects fiat currencies. The ledger is automatically created by digital means and is therefore also less prone to the kinds of errors typically made by human interference.

While it’s transparent in some ways, each transaction is anonymous. Transactions can only be identified by a unique code, which makes it more private than traditional currencies. Detractors say that this also makes it more popular with people who want to hide what they’re up to.

 

Cryptocurrencies are decentralised and largely unregulated


Obviously, cryptos like Bitcoin aren’t printed by a central bank. There is no physical representation for each ‘coin’. Instead, Bitcoin miners receive a certain amount of new bitcoins for their work in building the computers necessary to record and verify the global transactional network.

This decentralised nature of Bitcoin is another advantage according to users. State authorities do not control cryptocurrencies, which in theory makes it a more democratic and fairer source of currency. Governments can’t use it to stoke inflation because the total number of Bitcoins available was capped right at the start by its creators.

Mining for Bitcoin is complex, expensive and uses a massive amount of energy. This has attracted the ire of environmental campaigners, particularly when the University of Cambridge calculated that the energy consumption of Bitcoin is greater than that of an entire country – Switzerland.

Shifting cryptocurrency to the mainstream has largely been down to companies like PayPal. The online payment provider was the first to offer cryptocurrencies as a form of payment, as well as a Bitcoin wallet for its users. However, support is growing al the time, even from some of the most traditional old-fashioned financial services.

For example, BNY Mellon is the oldest bank in the US, but they are now financing cryptos including Bitcoin. Mastercard has made similar announcements and has brought selected cryptocurrencies onto its network.

Why does the value of Bitcoin fluctuate so much?


Bitcoin’s price is dictated by supply and demand, just like every other currency. In the simplest terms, if there is more demand than availability, its value increases. However, unlike fiat currencies, the demand for Bitcoin isn’t as closely linked to the wider economy.

This makes its value more about its value to investors themselves, rather than external factors. Fluctuations in value have been wild for Bitcoin. For example, a couple of years ago it fell by more than $40,000 in one weekend. So, should you invest and get involved with cryptocurrency trading?

If you had decided to do so in 2013 and had spent $4,000 on Bitcoin, you’d be a millionaire by now. This investment would have made you more money than if you had bough shares in any company. Many investors believe that Bitcoin will only continue to become more valuable fand worth investing in.

Soon, producing Bitcoin will slow down and eventually stop. It’s almost inevitable that demand will outweigh supply and its value will continue to soar. Some experts (like JP Morgan) estimate that Bitcoin will peak in value at $146,000 per coin. Others speculate that the fact that Bitcoin is independent from the real-world economy will make it a safe alternative investment, much like gold.

However, digital currency is hugely volatile and to a great extent is subject to the changing whims of the current crop of investors. Warnings from regulators do need to be listened to – after all we did see Bitcoin lose more than 80% of its value after hitting a peak of just under $20,000 in 2017. This could happen again.

Before you dive into investing and trading in Bitcoin or any other cryptocurrency, you should take the time to learn from a professional. There’s no substitute for a professional level of education before you risk your own money. But if you’re willing to put the work in and figure out the market, investing in Bitcoin or other cryptocurrencies could be a very good move.