In November of 2021, basically every cryptocurrency in existence saw a huge boom. Bitcoin was nearly £55,000 a token. Ethereum was at the high end of £4,000. Solana got up to £200.
Today, all of those coins are trading at half of their highest value. To some, this signals the end of cryptocurrency.
But anyone who has been in the market for a while knows that it is harder to kill a currency than that. And even people who have never invested much in the market will look at these drops and know that if any cryptocurrency survives this stumble in the market, then it will be far more valuable later.
So, let’s talk about how you can learn to trade cryptocurrency in order to capitalise on this market.
Table of Contents:
Is Now a Good Time to Start Trading Cryptocurrency? ➡️
When you look at where crypto was six months ago to where it is now, it seems like it has done nothing but lose value. Particularly because more than half of all cryptocurrencies came into existence in the last two years, one might understandably be sceptical of whether or not crypto is a sound investment now.
After all, if a business was founded in the last two years (these last two years in particular), and it did nothing but lose value within the last six months, then you would be smart to scrutinise it.
That means when we look at the crypto market, we have to look at it honestly and fairly: What makes it a good investment? What makes us think that it will bounce back at all? There are three reasons.
Reason #1: It is Still Used for Certain Purchases
The simplest reason why you can be assured crypto is not going to see cryptocurrency totally crash is that it is still useful. For some businesses, as a matter of fact, it is the only payment they can take.
The two kinds of businesses that are most reliant on cryptocurrency are online pornography and illicit drugs. In the case of illicit drugs, the lack of regulations on accounting for what the crypto was spent on means that people can pay a drug dealer essentially over the table in exchange for their product.
That convenience has not gone away in the years and years cryptocurrency has been around. Governments across the world have regulated the environmental impact of crypto mining faster than they have regulated the ability for crypto to be used in illicit activities like that.
In the case of pornography, this mostly has to do with Pornhub, the world’s leading website for hosting pornography. Pornhub has long had a history of failing to take down illegal videos and videos of illegal activity. While governments tried to regulate them, a combination of confusing laws and the platform being basically impossible for the owners of it to manage resulted in credit card companies stepping in.
Credit card companies like Visa, Mastercard, and Discover all said they would no longer process transactions related to Pornhub’s business. After that, crypto became one of the main ways that users could pay for premium content on the platform. This is still true, even with crypto losing value.
As long as crypto is useful in these ways, it will be a good investment.
Reason #2: It is Still Tied up in Investments
Let’s apply some more rudimentary market theory here: Let’s say that you have ten people holding stocks. The first five sell their stocks for $5 each. The next four see that people are willing to pay $5, so they raise their prices to $6. The last one, who held for the longest, sees that people will pay that.
So, that person charges more and makes more money than anyone else. This is an extremely basic rule in the market, but it is critical to understanding why a market stumble is not a market crash.
In the 1900s, Germany went through several periods of their currency being basically worthless. That is a market crash. When a paycheck cannot even buy a week of food, that is a market crash. Bitcoin losing the value that it got during a boom is not a market crash, because there are people still holding it.
Reason #3: There are Still Forces Acting in Crypto’s Favour
This is probably the biggest reason, as it appreciates the complexity of the market the most. So many people will look at the rise and fall of crypto prices and think of it in totally shallow terms. As if the only thing that affects crypto prices is whether or not Elon Musk or Warren Buffet tweets positively about it.
Consider this: There are still people selling the crypto they get from crypto mining. There are still people earning money off of yield farming and staking. And because those two practices are still functioning, you can be sure that there are still people trading crypto for other crypto, whether they’re selling or not.
These are called “upward forces” in the market. That means they push the value in the system upwards, rather than weighing it down or keeping it static. These upward forces are not deciding factors. Yield farming and staking are both only valuable if crypto is valuable. But in a way, that is even more telling.
The fact that these forces are still working is indicative of the fact that crypto is not dead.
If Crypto is not Dead, it is Worth Getting Into 🔎️
So, crypto is not dead. It is not even dying. It is essentially undergoing a correction. What that means for you is that the market is more accessible than ever. Everything is cheaper.
There are people panic selling trying to get the crypto out of their hands as fast as possible. And if you can get a good price on all of it, then you can find yourself spending not a lot of money for a valuable position.
With all that out of the way, what is the first step to learning how to trade crypto?
The First Step: Understanding the Blockchain ⛓️
This is where everyone has to start, as it affects every cryptocurrency out there. And, more importantly, it affects what trading platforms you trade with. The reason why will become clear in time.
The blockchain is the technology that allows cryptocurrency to be decentralised and still function as a currency. The value of a fiat currency (“fiat currency” being the name of a country’s official currency, like the British Pound) comes from a negotiation between various governments, banks, and businesses.
This makes fiat currency highly centralised. After all, if the government or banks say interest rates are higher, or if businesses say they are charging more for essential goods and services, then that affects the value of the currency. The individuals who use the currency have less power than those institutions.
The way the blockchain works is that in order to hold a cryptocurrency, you have to have a blockchain app that is capable of connecting to the internet, and therefore other blockchain apps. This blockchain app contains two things: Data on where your crypto is and has been, and data on the rest of crypto.
So, everyone that holds Bitcoin also holds a database of the location and transaction history of every other Bitcoin in existence. This means that if there is ever a disagreement on where any Bitcoins are, or any attempt at fraud while using Bitcoins, the blockchain can act as a ledger to resolve that fraud.
What Does This Do for Cryptocurrency?
This means that you cannot trade cryptocurrency without the blockchain. It also means that it is very hard to steal cryptocurrency. Consider this: When you trust your money to a bank, that bank does not have to just let that money sit there. Regularly, banks will invest your money in order to make money.
Why is this legal? Well, the bank only needs to be able to give you money when you ask for it. The money that it gives you does not have to be the same money that you gave them, it just needs to be the same amount. That means that so long as they keep growing the amount of money they have, banks are allowed to do things that would essentially be crimes if you did them with money from your work.
Since the blockchain tracks the location of every token within it, this kind of fraud is impossible. This is important, since banks regularly lose money as well. They create net gains, but it is totally possible for them to gamble away the money of everyone who trusts them. This is impossible on the blockchain.
The Second Step is Picking a Trading Platform 📊️
The blockchain is the sole means of handling cryptocurrency. Without that, no cryptocurrency can exist. But it is far from the only way of trading cryptocurrency. The blockchain is not a social network, and it doesn’t have an interface for making exchanges between users. For that, you need a trading platform.
A trading platform is a website or an app that does two things: The first is that it allows you to buy cryptocurrency for yourself. “Buying it for yourself” is an important distinction from just “buying” it. There are platforms like PayPal, which allows you to buy cryptocurrency, but not for yourself.
Avoid Platforms that do not Interact with the Blockchain
You see, PayPal is a digital commerce platform that allows you to buy cryptocurrency. But it does not connect you to a blockchain, you cannot connect to a wallet, and you cannot transfer the cryptocurrency out without their approval and a levy from them that takes from your funds. Why?
Well, because when you buy crypto through PayPal, you never really own the crypto you buy. They do.
You see, PayPal has the ability to hold and trade crypto. But they do not give that ability to their users. Instead, they basically “loan” their own crypto to users when the users buy crypto. Then, when the user directs PayPal to make a purchase, PayPal makes that purchase on their behalf.
You should avoid spending money on crypto or trading on platforms that do not have an easy method of transferring the crypto out. PayPal is not a scam, but its method of handling the crypto of its users looks very similar to a lot of websites that are scams.
Use Platforms that Connect with the Blockchain
In contrast, there are trading platforms that will not let you trade unless you connect a blockchain-enabled wallet to them. This is because if a website wants to facilitate the transfer of crypto to and from you, they have to be forward about the fact that they are interacting with this system.
The blockchain keeps people honest, and the more easily a platform connects to them, the more they can be trusted.
Use a Platform that Connects Many Different Currencies
You should also look for a platform that connects as many different currencies as possible. The reason for this is not because buying many different currencies is necessarily the best trading strategy. It is more because you never want to be in a situation where you cannot trade between two currencies.
Imagine you have Crypto A and Crypto B. These are two cryptos that cannot trade between each other. But both of them can be traded for Crypto C. That means you cannot trade A for B without C, and any platform that only trades A and B will have gaps in their crypto trade.
Many platforms will have "translator currencies" that serve exactly this purpose. The most popular are Tether and Binance Coin - Binance Coin is the most stable right now. USD Coin (a currency tied to the United States Dollar) was one of these up until recently too.
How to Buy Crypto Low and Sell it High 👀️
There are two ways to analyse the price of cryptocurrency. Anyone who has traded in stocks before will be familiar with them: Technical analysis and fundamental analysis. But just what are these methods?
Technical analysis is the analysis of the graph and the underlying math of a security (in this case a cryptocurrency). When a currency goes up or down in value, it can only change so much. Bitcoin might drop $10,000 in value over six months, but it can’t really drop $10,000 in value in six minutes.
Fundamental analysis is the analysis of the broader, real-world factors that contribute to the value of a security. If 90% of the people holding Bitcoin dropped dead, then that would probably affect its value.
So, how do you apply these two principles in the actual market? Let’s go over them individually.
Technical Analysis
The most basic goal of technical analysis is trying to find the “true value” of a security. First, start by thinking of the supply and demand of whatever cryptocurrency you are looking at. There is an amount of the currency that the world wants, and there is an amount of the currency that can be provided.
These two values can be used to determine the exact value of the currency… The trouble is that no one knows them. In fact, no one can know them. One might even say that these two values are in such constant motion that even though they can be said to exist in retrospect, they do not exist in a moment.
But while it is basically impossible to determine the exact supply and demand of currency, you can make a fair guess. Usually, the price of a currency will not fall below the market’s demand for it. It will also not rise above the market’s ability to capitalise on that demand.
That means you can readily assume where it will stop falling and where it will stop rising, giving you a good idea of where to buy and sell. But this is only half of the story. What if it doesn’t stop falling?
Fundamental Analysis
The reason people trust in fundamental analysis is that even though the number of variables you can consider in a price are essentially infinite, you can know some are more important than others. The spin of electrons is not as important to the price of Bitcoin as regulations placed on Bitcoin mining.
The three most important factors to consider in fundamental analysis are volume, regulations, and return on investment. Return on investment is an obvious one, but often misunderstood; you are not looking for your own potential return on investment but return on investment of others in the past.
This is because that will motivate other people to buy into a currency.
Volume is the amount of the currency being moved in a short time. The more the currency moves, the more the price will move. This allows for flexibility in your strategy and causes the price to move greater distances at slower speeds due to all the market forces created by the different buyers and sellers.
Regulations are a variable that is pretty unique to crypto. Tons of industries are regulated, but most industries are older than a few years. Crypto is still getting its first few regulations. That means when the regulations drop, you are either going to buy a ton or sell everything.
Tying it All Together ➡️
Let’s review what we have covered:
The Market 🛒️
Crypto is cheaper now after an incredibly strong showing at the end of last year. While some people are worried about it, chances are that it is going to either keep dropping or bottom out, both of which are bad for people who are overcommitted, and good for people who want to get into it.
The Blockchain ⛓️
This is the technology that crypto needs to exist. It is also the method by which you prove that you own any given crypto holding, meaning that it is necessary to interact with it and understand it if you are to do any trading of your own.
Trading Platforms 📊️
The primary method you use to actually execute trades. Trading platforms keep things secure, integrate different currencies, and (most importantly) connect people looking to buy with people looking to sell.
Analysis 📑️
The art of figuring out when to buy and when to sell. It can be done by just looking at the graph of a given currency and figuring out where, mathematically, it is likely to go.
It can also be done by looking at the context in which the currency finds itself. That includes how much it has traded for in volume, what sort of regulations are on it, whether or not it is usable in normal commercial purchases, and whether or not buying, selling, or holding it has yielded returns for investors.
Conclusion 💡️
That is just about everything you need in order to get started trading in cryptocurrency. But before you go, you should be informed of these two quick disclaimers.
Crypto is not a Get Rich Quick Scheme
Although many people buy crypto looking for a lottery ticket, that way of trading will see you lose far more money than you gain. You should be looking for gradual growth over time, not explosive growth.
Be Prepared for Losses
This point very much ties into the point above. The reason why crypto is not a get rich quick scheme is because there will be, generally speaking, more that you do not know than what you do know most times. As a result, the market is going to act unpredictably more often than not.
The best behaviour you can practice on the market is to invest small and diversely, and to get out of any given position when you are ahead. This is especially true when the market is unstable. Unstable markets are the most tempting with the possibility of big returns. But the smart thing to do is play safe.
