Cryptocurrency 101
by: JOHN DOE
on: DECEMBER 2, 2022
in: BLOG
Cryptocurrency is digital money that can be sent electronically.
One prominent advantage of cryptocurrency is its value. Unlike traditional currencies issued and regulated by a central government, cryptocurrencies are much more decentralized, and are not controlled by governments. This decentralized structure, and the limited supply of Cryptos allow it to maintain its value unaffected by inflation.
Additionally, because Cryptocurrencies are secured by cryptography, it makes it nearly impossible to counterfeit or double-spend.
Types of Cryptocurrencies
There are thousands of digital currencies available globally, however Bitcoin is the most popular and valuable type. Invented in 2008 by Satoshi Nakamoto, it was made available to the public in 2009 and remains the most widely traded cryptocurrency.
Some other types of Cryptocurrencies are Solana, Litecoin, Ethereum, Cardano, and EOS.
Crypto volatility
There are several reasons for the volatility associated with Cryptocurrency, for instance in one day Bitcoin’s value dropped 30%.
Reasons for the volatility of many Cryptocurrencies include:
Emerging market
The digital currency market is still an emerging market so a group of investors holding large amounts of crypto coins can influence the market.
Speculation
The digital currency market thrives on speculation particularly because it currently commands a lot of attention, so investors can speculate that Crypto prices would go up or go down to make profit. These unsure and sometimes uninformed guesses cause an unprecedented influx of money or a sudden outgo, which leads to high volatility.
Supply & Demand
Supply and demand are determinant factors that influence the prices of commodities, and this also applies to Cryptocurrency. Most digital currencies like Bitcoin and Ether are digital assets, without any tangible commodity so their prices are determined by the laws of demand and supply.
Risk-averse Investors
Unlike other investment instruments such as equities, many people believe that trading in cryptocurrency does not require any expertise. This means that part-timers willing to get fast cash often invest in it. When the expected fast money does not come, some investors lose patience and make withdrawals. This unmonitored involvement and withdrawal also leads to
volatility.
Before trading Cryptocurrencies
Decide When To Stop Trading
Checking the value of cryptocurrencies constantly is unproductive, investors should decide on a price point at which they’ll sell.
Hold For Longer
Buying and selling cryptocurrency in a dizzying circle prevents investors from seeing the bigger picture. It is advisable for investors to buy and hold for longer as this reduces the risk of missing out on profits.
Diversify
The best way to diversify should be to put only a subset of your larger investments into
cryptocurrencies. Considering how unpredictable the market can get, cryptocurrencies should be treated more like volatile stocks to be entered into on a longer timeline.
