This is a Guest Post by Cahill Puil the founder of Byte Media Group.
Cryptocurrencies have become an exciting prospect for the experienced investor and first-time trader alike. Experienced investors have been drawn in by the growing legitimacy and widespread adoption of bitcoin and altcoins. For first-time traders, the promise of making a fortune off a wild swing in prices is too good to ignore.
The behavior of cryptocurrencies may seem almost inscrutable given their apparent volatility, but there are certain principles traders can use to maximize their chances of success. Here’s a look at what you need to know about cryptocurrency trading as it stands today.
You’ve heard about the skyrocketing prices of bitcoin. You’ve also heard this may not last long and we may be living through bitcoin’s best days. Given all that information coming your way, you may feel compelled to drop big dollars on bitcoin or whatever other cryptocurrency is the flavor of the week. Don’t.
If you’re starting out, it is perfectly alright to exercise caution. That’s true no matter how sanguine you are about the future of any cryptocurrency. The rules of conventional trading apply here: never invest more than you can allow yourself to lose. That’s especially true given how volatile cryptocurrencies are.
Know your coins
There are a ridiculous number of altcoins on the market and new ones emerging each day. You don’t need to know about every altcoin in order to be a cryptocurrency trader, but it helps to understand the ecosystem you’re dealing with as a prerequisite for repeatable success.
For example, bitcoin futures are now trading on the CBOE and CME. This is likely to have a stabilizing effect on the currency, since it will open the doors to the larger trading community. Understanding this will guide how you trade bitcoin as opposed to certain altcoins. Similarly, saying abreast of what’s going on with the major cryptocurrencies will help you make informed decisions on how to go about trading them.
Regulations are a-coming
With bitcoin future contracts being introduced, cryptocurrency is beginning to gain an air of legitimacy. All signs point towards there being a push towards the mainstream, with wider adoption. Given these conditions, it is likely that authorities will want to clamp down on and regulate the cryptocurrency industry.
This can be both a good and bad thing for the market. It will be good because greater regulation will formalize the industry and help more people trust bitcoins and altcoins as an investment. At the same time, regulation may also strip cryptocurrency of the very things that make it so powerful: a decentralized medium for value exchanges.
Volatility is one of the defining facets of cryptocurrency market. The uncertainty of never knowing if you’re actually in a good position can make it exhausting to be a trader. Panicking in response to wild swings in prices can cost you dearly, so it is essential to leverage hard data as much as possible.
One way to counter the volatility of the markets is to always be informed, which you can do by engaging with the cryptocurrency community. Another way to do that would be to make use of signals generated from cryptocurrency prediction markets. Such platforms allow participants to make money by predicting the movement of different coins. Cryptocurrency traders can use the flow data generated from prediction markets to inform their trading decisions.
One of the reasons it is important to understand cryptocurrencies beyond bitcoin is so that you can diversify your portfolio in a meaningful way–meaningful being the operative word. Most traders diversify because it is a buzzword that everyone in the industry touts. But the cryptocurrency ecosystem is unpredictable in so many different ways right now, so putting your money in many different unreliable baskets may not be the way to go.
The answer lies in a middle ground that is informed by research. Diversifying too soon will dilute your earnings. Diversify too late and you will likely miss out on profitable opportunities and make yourself too vulnerable. However, choosing one or two altcoins along with bitcoin will help create a healthy trading portfolio. These choices need to be based on research into trading volumes and market capitalizations.
Cahill Puil is the founder of Byte Media Group, a Strategic Marketing Consultancy that helps blockchain and technology companies go beyond eta. He acts as an advisor to Zero Sum.