2019 was a wild ride for cryptocurrencies. Despite the many ups and downs experienced by Bitcoin and other famous cryptocurrency vendors, the market has once again proven that it is going to stick around for a long time.
Even though there is still a risk factor involved in cryptocurrency, investors are becoming more and more familiar with the challenges and opportunities linked with this exciting sector. As a result, more people are joining the crypto trading sphere than ever before.
If you’re still new to the cryptocurrency investing scene, the massive number of investing options — and latest terminologies — can feel mind-boggling. However, by trying to get familiarized with what you’re getting into, you will make wiser investment decisions.
Here are 5 simple tips to make you understand the cryptocurrency scene:
1) Understand The Relationship Between Circulating Supply And Market Cap
Rookie cryptocurrency investors tend to feel scared by the new words they need to learn and how these new terms have an effect on pricing. For example, the “market cap” for a specific coin is used to measure the overall value of coins on the market. This number is measured by simply multiplying the coin’s flowing supply by its current price.
The usage of the flowing or the circulating supply, instead of the total supply, is a crucial distinction. For a various number of reasons, few coins are not available on the public market. And since they aren’t available for trading, they aren’t counted toward price considerations or the market cap.
2) Stay Updated With Current Market Conditions
You can always look up on the internet and read blogs debating the pros and cons of different cryptocurrencies, but current market data will always be the most reliable source for determining trends and reaching smarter trading decisions.
Thankfully, there are various websites built with a sole purpose of offering up-to-the-minute updates concerning changes in price, supply and market cap. Coincap, CoinMarketCap, and CryptoCompare are just a few examples of resources that assist investors stay up to date on current prices. Data that is updated in real-time is paired with charts tracking changes over 24-hour and seven-day periods to provide investors a correct idea of ongoing trends.
3) Follow the Instructions of High Ranked Investors
After getting your hands on the real-time data available, reaching a trading decision depending on a “Top 50 cryptocurrencies” list can be frightening.
But when this data is paired with instructions from high ranked investors, you will be oozing with confidence in your decisions and even master a few additional pointers along the way.
Websites like eToro uses what is known as a “social trading” program that enables high ranked investors to share their knowledge and trading techniques.
Rookie investors can utilize such traders as a guiding reference or even fully duplicate their investment strategies as they master the ropes. Adapting to good habits in the beginning of your investing journey will help you in avoiding making abrupt decisions that can lead to a disaster.
4) Diversification is crucial
Just like with traditional investment opportunities, diversification is crucial if you want to emerge as a financial winner in cryptocurrencies. With a more diversified portfolio, you diminish your total risk, more specifically if you invest in coins and tokens that serve disparate sectors.
This also means that you should definitely continue to invest in non-crypto spheres. These practices expand your potential return while relieving the risk should a specific coin or stock take a hit.
You can keep your coins organized and safeguarded with a cryptocurrency wallet. These digital wallets tend to serve as a centralized hub for collecting and sending crypto transactions. Keeping your diversified investments locked in a safe wallet will make it convenient to keep track of your investments.
5) Know What Influences Pricing
What factors contribute towards cryptocurrency prices to rise and fall? Although supply and demand does play a crucial role, crypto investors should thoroughly consider the anticipated utility of a cryptocurrency. If a coin is anticipated as having multiple practical applications, it will be more highly sought-after, and therefore, its price will increase.
Mining difficulty is another significant factor that tends to affect pricing. A higher mining difficulty shows that it is much more difficult to mine an extra unit of a coin. This can have a massive influence on a coin’s anticipated value, and subsequently, its price, as increasing a coin’s supply will need more computing power to be used in the mining process. New investors should also pay some attention to the news headlines concerning various coins and tokens. Positive or negative articles will often have a direct correlation on future pricing trends.
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