Cryptocurrencies are digital currencies that have changed the global economy. The first cryptocurrency, Bitcoin (BTC), was introduced in 2009. Since then, other digital currencies have been created. At the moment, cryptocurrencies are taking the world by storm.
Unlike fiat currencies, cryptocurrencies are decentralized. This means that no central bank issues cryptocurrencies and controls their supply. The remarkable growth of digital currencies did not remain unspotted by investors. But is it actually worth investing in cryptocurrencies, or is it just a fad?
Is Investing in Cryptos Worth It?
Many people decide to trade cryptos because it sounds cool. Others invest in cryptos in a bid to become millionaires or even billionaires. Before venturing into cryptocurrency trading, you have to know that it is not as easy and risk-free as it seems. You may have heard that the cryptocurrency market is volatile. Тhat is the primary reason why you should be cautious when trading cryptocurrencies.
The price of a given digital currency depends on its demand and supply. However, other factors such as mining costs, regulations, media coverage, and economic developments affect the price of cryptocurrencies. Thus, digital currencies are not immune to sharp price movements. On 1st December 2021, the Bitcoin price reached $59,000. Several days later, media agencies reported that the Bitcoin price significantly fell to around $43,000.
Because of the excess volatility in the complex market of cryptocurrencies, experts advise rookie investors to be wary when trading digital currencies and do not put all of their eggs into one basket. Some of the most volatile cryptos are Bitcoin, Ethereum, Ripple, and Litecoin.
Furthermore, cryptocurrency exchanges are exposed to cyberattacks and theft. In August 2021, hackers stole $600 million worth of cryptocurrencies. Interestingly, the criminals returned some of the stolen funds. Cryptocurrency investors cannot rely on a pattern to predict the rise and fall of the price of digital currencies due to the lack of a central authority. Therefore, trading cryptocurrencies is like gambling – you cannot predict the outcome.
However, many experts believe that investing in cryptocurrencies is risky, but the potential profits are lucrative. According to market forecasts, cryptocurrencies will gain value in the long term due to their limited supply and growing demand. If you believe that a given cryptocurrency is a safe store of value, you can try investing in it.
How to Trade Cryptos?
A growing number of people are tempted by the idea of trading cryptocurrencies. There are two ways to trade cryptos – to speculate on cryptocurrency price movements or buy and sell digital currencies via an exchange. Here you can learn more about the different types of bitcoin markets.
If you decide to adopt the first approach to cryptocurrency trading, you have to set up an account at a trading platform that offers CFDs. If you expect that the price of a digital currency will rise in value, you go long (purchase the asset). Assuming that the price of a cryptocurrency is expected to decrease, you go short (sell the asset). If you buy cryptocurrencies via an exchange, you own them.
If you open a position, you will see two prices – the buy and sell. The buy price is usually higher than the market price, and investors who open a long position trade at the buy price. If you want to trade at the sale price (that is lower than the market price), you have to open a short position. The difference between the buy and sell price is called “spread”.
The trading market is full of platforms that allow investors to trade various cryptocurrencies. But before selecting a trading platform, do not forget to check its reputation as well as the commissions and spreads it offers.