Cryptocurrency has been big news in the trading and investment world in recent years, following on from the huge surge in value of Bitcoin towards the end of 2017. Bitcoin, the world’s first cryptocurrency, leapt in value from $7,000 to around $20,000, making investment in cryptocurrency suddenly much more desirable.
However, with all potential for huge reward comes an equal and opposite potential for huge losses, so investors need to know the market before committing large sums. In the PDF attachment you can learn more about how cryptocurrencies evolved and how they work.
Liquidity in the Cryptocurrency Market
The cryptocurrency market has been likened to the exotic currency market for several important reasons. The market is by nature far less liquid than other currency markets, which means traders require different strategies to those buying and selling something much more liquid such as US dollars. At these early stages there is no corporate flow and a distinct lack of big market makers. This can lead to sharp moves in intraday trading, which can make it much more complicated and time-consuming to manage investments in real time, combat risks and adjust positions.
Liquidity is likely to improve within the cryptocurrency market in the near future as more investors realise the potential of the market. However, this will take some time and it is probable that institutional participation will be modest for a while to come. Liquidity and trading volume are being slowly driven upwards by more order flow and institutional investment, especially as the market cap of cryptocurrencies continues to rise relatively rapidly.
You can learn more about market liquidity by checking out the short video attachment to this post.
Exchange Trading Tips
Experts advise trading cryptocurrencies on an exchange rather than through a broker, as this saves additional expense on fees. Similarly, limit orders attract smaller fees than market orders so they should be used wherever possible. In fact, on some exchanges such as GDAX limit orders that don’t fill straight away are free. Traders should also remember that the cryptocurrency market operates 24/7 and so it can therefore be wise to adopt some automated trading strategies such as stops. Holding money in reserve can also be advisable, as it allows the trader to “buy the dips” and take advantage of short-term downturns in the market.
Learn to Value in Bitcoin
Most experienced traders will naturally value everything in dollars as this is what is used in the major currency markets. However, with cryptocurrencies, learning to value in BTC helps traders to properly evaluate and value the trends as they happen. The goal of trading doesn’t have to be to accumulate BTC, but it pays to be aware of the value of all altcoins as compared to Bitcoin.
Bitcoins and altcoins have a history of reacting to each other, either by acting in tandem or in opposite directions. The cryptocurrency market to date has tended to run in cycles, so savvy traders can often spot patterns and use them to predict where the next moves in the market will materialise. Generally speaking, altcoins are more volatile than BTC, but as with all investments nothing is the same 100% of the time. Some more facts about Bitcoin can be read via the embedded infographic.