If you have been watching the markets over the past few days, the meteoric rise of crypto currencies such as Ethereum and Bitcoin is truly the talk of trading town. What is driving this rise? Will it continue? What is a crypto currency even?!
We will take a look at all of these questions in this blog as well as delve into some interesting trading strategies and perspectives one can consider before trading the currency.
Article in a Glance
What is a Crypto currency?
Put simply, a crypto currency is a record of transaction that has been cryptographically signed and stored on a public ledger called a block chain. To be a bit clearer, when something has being cryptographically signed, it means that it has been verified by the completion of a complex mathematical function.
The Blockchain is a large public ledger (think of bookkeeping) that has all the records of the transactions that have taken place for the crypto currency since the beginning of time.
Why are they so Popular?
Crypto currency is very popular for a number of reasons some of which are purely practical and others of which are more theoretical. The main idea behind the original development of crypto currency was because of the demand for an alternative to the traditional banking model.
Because cryptocurrencies such as Bitcoin don’t need a central intermediary or financial institution that processes the transactions, people enjoyed the freedom that this afforded them to send and receive money without fees and with relative ease and anonymity.
Adherents of Crypto currencies also value the fact that they are not artificially controlled by a central bank such as the federal reserve. There is not a situation where a central bank can arbitrarily print more money and increase the money supply.
They are also very popular in countries where there are capital restrictions such as China. This is because people in those countries do not have to report their ownership of the coins to the authorities. This can therefore explain why most of the trading is done in countries such as China.
Lastly, and probably from a theoretical standpoint, there are a number of uses for the block chain technology. More particularly, the developers of the Ethereum currency are developing technology that is bound to transform the way we look at internet infrastructure.
What is driving the Rise?
One of the most important contributing factors in the recent rise to all time high levels above $2,000 is the demand from retail traders. There appear to be thousands more traders who jump on the trend every day. No doubt, they see the value in holding an alternative store of value.
Moreover, this creates a positive feedback loop. As the price increases and more traders decide that they want to get on board then this will inevitably increase the price. Similarly, as many of these traders use technical strategies such as complex candlestick analysis the price reinforces itself.
Another important factor that is driving the price is the demand from Japanese traders. This is because the technology in Japan has now become regulated. This can indeed be seen by the fact that the Japanese Yen is the most traded currency for Bitcoin during its most recent rise.
We also saw the meteoric rise of Ether recently aswell. The currency went fro just under $20 in February to over $140 recently. This is also as a result of traders who want to get on board with a crypto currency that is still in its infancy.
Can it Continue?
Given these recent increases in Bitcoin and Ethereum, many people are concerned that it could be a bubble and that a correction sounds like it could be inevitable.
Indeed, there are also some technical concerns inside the Bitcoin community around whether it can realistically scale and facilitate the current demand that there is.
However, there are many analysts who prefer to take a look at it from the long term perspective. For example, although there may be these concerns, the size of the Crypto currency market is still mere peanuts when compared to the trillions in the global Fiat currency market. Similarly, if you have trading money management strategies in place you would reduce the risk of large drawdowns.
Moreover, if investors are indeed concerned about scaling issues with Bitcoin then they should consider ether as an investment. Ether was developed to be more efficient at signing transactions. The demand for Ether will continue to grow exponentially as it is used in more applications that work off of its decentralised smart contract system.
How do I buy Crypto currency?
One of the easiest ways to buy and hold a crypto currency such as Bitcoin or Ethereum is through an exchange such as Coinbase or Bitstamp. These require you to link your credit card or bank statement to the platform. You can then easily buy and sell the crypto currency on your phone or PC.
Of course, if you wanted to day trade the volatility in these currencies then you could open a trading account and use either CFDs, Binary Options or other derivatives. These will however result in you having to rollover the position overnight as it is marked to market.
Cryptocurrencies are indeed mysterious, but they don’t have to be. When you think about the value of the money that you have in your Bank Account, why should that be more logical than your holding of crypto currency? One is a proven transaction and store of value and the other is a “promise” of the backing by the central bank.
As many traders are finding out, the time to get on the crypto currency train is now. As the world moves to a more decentralised model and people start to see the benefit of the block chain technology.
Open an account with a crypto currency exchange and buy your first crypto currency!
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