If you are new to crypto and finances, it’s necessary to learn the fundamental basics of how to choose the right coin, the right cryptocurrency exchange, the right wallet, and also how to know when is the best time to place a buy order.
1. Find the right cryptocurrency
Crypto space has thousands of coins besides Bitcoin. Some of them could be bluffs and scams. It’s essential to check them better before investing.
- Study the coin, the idea, and the technology behind it. Read the white paper, check out the team and the roadmap. This will help understand the potential of a coin.
- Check out price charts. Keep away from coins with low trading volumes. Low demand means high vulnerability to market manipulation.
- Stay critical. If something sounds too good to be true, it probably is a thing to avoid. Higher returns without financial risk are mainly a scam.
- Know your risk tolerance. Crypto markets are volatile: they go up and down like a roller-coaster. Even a single tweet can inspire sharp and sudden price changes.
2. Choose the exchange
After investigating the coins, do your own research on cryptocurrency exchanges.
They mainly come in two types: centralized and decentralized. Centralized have an owner and are in control of users’ accounts. They charge fees. But also attract more users and have higher volumes. The majority of crypto exchanges are centralized.
Decentralized exchanges, meanwhile, have no central authority and allow direct transactions between the users. They are anonymous, have almost no fees, and a wider selection of coins. But their volumes are lower, and transaction times – longer.
But this is crypto exchange basics. Use an additional filter and check out the:
- Reputation. Trusted exchanges should not be involved with scams, fraudulent coins and trading volume manipulations.
- Geographical restrictions. The majority of crypto exchanges ban users from specific countries because of legislation and other policies.
- Security features. Hackers often attack crypto exchanges. Look for those with proper security measures. Two-factor authentication is a must.
- The fees. Crypto exchanges apply fees for currency conversions, trades and/withdrawals. Fees vary greatly across different exchanges.
- Coin selection. Almost any exchange allows buying and selling the top cryptos. But will it have the small altcoin gem you have just found?
- Volume. Large exchanges have more traders and higher volumes. This makes it easier to buy or sell cryptos at any time, no matter what size the orders are.
Choose the exchange thoroughly, then sign up, create an account and make a deposit. Most of the exchanges accept fiat currency payments from bank transfers, credit cards, or PayPal.
3. Identify the best time to enter
Now you are almost ready to buy your first crypto. But how should you know whether it’s the right time to do it?
Well, markets (like roller-coasters) always go up and down in the same cycle. The rise in the beginning, peak, then decline and reach the bottom. One cycle ends, another begins.
At any given time you may find yourself somewhere at one of these stages of the market cycle:
- Accumulation stage. In the beginning, coins seem undervalued; their prices are down. The masses are hurt after the losses. The general feeling of disbelief and fear of losing more money is at its peak. They hesitate and miss the new entry points. Rational investors smell opportunity. They buy in, slowly pushing up prices.
- Mark-up stage. Market sentiments begin to warm. Investors feel optimistic again, rush in to buy, the demand increases. Media becomes more vocal, sparks mass euphoria, prices jump to record highs. The risk of overpricing is massive, but the market still feels confident of increasing its position. Rational investors, meanwhile, stay away from FOMO and do not buy the highs.
- Distribution. Early investors take profits and get out. The buying momentum slows, prices do not reach new record highs; the market seems more neutral and slowly begins to turn bearish.
- Mark-down. The buying demand becomes weak, and market sentiment changes to bearish. At first, investors ignore the warning signs, but the fear sets in when the prices drop. The massive panic selling starts at the same time, pushing the prices to new lows. Multiple investors capitulate and exit the market entirely. The storm gradually subsides, the prices begin to recover, and the new market cycle begins.
Our best advice is to buy low, sell high. Not vice versa.
4. Set the crypto wallet
Tadaah! Imagine your first-ever coin just clinked into your digital account. But it still sits in a custodian wallet of crypto exchange. This means you are not in control of your coin.
Exchanges may suffer cyberattacks and thefts. They are not the safest place to store coins unless you are a trader.
To keep them safe for long-term use, transfer coins from an exchange to a cryptocurrency wallet.
It’s like a bank account but fancier.
A cryptocurrency wallet has an address. It’s a long stride of numbers and letters and is called a public key. A public key is used to receive coins.
Crypto wallet also has a private key. It is another long string of letters and numbers, but it is even more important and personal. A private key is proof of your ownership. It’s like your signature to sign the transactions.
As usual, there is a wide variety of cryptocurrency wallets. A headache to choose from, but it’s necessary: your coins need the best one.
- Online wallets. They run on the cloud, available from any device, convenient for fast transactions. But it is an online service that can be vulnerable to hacks.
- Software wallets are downloadable apps for smartphones and computer desktops.
Accessible from the device they are installed, safer than online wallets as they don’t depend on a their-party. They are still connected to the internet. The biggest risk is viruses, loss, or death of the device.
- Hardware wallets. Physical devices with no connection to the internet, protected from viruses and one of the safest options for long-term storage. Come with a price.
- Paper wallets are a piece of paper with printed QR codes and private and public keys, necessary to receive funds or make transactions. They are totally free, impossible to hack. But the paper needs to be protected from physical impact.
This is it. Now you are ready to make your own steps in the crypto space. Welcome!