It’s no secret that cryptocurrency has gained popularity over the past few years, but most people are still unsure what it is. Bitcoin and the technology that underpins it are more than just a digital currency; they promise to transform the financial sector and countless other industries. Learning about crypto trading is, therefore, worth your time.
Various cryptocurrencies, like bitcoin, are constantly in the news, charting wild roller coasters of highs and lows. Crypto trading, however, is a relatively new field. It is essential to understand it before trading in or accounting for them. Those who conduct due diligence step-by-step and gain experience with small, low-risk crypto projects may find they offer exciting new opportunities. So, here are the five crucial things you should know about crypto trading.
1. Crypto Trading Enables Automating the Buying Process
As with regular shares and stocks, you can benefit from dollar-cost averaging by automating your crypto purchases. Several cryptocurrency exchanges, such as Coinbase and Gemini, allow you to set up recurring investments. For example, if a crypto investor wants to buy a certain amount of bitcoin brokers every month, they tell the platform to purchase it every month.
As a result, they receive less of the currency at high prices and a bit more at low prices. Buying or selling at the lowest possible price removes the stress of trying to time the market. Even marketing professionals struggle with this. Furthermore, it requires the right trading platform where you can set custom trades and never get caught in a dip. To learn more about crypto trading, click on Finixio AI
2. Making Money with Crypto Trading
Unlike tangible assets, cryptocurrency value is driven mainly by investor sentiment. It is impossible to measure fundamental value by earnings reports, profits, or revenues, as there are none. Making money with crypto usually requires patience and long-term investing. For example, people hold on to bitcoin, hoping someone else will pay more for it later.
- As of April 2011, there was a value of about $1 (72p) for one bitcoin
- The price of one bitcoin topped $69,044 in November 2021
- In March 2022, it fell to $47,000
- In May 2022, prices fell further to $29,000 and were about $21,300 early in July.
You would have gained $6,904,400 if you held onto 100 bitcoins for ten years, starting in April 2011. Currently, 100 bitcoins are worth $2,130,000 — still an excellent investment but highlighting the volatility of digital currencies. However, a ban on bitcoin ownership or trading could undermine the currency’s prospects among traders and investors.
3. The Cryptocurrency Payment Process
Cryptocurrency payments differ from traditional payment methods in many ways. Unlike standard costs, they don’t have legal protection. Credit cards and debit cards are legally protected if something goes wrong. Suppose you want to dispute your purchase; your credit card company may help you. There are typically no safeguards attached to them. Bitcoin payments are generally irreversible. You can only get your money back when you pay with cryptocurrency if the person you paid returns it. It would help to check a seller’s reputation before purchasing it.
Depending on your transactions, some information will probably be publicly available. There is a perception that cryptocurrency transactions are anonymous. It’s not that simple, however. There is a public record of every cryptocurrency transaction — both from the payment side and the receipt side — on a public ledger called a “blockchain.” Information added to blockchains can include details such as the amount of the transaction and the wallet addresses of the sender and recipient.
4. Crypto Trading Taxation Process
There is very little guidance on cryptocurrency taxation from the Internal Revenue Service. A 2014 notice, however, stated that people were to treat it as property for federal income tax purposes. Depending on how you hold cryptocurrency, you can classify it as a business asset, an investment asset, or a personal asset.
Besides monitoring the gain, cryptocurrency owners must keep track of their basis and know how to prepare for tax filing. Any exchange of goods or services involving it is taxable. Coin-to-fiat sales, coin-to-coin swaps, cryptocurrency purchases, and service receipts are taxable events. Cryptocurrency taxation involves other complexities, and businesses and individuals must continue to monitor future developments.
5. Cryptocurrency Valuation
Bitcoin is the largest and most well-known cryptocurrency out of thousands. Here are some facts about it:
- Bitcoin is a finite resource
- Approximately 89% of what will ever exist has already been created
- To date, people have generated 18.6 million, and the limit is 21 million
As explained above, there is a definite relationship between bitcoin’s price and scarcity and demand, with the finite nature of its supply supporting its high price. With a limited supply of bitcoin, people are willing to pay a higher price to own it.
For instance, in March 2022, a bitcoin was worth about $47,063, up from 5p in 2010, just after they launched the currency. There is a high degree of volatility in the crypto market; according to Statista, the bitcoin price was approximately $18,582 by November 2022.
Crypto trading is an emerging market. However, there are crucial things to know before you begin your trades. For example, choosing the right trading platform is vital to make money. Besides, you should understand the valuation and taxation process and more.