Most novice traders don’t have a solid understanding of how cryptocurrency trading works, given the coins’ mysterious origins. In this article, we’ll debunk the most common myths and misunderstandings about crypto coins and trading them.
Digital money? This sounded like something you’d only find in a Sci-fiction movie more than a decade ago. But, then, with advanced technological developments, virtual currencies became a real thing.
The crypto market is a relatively newcomer in the financial world. More precisely, the crypto market was born back in 2009 when the first cryptocurrency, Bitcoin, was created. But despite being an incredibly young market, it has quickly transformed into a formidable trading field, having over 2.000 cryptocurrencies today. And, estimates suggest that there could be over 4.000 in circulation in 2021. Today, the market has an average daily volume of nearly $100 billion, most of which circulate in the form of exchanges.
Yet, despite the market’s popularity, understanding how virtual currencies operate can be complicated for some people. Here are five common crypto trading and crypto coins myths that every novice trader should know that they are not true.
1. Cryptocurrencies are an illusion.
It’s weird for some to understand that cryptocurrencies are not tangible in that they only exist on computers and they are not in people’s purses or wallets. Yet, it’s wrong to think of them as being imaginary because they are real things and can actually be used to pay for real goods.
In fact, more and more companies around the world have started to accept cryptocurrency as a payment method. Want a Vanilla Latte from Starbucks? Or maybe a Whopper from Burger King? Donate to Wikipedia? Book a flight with Norwegian Air? Yes, you can pay for all this stuff and more using cryptocurrency.
So, no, cryptocurrencies are not an illusion. They are real money, despite being in your digital wallet.
2. Trading cryptocurrencies make you rich fast.
Becoming a digital assets billionaire sound like a dream, right? Well, some traders in cryptocurrencies do have some massive gains, but they’ve also witnessed significant losses due to the price volatility.
Compared to other markets, like the Forex market, for example, in the crypto market prices can increase and drop unexpectedly and alarmingly. And, the worst part is that there is little apparent catalyst other than the unpredictable actions of large-scale speculators. What’s more, when you trade foreign currency through SVG forex brokers, you are trading on a more regulated market which’s moves are easier to predict.
So, investing in cryptocurrencies will not guarantee you a peaceful night’s sleep and a sound investment. What’s more, it doesn’t guarantee you that you will win enough money to call yourself a billionaire overnight. Getting rich with crypto trading is more of a long-term investment, and it requires you to have a trading strategy that will help you win. However, winning strategies are a bit more difficult to form by the novice who is just entering the market.
That being said, yes, crypto trading can bring you some nice profits, but it will definitely not make you rich overnight.
3. The more you invest, the more you win.
This one has a bit more complex answer.
Generally, yes, the more you invest in something, the higher the profits. However, this isn’t necessarily true in the crypto market due to the coins’ rapid and sudden price changes. So, when trading crypto, the more you invest, the higher the chances to lose more than you can afford.
Here’s the deal: as with any type of investment, crypto trading involves some risks. Take, for example, the January 2018 crash that quickly resulted in significant loses for many investors. At that time, traders reported heavy financial loses.
So, no, it’s not the more you invest, the more you win because the prices of cryptocurrencies can rise or drop incredibly fast and unexpectedly. That’s because what’s determining the value of crypto coins is all about supply and demand. More precisely, if a certain coin has a high token supply but little demand on the market, its price drops. In contrast, if there’s low supply but high demand, the coin’s price increases.
The trick with investing in crypto and making money out of it is to trade responsibly and make rational trading decisions.
4. You should only trade one crypto coin.
Novice traders think that trading only one coin is a much more secure strategy because they get used to how the coin operates and they imagine that the more they invest in a coin, the bigger the potential to earn more. Yet, this couldn’t be any less true.
There’s a famous saying from Warren Buffet saying that you should never” put all your eggs in one basket”. Well, this is highly applicable in crypto trading as well. What does this mean in trading crypto? It means that you shouldn’t invest in only one crypto coin.
Here’s the deal: there are minimal chances for the market cap to increase because of a single coin compared to the chances for it to grow driven by various coins at the same time.
So, investing in multiple coins is all about minimizing risk and securing your earnings. In other words, if you invest, say, in 3 different crypto coins, if one of them performs poorly, you can still be sure that you’ll get some profits from the other two coins you have invested in. whereas, if you only invest a lot of money in one coin and it performs badly, you have no other source of profits but only losses.
5. You should buy cheap coins.
Over the last few years, plenty of crypto coins have been developed and made their way into the market. These newcomers are relatively cheap, and novice traders may be tempted to invest in them just because they are affordable. However, investing in cheap coins doesn’t necessarily mean that they will bring you profits because crypto trading is all about a coin’s market cap.
For example, it’s no difference between buying a crypto coin that costs $10 but has 1 million shares or to purchase a coin that costs $100 with 100.000 shares in the market. So, consider the market cap when deciding if a coin is worth investing in or not rather than its price. Spoiler alert: the higher market cap a cryptocurrency has, the worthiest it is to put your money in it.