With reference to currency, the world has evolved significantly over the years. Initially, people relied on the barter system. This involved exchanging a particular good or service for another. The main challenge with this practice was that the buyer had to find a seller with similar needs. Subsequently, fiat money came in as a standard means of exchange. With the advanced modern technology, the world is now shifting to virtual currencies in the form of cryptocurrencies.
What is cryptocurrency?
Cryptocurrency, which is often shortened to crypto, is a decentralized and encrypted digital currency. Unlike a physical currency, such as the US dollar or pound sterling, central banks do not play part in the circulation of cryptos. Instead, miners, traders and hodlers are the key players as they support, buy, sell, or trade the assets. The encryption enhanced the assets’ security. With improved acceptance of digital currencies, it is now possible to use them to pay for various goods and services. This includes buying a Tesla car, paying for a Starbucks latte, or purchasing a Microsoft app.
Examples of Cryptocurrencies
As at January 2021, there are over 4,000 available cryptocurrencies. However, like any other product, some are more popular and valuable than others. The well-known cryptocurrencies include Bitcoin, Ethereum, Dogecoin, Litecoin, and Polkadot.
The screenshot below shows some of the popular cryptocurrencies, including their market symbols, price movements, market capitalization, and trading volume.
Cryptocurrency trading
HODLing
This is a slang used by the crypto community to mean ‘buy and hold’. It involves buying a cryptocurrency and storing it in your digital wallet. The trader then waits for the asset to increase in value significantly before selling it. This tactic involves riding on a long-term bullish trend and ignoring the short-term price movements.
To HODL a cryptocurrency, you will need to open an account with a crypto exchange. A crypto exchange is a platform that acts as the link between the buyer and seller. It enables one to trade one cryptocurrency for another digital or fiat currency. Besides, it provides the trader with a digital wallet that facilitates the storage and transfer of the currency. Some of the popular crypto exchanges are Coinbase, Cash app, and Binance.
CFD trading
A CFD is a derivative via which a trader can speculate on the price movement of a financial asset without owning the asset. To engage in CFD trading in the crypto world, you will need to open a CFD account with a reliable broker. As with any other financial asset, you will then be required to decide on the leverage, amount to invest, long/short position, among other parameters. Once everything is set, you can predict if the value of a particular crypto will rise or fall, and make a profit doing so.
Crypto Stocks
With CFD trading and HODLing are the two major ways of trading cryptocurrencies, it is also possible to invest in crypto via stock trading. This involves buying stocks of companies involved in cryptocurrencies. For instance, Coinbase – a well-established crypto exchange – recently went public. Based on the fact that its revenue has a close correlation to the price movements of key cryptocurrencies like Bitcoin, it is a viable investment option. The Grayscale Bitcoin Trust is another publicly traded firm whose stocks offer traders an opportunity to invest in crypto.
