8 bits of key information to help you trade Ethereum like a pro!By CCTrader - August 24, 2018 |
Bitcoin might be the most popular cryptocurrency, and the one that propelled cryptocurrency to its current popularity, but Ethereum also played a great role in the past 3 years, especially with its underlying blockchain technology.
Ethereum is the second largest cryptocurrency by market capitalisation, with it’s value climbing by over an incredible 59,500% in just 3 years, making it one of the most popular and highly discussed cryptocurrencies.
Just like Bitcoin, Ethereum is one of the more established cryptocurrencies, and would make a great addition to a cryptocurrency investor.
Let’s explore 9 aspects of Ethereum that you should know before investing in the currency.
Volatility is normal
When investing in cryptocurrencies you need to be ready and embrace the volatility of the market. Cryptocurrency markets are volatile and run 24/7, so changes can happen at any time during the day or night, and the movements in price can be significant.
In spite of the volatility it’s important to have an investment goal in mind, which is longer term oriented. It is easy to get discouraged and cautious when you see certain price fluctuations, however it’s important to keep long term objectives in mind, and understand the reason for certain fluctuations. For cryptocurrencies it’s important to stay on top of the market.
Staying steadfast in a volatile market is a mental game, and requires both practice and education on the market.
Expect flash crashes
As a result of volatility you can also learn to expect flash crashes. Prices can swing by as much as 80% in a day, which can signal cause for alarm if you approach crypto with a traditional investment mentality. However this can be ‘normal’ in the cryptocurrency markets and is a fairly frequent occurrence.
Do not focus on just the flash crashes, but keep your long term goals in mind. A flash crash may recover, and the cryptocurrency can still carry on this upward trend. To avoid significant losses you can set up stop loss orders using CCTrader Crypto.
Flash crashes in the crypto market can last a few days until the market bounces back.
Buy the dips
If there is a flash crash, chances are the price has dipped below a certain threshold that could make it a good opportunity to buy. The general investment guideline holds true even in cryptocurrency markets – buy low, sell high. When the price is low it is normally the best time to buy due to the expectation of the price rising again.
Ethereum is a powerful platform and gives the currency great chances at a swift recovery, so long as you set yourself good target entry and exit prices.
Our pro tip is to buy in the red, or during a bear run (3+ red candles) and sell during a bull run (3+ green candles). It’s tempting to buy when you see the market value of crypto go up, and in some cases it makes sense, however generally speaking it makes more sense to buy on a low.
Even though it seems like we’ve had cryptocurrencies forever now, we need to keep in mind they are still in their infancy. Ethereum was initially released in 2015, that’s just three years ago, meaning the currency and its value still have untapped potential and the way it will progress remains to be seen.
Using the HODL method of crypto investing can be a good option in certain instances. HODL essentially means that the investor will hold on to their investment with the belief that it will recuperate and turn a profit in the future.
Ethereum’s potential for growth and aspirations are great. The platform has room to grow and its underlying technology has a lot of promise – so investing for the long term with Ethereum can be a great option.
Ether price is effected by its development and Bitcoin
The development of Ether has a large impact on its price since Ethereum is still a young cryptocurrency. Ether is a value token which is used to pay for transactions and computational service on the Ethereum network. As a result, the expansion, performance and related services available will impact the price of Ether.
Additionally, as with most other cryptocurrencies, Ether is affected by the performance of Bitcoin. Due to its status, Bitcoin signals the health of cryptocurrencies in general, and of the crypto market. If the Bitcoin price goes up, most other coins will also go up, and the opposite is true as well. Despite being the second largest coin, Ethereum still depends on the performance of Bitcoin, since the markets and the industry is still so young.
These are both important factors to consider when buying and selling Ether. Keep an eye out for key Ether & Bitcoin events and stay on top of the news.
Ether still has a long way to go
With development on the Ethereum network being constant, Ethereum has the opportunity for excellent capital growth. As the underlying technology develops further and Ethereum finds more uses, the value of Ethereum as a platform, and probably as an investment will increase.
It does also come with its challenges, as since it is being developed and discovered even further, so do issues crop up. These tend to negatively impact price, however fixes and hard forks counteract these dips, and put Ether on a long term upward trend.
Looking at growth rate for example, Ethereum has achieved a much faster rate than Bitcoin, reaching the value of $1,000 in just 3 years, compared to Bitcoin’s 8. The counterargument to this however, is that Ethereum only grew so fast and big, because Bitcoin was doing well and grew itself, affecting the whole crypto market.
For Ethereum Miners – watch out for the “difficulty bomb”
The “difficulty bomb” was built into the Ethereum network to make mining more difficult. It progressively makes it harder to mine blocks by increasing the block interval (the time that is mandated to pass before a new block can be mined).
The purpose of this is to make miners shift from the Proof of Work (PoW) system to the new Proof of Stake (PoS) system. It will essentially grind the PoW system to a halt and render it unusable. This will then cause miners to have no option but to shift over to the PoS system.
Once the effects of the “difficulty bomb” start to be felt, estimated to be late-2018 to mid-2019, the Ethereum network will begin to slow down, and this could cause a short lived price drop until miners shift over to the new PoS system.
The difference between PoW and PoS is quite simple. In a PoW system, computers race to solve algorithms, with the computer that solves the algorithm first and broadcasting the new block to the network gets rewarded with a newly minted Ether coin. Whilst in a PoS miners, referred to as bonded validators, can stake their money on the blocks added to the Blockchain. The percentage of wealth staked, relative to market cap, represents the percentage chance an individual has of creating the block and receiving the fees contained within it.
In the PoS system, there is more incentive to act honestly than there is in a PoW system, as bad actors will lose their stake. This creates a safer and more efficient mining system.
So whilst the “difficulty bomb” may cause the Ether price to tank, it is there to create a safer and more efficient platform; so consider the difficulty bomb as a great opportunity to get your hands on some cut price Ether.
Use a cold wallet when not trading
If you’re trading using an exchange, such as Kraken or Bitfinex, you really should be using a cold wallet to store your Ether.
There are two types of wallets, hot and cold wallets. A hot wallet is live and connected to the internet. This is the wallet you use for trading.
A cold wallet is offline and is used to store Ether, and other cryptocurrencies, for long periods of time. These can come in the form of a special device, such as the Trezor hardware wallet, or just a regular hard drive.
Cold wallets are far safer as they cannot be hacked, but the downside is if you lose them, you lose the money. Hot wallets are vulnerable to hackers, and exchange issues, such as the infamous Mt.Gox collapse where millions of dollars’ worth if Bitcoin was mysteriously lost.
Certain exchanges such as CCTrader Crypto store a percentage of client funds in cold storage to safeguard their investor’s funds.
If you are still unsure about trading Ethereum or have more questions, feel free to get in touch with one of our representatives on live chat, or leave a comment below and we will do our best to help you out!