How to Analyze Cryptocurrency
Welcome to our 3-part Cryptocurrency articles series where we break down 1) what cryptocurrency (we’ll call it crypto for short) is like you’re 10 years old, 2) how to analyze crypto, and, more importantly, 3) what you need to think about come tax time if you invest in crypto. This is part 2 of the series where our featured guest, Rayven J. Moore, takes you through how to analyze crypto in knowing when to buy or sell. If you have no idea what cryptocurrency is check out Part 1 of our series. With that being said, get ready to read-up on the new investment wave!
How do I make money with Cryptocurrency?
If you are thinking to yourself, “How do I make money from it?” then I am here to help teach you the basics of analyzing cryptocurrencies. People invest for different reasons and there are different ways to do it. So you’re going to want to come up with a plan for you and stick to that plan. Consistency is key. This will be the largest transfer of wealth in human history, get your piece.
Currently, there are over a thousand different cryptocurrencies listed on Coin Market Cap. Coin Market Cap is basically the dictionary of crypto. It’s the best place to get started on your journey. There are four criteria for deciding whether or not to purchase a coin.
Your Crypto Investing Criteria
- Determining what price to buy at – If you are looking at a coin and it is currently at its all time high price then, likely you should not purchase the coin. What is the probability of a coin going up from its all time high? Not likely (but still possible in crypto, the market is young). Look at the graph. Look at trends, volumes, and the price graph from different candlestick time intervals. Just remember the fundamental trading rule – buy low and sell high. Decide your entry price. Buy low. Be patient.
- Look at external factors – Crypto trading takes a lot of time and research. Research is absolutely necessary. Go to the coin’s website. Look up the news of the coin you are interested in. Make sure it is something you are comfortable putting your money into. There are tons of shitcoins out there. Don’t buy shitcoins. Watch YouTube videos, read the Reddit page, go to forums. Make an educated decision. Where do you see the future of this coin going? Does the team behind the coin have plans for updates and future innovations? There is a lot to consider.
- What is the community around the coin like? – Analyzing the size and level of engagement within a coin’s community is a good way to learn more about a potential investment. If you are choosing a coin to hold for long term (6 months to 3 years) then you should join a community for the coin. Subscribe to the subreddit page for the particular coin, join the Telegram group, and find other people that are involved with the investment so you can stay up to date on news and the overall vibe within the community. A community can make the difference between a great coin and a not so great coin.
- How replicable is the coin? -What are the unique features that set this coin apart from the others? Can others easily copy the idea?
The Best time to Buy
The best time to go shopping for coins is after a huge crash. If the prices look really low and people are losing money, then it should be a good time to buy. Dips in price are an opportunity to buy more! If you are buying at all time highs then it is likely that you will be the person feeling the hurt after a market crash.
Another key would be to learn how to read price charts. Technical analysis can make you a lot of money. Or another strategy is just find good coins, buy, and hold. Patience is key. It’s your money. Be confident and comfortable in your positions. Research. Don’t gamble. And remember you don’t lose money unless you sell for less than you bought if for.
Please be aware that trading cryptocurrency is similar to trading foreign exchange currency pairs. When you buy a new coin you will likely use Bitcoin or Ethereum to do so. If you are buying something with Bitcoin be sure that you decide based on the Bitcoin price, and not the USD price (likewise sell based on the Ethereum price when doing a trade using Ethereum). Some new traders assume they are making money because the USD price increased but they are selling for less Bitcoin than they paid. The winning strategy is to buy low and sell high. Many traders do the complete opposite.
How to react when the market crashes…
Do not panic. Be resilient. Don’t panic sell. Make a strategy for yourself and stick to it. Make a checklist of things to do before making a trade and stick to your rules. Start small and use more capital as you are more comfortable trading. There are a lot of mistakes that new traders make. It happens to everyone. Make sure if you make a mistake you learn from it. Learn the overall market environment. It’s so important to be connected to market news and updates.
The crypto market is in the early adopter stage. You will need to be mindful of updates, new releases, ICO dates, wallets, exchanges, passwords, usernames, public keys, private keys. Things will get simpler as developers build ecosystems around their products. Be sure to keep a notebook and pen for secure passwords to your exchange accounts and digital wallets. I recommend the free Last Pass software for storing and securing login info & passwords.
Other things you should consider…
There is a lot of greed and FUD (fear, uncertainty, and doubt) in crypto. Don’t get hacked. Stay safe out there. Equifax and Deloitte both got hacked. Also, look out for whales, shitcoins, scams, and pump & dumps. Be aware of FOMO (fear of missing out).
There are so many coins, companies, products, and use cases – it’s all very exciting. Today there was over $5 billion dollars of global crypto trade volume in the past 24 hours. The markets never close. Some people might get addicted to checking their coins or account balance. It’s fun. And you make money over time. Be patient.
Just don’t sell for less than you bought. This is all very new technology. And the technology works. The world is gonna have to adapt. Once you understand that then you will forever be converted to crytpo. And hopefully, you will get rich. The simplest strategy is sometimes the best strategy. Buy Bitcoin & hold is a simple and effective strategy.
After you’ve bought your first Bitcoin, or several hundred, the first thing you should do before you even think about selling is research and understand the tax implications of buying and selling Bitcoin. We already wrote a piece to arm you with the tax knowledge so you don’t have to go anywhere. Click here to read up on Part 3 of our article series-Tax Implications of Cryptocurrency.
Rayven J. Moore is a cryptocurrency investor, serial entrepreneur, and accountant. He has created a website to share personal finance, cryptocurrency, music recommendations, and life tips with you. He’s a financial analyst in Houston, Texas. Rayven graduated from the University of Notre Dame in 2014 with a Bachelor’s degree in Accountancy. He is a licensed CPA in the state of Texas. Feel free to follow and engage with him on social media.
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