Did you know India ranks Number #1 in cryptocurrency adoption? Yes, more than 1.5 crore Indians hold cryptocurrency assets. But why has crypto grabbed the fancy of novice and experienced traders alike? One of the main reasons is the extreme volatility that the crypto markets tend to exhibit, which offers the potential for outsized gains. Bitcoin jumped 70% in the first four months of 2023. No other asset class moves so dramatically. While high volatility offers the opportunity to make huge returns, it comes with high risks. This makes it very important to understand the market and make informed trading decisions.
Two Main Ways to Get Exposure to Cryptos
As with any traditional asset class, investing in cryptos involves a longer-term commitment than crypto trading. Crypto investors focus on the fundamentals of the underlying digital assets to profit from long-term value appreciation, ignoring the short-term price fluctuations.
For investing, you need a crypto wallet to hodl, a misspelling of hold that gained popularity and is now an acronym for “hold on for dear life.” Those who have smaller crypto investments typically use hot wallets. These are connected to the internet, making the funds stored more accessible. Those who have large amounts of cryptos use cold wallets, which are completely offline and, therefore, far more secure.
On the other hand, crypto trading involves speculating on short-term price movements using derivatives. You don’t need to create a crypto wallet. You can simply open a trading account with a broker and trade crypto futures. Crypto traders depend on technical analysis to make predictions and can follow strategies like day trading, swing trading and scalping, as with any other asset class.
You can trade cryptos directly, or via derivatives, such as CFDs, futures and options. Derivatives are popular as they do not include owning any cryptocurrency. They facilitate trading in rising as well as falling markets, so you don’t have to wait for an upswing to take a position. Additionally, you can use margins to trade via these instruments and enhance your purchasing power.
Choosing a Broker for Crypto Trading
Here are the most popular cryptocurrency exchanges in India:
CoinDCX – It offers more than 300 cryptos. Although opening an account here is a tedious process, order execution is smooth and fast. Commission charges are low and there is no deposit or withdrawal fee. It offers 15X leverage for trading futures.
Binance – This is the world’s largest cryptocurrency exchange in terms of trading volumes. It supports trading in more than 300 cryptocurrencies. However, it does not support Indian Rupees, so you’ll need to purchase USD or USDT first. It offers up to 125X leverage on certain cryptos.
Bitget – It has a user-friendly interface. Given high liquidity, it supports fast order execution. It offers one-click copy trading. Bitget made an entry into India in 2022 and now supports Indian Rupees.
Which Crypto to Begin Trading?
There were 22,904 cryptocurrencies in existence as of March 2023. However, among these, only around 8,800 were active. With thousands of cryptos to choose from, day traders often wonder which one(s) to begin trading with. Here’s a list of the top 5 cryptos to kickstart your crypto trading journey.
Bitcoin (BTH) – This is by far the most popular cryptocurrency. With daily trading volumes of over $19 billion, bitcoin offers better liquidity than other coins. It was launched in response to the financial crisis of 2008 and gain significant traction during the US banking crisis of 2023. It was bitcoin that brought blockchain into the limelight.
Ether (ETH) – Launched in 2015, Ether is the crypto associated with Ethereum, a decentralised open-source blockchain system. Ethereum introduced smart contracts to the blockchain and supports decentralised apps (dApps) to be built and run without downtime or malicious activity.
Tether (USDT) – This crypto is pegged to the US dollar. So, it is also called a stablecoin and its price is always $1. During times of high volatility, people sometimes convert all their cryptos to Tether, instead of cashing out into a fiat currency.
Binance Coin (BNB) – Launched in 2017 by the Binance exchange, BNB has a daily trading volume of around $700 million.
Ripple (XRP) – This coin gained immense popularity after its innovative ledger technology was adopted by several banks for dealing across currencies. Banks that use Ripple’s protocol include Bank of America (USA), Standard Chartered Bank (UK) and Siam Commercial Bank (Thailand).
What Moves the Crypto Market?
Here are some of the key factors that impact crypto movements.
Supply and Demand: As with any other market, cryptocurrency prices are influenced by the market forces of demand and supply.
Government Regulations: Investors understand that government regulations are not always bad. Attempts by governments to regulate cryptos have increased people’s trust in these new-age currencies. However, the imposition of very strict regulations or bans on cryptos can cause prices to plummet.
Economic Conditions: When economies prosper, investor risk appetite improves. This supports high-risk-high-return asset classes, including cryptos.
Inflation: Cryptos are widely considered a hedge against inflation. This is because inflation adversely affects fiat currencies.
Interest Rate Changes: Fiat currencies are impacted by interest rate changes announced by central banks, which in turn impact cryptos. An interest rate hike supports the domestic currency (for instance a rate hike by the US Federal Reserve tends to cause the US dollar to appreciate), exerting pressure on cryptos.
Social Media Posts: Comments by influential people (like Elon Musk!) and social media hype can cause price swings in cryptocurrencies.
Geopolitical Concerns: Cryptos are considered a hedge against geopolitical concerns as they are not linked to any one country or economy.
While crypto trading does offer numerous attractive trading opportunities, building a strong strategy and aligning it with your financial goals is the first step. You can use candlestick chart patterns and technical indicators to make predictions. Do remember to use robust risk management techniques.