How to Trade Cryptocurrencies Like Bitcoin and Ethereum
Many people have heard about cryptocurrencies like Bitcoin, but not everyone knows how to trade and invest in digital currencies.
In other words, all you need to trade cryptocurrency is:
- A cryptocurrency wallet to store coins on.
- A cryptocurrency exchange to trade on.
With that noted, it is also helpful to know the current and historic prices of coins in case there is an abnormal price move on one exchange or incase the coin has made a big price move recently. Thus, you may also want a tool to help you see that information like CoinMarketCap.com.
Step 1: Picking a Wallet
Picking a wallet is about a two things really, it is about trust and security (so you’ll want to pick a well-respected product with a solid history) and it is about coin selection.
Start with thinking about trust and security, and then find which trusted wallets are the right choices based on the coins you want to own. You can always use more than one wallet if need be.
Example Wallets: Atomic Wallet, Trezor, Ledger, or even the “custodial” wallets offered on exchanges (although some will say that if use custodial wallets, and therefore don’t own your private keys, you don’t really own your coins).
Step 2: Picking an Exchange
Picking an exchange is a lot like picking a wallet, we have to think about trust and security and we have to think about coin selection. Again, go with trust and security first. If you need to use more than one exchange, then you can of course do so.
Once you pick an exchange, you need to get verified with the exchange you pick and fund your account. Once you are verified and have your account funded, the only thing left to do is fill out some order forms to place trades.
Step 3: Doing Research
Research is an important step. Crypto markets can be illiquid (meaning there are not enough people trading a given market), price moves can be volatile, and a lot of coins don’t make it. It is important to understand the market and coins you want to invest in or trade before you get too buy button happy.
Example Places to Do Research: the Block, CoinMarketCap, TradingView, Twitter (Be Careful of Scammers, stick to well-respected figures and brands).
TIP: As a rule of thumb, the top coins in terms of market cap that have longevity are the safest bets. A portfolio full of moonshots is risky!
Step 4: Making a Trade
In the stock market, you are always trading dollars for stocks, in crypto market, you will trade dollars for cryptos and trade cryptos to cryptos.
- You can trade dollars to crypto (for example US dollars to Bitcoin or US dollars to Ripple).
- You can trade crypto to crypto (for example Bitcoin to Ethereum or Ethereum to Litecoin).
Step 5: Paying Taxes
You’ll likely owe taxes on profits, and even if you take losses you’ll need to account for it at tax time.
Every trade from one crypto to another, or from dollars to crypto is a taxable event.
Make sure to understand the tax implications of crypto and keep a record!
Alternative Methods of Investing in Crypto
If you don’t want to deal with actual crypto, but you want exposure to the market, there are also some alternative ways to go.
Here are some alternatives ways to invest and/or trade crypto:
- An app like Square’s Cash App or Robinhood (these are custodial services, and in the case of Robinhood won’t let you transfer crypto in or out).
- The GBTC trust, ETCG trust, and ETHE trust as sold on the stock market.
- A cryptocurrency IRA (these have drawbacks like fees, but they can be valid choices for long term investing).
- Futures and derivatives trading platforms like Bakkt futures, CME futures, and LedgerX options.