The efficiency of crypto markets prices and the basics of trading cryptocurrencies

One of the most common arguments against investing in cryptocurrencies is that they are too volatile and unpredictable. Critics claim that crypto markets are driven by speculation, hype and emotion, rather than rational analysis of fundamentals.

They argue that crypto-assets have no intrinsic value and are subject to extreme fluctuations in price, making them unsuitable for long-term investors.

However, this view ignores the fact that crypto markets are actually very efficient at pricing a mature business in the same way it would be priced in stock markets. In other words, crypto markets reflect the current value of the future cash flows of a network, protocol or platform, adjusted for risk and uncertainty. This is similar to how stock markets value a company based on its expected earnings, growth and dividends.

To understand how it works, we need to look at the different types of crypto-assets and how they generate value for their holders. There are three main categories of crypto-assets: currencies, utility tokens, and security tokens.

Currencies are the most basic form of crypto assets. They act as a medium of exchange, a store of value and a unit of account. Examples of currencies are Bitcoin, Litecoin and Monero.

Currencies derive their value from their scarcity, security and network effects. The more people use and trust a currency, the more valuable it becomes. Currencies are priced based on supply and demand, as well as their perceived utility and acceptance.

Utility tokens are crypto-assets that provide access to a service or a function within a network or a platform. Examples of utility tokens are Ethereum, Binance Coin and Chainlink. Utility tokens derive their value from their usefulness and functionality.

The more people use and benefit from a service or a function, the more valuable the token becomes. Utility tokens are priced based on the demand for the service or the function, as well as on the quality and innovation of the network or the platform.

Securities are crypto-assets that represent ownership or a claim to an asset or an income stream. Examples of security evidence are tokenized shares, bonds and real estate. Securities derive their value from their underlying assets or cash flows.

The more profitable or valuable the asset or the cash flow, the more valuable the token becomes. Securities are priced based on the performance and prospects of the asset or the cash flow, as well as on the legal and regulatory framework.

As we can see, crypto markets are not irrational or random. They effectively price a mature business in the same way it would be priced in stock markets, based on its expected future value, risk and uncertainty. Crypto investors do not gamble or speculate. They evaluate and invest in different types of crypto-assets that offer different benefits and opportunities.

The basics of trading cryptocurrencies

Cryptocurrencies are digital assets that use cryptography to secure transactions and control the creation of new units. They are decentralized, meaning they are not issued or controlled by any central authority, such as a government or a bank. Cryptocurrencies can be traded on online platforms, where buyers and sellers can exchange them for other cryptocurrencies or fiat currencies, such as US dollars or euros.

Trading cryptocurrencies can be a rewarding and exciting activity, but it also involves risks and challenges. In this blog post, we will cover some of the basics of cryptocurrency trading, such as how to choose a platform, how to analyze the market, and how to manage your risks.

Choosing a platform

The first step to start trading cryptocurrencies is to choose a platform where you can buy and sell them. There are many platforms available, each with its own features, fees, security and reputation. Some of the factors to consider when choosing a platform are:

The availability of the cryptocurrencies you wish to trade. Some platforms offer a wide range of cryptocurrencies, while others only support a few. The fees and commissions charged by the platform. This may vary depending on the type of transaction, the amount traded and the payment method used.

The security and reliability of the platform. You should look for platforms that use encryption, two-factor authentication, cold storage, and other measures to protect your funds and data from hackers and fraudsters. The customer support and service provided by the platform. You should look for platforms that have responsive and helpful customer support, as well as clear and transparent policies and terms of service.

Analyze the market

The second step to start trading cryptocurrencies is to analyze the market and identify the opportunities and trends. The cryptocurrency market is highly volatile and is influenced by many factors, such as supply and demand, news, regulations, technology and sentiment. To analyze the market, you can use various tools and methods, such as:

Technical analysis. It is the study of price movements and patterns using charts, indicators and other tools. Technical analysis can help you identify trends, support and resistance levels, entry and exit points, and potential price movements.

Fundamental analysis. It is the study of the underlying value and potential of a cryptocurrency based on its technology, innovation, adoption, competition and other factors. Fundamental analysis can help you evaluate the long-term prospects and growth potential of a cryptocurrency.

Sentiment analysis. It is the study of the emotions and opinions of the market participants using social media, forums, blogs, surveys and other sources. Sentiment analysis can help you gauge the mood and expectations of the market and anticipate possible shifts in supply and demand.

Manage your risks

The third step to start trading cryptocurrencies is to manage your risks and protect your capital. Trading cryptocurrencies involves high risks due to the volatility, unpredictability and complexity of the market. To manage your risks, you can use various strategies and techniques, such as:

Set a budget and stick to it. You should only trade with money you can afford to lose and avoid investing more than you can handle.

Diversify your portfolio. You should not put all your eggs in one basket and spread your investments across different cryptocurrencies, platforms and strategies.

Use stop-losses and take-profits. These are orders that automatically close your position when the price reaches a certain level. Stop losses can help you limit your losses if the price goes against you, while take profits can help you lock in your gains in case the price reaches your target.

Educate yourself and stay informed. You should always do your own research before trading any cryptocurrency and keep up to date with the latest news, developments and trends in the market.

Trading cryptocurrencies can be a rewarding and exciting activity if you know what you’re doing. By following these basic steps, you can start trading cryptocurrencies with confidence and success. Remember that trading cryptocurrencies is not a get-rich-quick scheme and requires patience, discipline and skill.