Cryptocurrency Trading

I’ve been mucking around with Cryptocurrency for a little while now, and thought I’d write up a guide on how to get started. I’ll write this as simple as possible at a high level.

What are Cryptocurrencies?

They are digital currencies (such as Bitcoin, but there are many, many others) that operate on a decentralised network. That means, instead of a centralised server hosting all the records and transactions, it’s carried out on a peer to peer network where all members can keep everyone else in check. The term ‘blockchain’ is used to describe the method of keeping all this in check, a ledger that has methods of making sure transactions are correct and legitimate, with in built error-checking.

A cryptocurrency has a real world value, just like any countries’ currency value (for example US dollars or AU dollars), but is much less regulated. It’s value is available to see on different exchanges that accept the particular cryptocurrency type in question, and just like shares are based on buy and sell values.

The coins themselves are created through a process called ‘mining’. It’s a good comparison to going down a mine and trying to find gold; a rock of value in a vast area of worthless rock and dirt. When mining a cryptocurrency, complex maths equation is performed, similar to trying a key to see if it opens a lock. Each valid result gets added to the blockchain, and the person/device who found the result gets paid a reward in the form of coin.

If you want to try some very light mining, you can check out JSECoin^ and you can start doing it from your internet browser. You’re mining JSECoin of course on this link, which hasn’t gone to market yet (but they’re forcasting ~$1US a coin, which is probably a bit high!) – but it’s a good way of showing mining without having to know what you’re doing.

It’s also worth noting that coins don’t need to be traded in full units. At the time of posting (28th December 2017), 0.005 Bitcoins are worth $92.98AU. Prices fluctuate so much though, that several percentages of value being gained or lost in a 24 hour period is quite normal.

Each cryptocurrency will have it’s own unique traits and applications, and you’ll need to read up on a particular coin to find out more about it. Bitcoin was the first cryptocurrency invented, so any other type of coin is referred to as ‘altcoins’ (aka alternative coins). Also, each coin has a trading code like the stock market; Bitcoin is known as BTC.

How do I get started?

Firstly; yes there has been a huge boom in Bitcoin. It’s value is over $20,000AU at the time of writing per coin, where most other coins are well below $1000AU, with many being only a few cents each. The prices of many coins fluctuate with huge swings, which makes it both exciting and incredibly risky.

Step 1 – Sign up to a cryptocurrency exchange that you can get your ‘real world’ money into. Ones worth looking into in my opinion are:

Coinbase^ you get $10 if you buy or sell at least $100.

BTCmarkets which is an Australian based exchange, if you feel more comfortable trading with an AU company (and easier for Australians to deposit and withdraw). They recently reduced the Bpay amount from $500 to no minimum.

CoinSpot^ is another Australian based exchange, but has a lot more coin types than BTCmarkets (who has only 6). This one is the most user intuitive and basic, is clear about wallets for storing funds etc. .

Both of these exchanges will let you transfer in money via easy methods (Coinbase is Visa/Mastercard, BTCMarkets is Bank Transfer or POLi). Depositing money has no fee attached at time of writing, but please read the terms of the exchange you’re using to confirm this.

Step 2 – Verify your account. This will probably be giving a copy of your driver’s license or passport. Be wary and only use a company that seems legitimate and you can find good feedback on before giving a website important information about yourself!

Step 3 – Transfer funds. This can take a couple of days to show up in your exchange.

Step 4 – While waiting for the funds to turn up, sign up to a ‘better’ exchange that has a lot more types of cryptocurrency. The one I use is

Binance^ –  this is where I do most my trades.

Kucoin^ is a newer one that has some different coins. You can also buy their own coin, that pays out based on trading fees on the same site.

UPcoin^ is a new exchange that’s just about to launch, and can be good to get in early on some of these exchanges as they often lock out new signups for periods of time.

The fees are a *lot* less for buying and selling. Compare Coinbase and Binance – you just want to get your money to an exchange like Binance, and it requires a stepping stone like Coinbase to do so.

Step 5 – (After funds have turned up at Coinbase) Buy a cryptocoin for the full amount of money you want to use (which is probably the full amount you transferred). This should be in Bitcoin or Ethereum, as you’re transferring this over to Coinbase to then buy other coins with. Of course if you purely want to invest in one of the few coins on Coinbase (They have 4 at time of writing; Bitcoin, Bitcoin Cash, Ethereum and Litecoin), then you don’t need to move it anywhere. Binance however has 96. There’s hundreds out there that can be hard to find what exchange accepts them; but Binance is a great starting point.

Step 6 – Transfer your Bitcoin or Ethereum from Coinbase to Binance. This is done by withdrawing from Coinbase, and depositing into Binance (it’s a single transaction to do this). From the Binance end, you’ll need to get the deposit address for the coin type you’re transferring (Bitcoin or Ethereum). Then from Coinbase, you’ll need to withdraw the full amount of coin you have, using the address from Binance. What you’re doing here is moving your coins from the wallet in Coinbase, to the wallet in Binance.

Here’s a good YouTube video showing you how to do this step:

Step 7 – After a few minutes, your coins will be available in Binance. From there, you can start trading the Bitcoin or Ethereum for the other coins you’re after. Again, like a stock market you can set the price you want to buy at, with full visibility of the going buy and sell requests. The video above also shows this. You can start small with your purchases – the fees are normally a small % of your coins, so there’s no cost difference at the end of it if you do lots of little transactions, or one large one.

Keep in mind a few of these steps do incur costs, but they’re small (a few % max at the end of it). You’ll usually see changes in the value of your coins greater than the transaction fees in the first day, so it’s not a big deal.

Other Notes

Tax implications from Australia – read the ATO’s page on this. A highlight from that page is under ‘Using bitcoin for personal transactions’ –  “Where you use bitcoin to purchase goods or services for personal use or consumption, any capital gain or loss from disposal of the bitcoin will be disregarded (as a personal use asset) provided the cost of the bitcoin is $10,000 or less.”

As Coinbase is in USD, you may have problems withdrawing from Australia. BTCMarkets I didn’t have any issues with, but you can also find other ways to spend/extract your funds.

As you research cryptocurrency, here’s some terms you may come across:

ICO – These are Initial Coin Offerings that startups use to launch a new coin. You’re normally buying tokens that end up being converted to coins of the new cryptocurrency being launched, which could be months away. The coin could also be worthless – it’s a gamble. I’ve only put some money into one so far which is Pluscoin  which sounds interesting in earning coins by visiting fast food restaurants. I might never see my money or I might make many times my investment – who knows! Some ICOs will give you free tokens in the hope of referrals that will lead to purchases – such as Sphere^ which will give you 100 free tokens just for registering, no purchase necessary. (Future note – Pluscoin ICO I lost most my money on, as the coin launched at 5% of the cost of the ICO! This isn’t to say ICOs are bad, but they’re an even higher gamble than general trading, and more research should be put into an ICO before handing over your coins).

HODL – This internet term is used a lot to indicate the practise of just holding your coins. Don’t sell because they’ve dropped, just keep holding and hoping. This generally works because more and more people are getting into cryptocurrency, and eventually the value goes up again. One day it won’t work, but so far it’s been a pretty safe tactic.

Shilling – As you can see from the info I’ve provided, many services and offerings have referral links. Shilling is either related to people who make claims to get you to sign up using their links, or are trying to increase value of a coin they might hold themselves. Generally, don’t believe anything you read on the internet :)

Pump and Dump – The concept of getting a large group of people to buy up one coin on one exchange to raise the price, to then quickly sell off for a profit. Nothing is driving the price up beyond the group’s demand. People will often claim this as a reason behind quick spikes and drops in prices, and it may be true in many cases. For example. here’s a Discord (like IRC) chat group purely for Pump and Dumps.

Wallets – Where your coins are stored. Ideally, if you’re holding onto coins you can move them into a private wallet. There’s different applications and options around this – it’s not necessary to get started, but if you’re dealing with decent money you should read up on them. In the meantime, use 2FA on any online account that’s dealing with money.

FUD – Fear, uncertainty and doubt. Because the cryptocurrency world isn’t regulated, tricks that are banned in the stock market are used here. People will have a reason they want coin to go down, and places like Reddit, Twitter and Facebook are full of people saying things for their own gain, or spreading information because they read it somewhere. Rumors and faked screenshots can drastically affect the market. Be incredibly weary of any advice (positive or negative) you read.

FOMO – Fear Of Missing Out. This applies to the people doing the trading, they’ll often jump on something going up as they don’t want to wait and miss out on a big price spike. This also drives buys and the price up on rumours; get in early and make the most profit. The point of calling out FOMO is to not make emotional based decisions when trading.

If this is all too hard, then at your own risk you can look at other opportunities such as USI Tech (non-affiliate link here) where they invest the money for you with mysterious automated cryptocurrency trading software. You buy packs (starting around 50 euros), and over roughly 140 working days you’ll get your investment back + 40%. This one is a multi-level marketing system, so you’ll see a lot of strongly positive and negative information around the web. I have a single pack which returns ~0.8% each working day, and it’s paid in Bitcoin. I have friends who have been very successful in this system, but that doesn’t mean it’s foolproof. (Future update – this particular operation has been shut down in the US and Canada, so be extremely cautious in programs like these which may purely be pyramid or ponzi schemes).

 

Feel free to ask me any questions publicly or privately – I purely do this out of interest and fun, and although I hope to make lots of money, it shouldn’t be seen as a sound investment method without a lot of time invested. I’ll also update this page as things change or I find more information to add.

^ These are affiliate links, meaning I get a few $ if you use them. If you don’t want to use those links, go to the site manually – but there’s no negative impact to you for doing so.

 

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