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Recommended Next Steps To Become A Millionaire Crypto Trader 1. Learn how blockchain works
Goldman Sachs says blockchain technology “has the potential to redefine transactions” and will “change everything”. But anyone who claims to fully understand how blockchain works, and is not named Satoshi Nakamoto, is probably lying to you. And anyone who claims to be Nakamoto himself, is probably also lying to you.
Fortunately, just like the internet, you don’t need to know how blockchain works to use it.
But here are the basics… a blockchain is a continuously growing list of records, called blocks, which are linked and secured using cryptography.
By design, blockchains are inherently resistant to modification of the data, and serve as a public ledger of transactions between two parties.
To date, the best analogy I’ve heard for blockchain compares it to a Google Doc:
“The traditional way of sharing documents with collaboration is to send a Microsoft Word document to another recipient, and ask them to save the document, make revisions to it, and send it back.
The problem with this scenario was that you needed to wait to receive a return copy before you could see or make changes to the document. You are locked out of editing it until the other person is done with it.
That’s how banks work today—they maintain money balances and transfer money by briefly locking access to the account (or decreasing the balance) while they make the transfer, then they update the other side, then re-open access (or update the balance).
With a Google Doc, all parties have access to the same document at the same time, and the most up-to-date version of that document is always visible and editable to all parties. This real-time shared Google Doc is just like a distributed blockchain ledger.
The “real version” of the transaction is verified by analyzing all the available blocks on multiple computers and taking “the average”.
The decentralized and transparent nature is what makes blockchain highly secure and almost impossible to hack, because a hack to one ledger would cause a discrepancy in the entire network that will be ignored.
Functionally, to hack the ledger one would have to hack all the computers on a network at the exact same time in order to change the “average”. For a currency like bitcoin, this would mean millions of computers. So the larger the network, the more stable the currency.
Current payment systems require third-party intermediaries like Google, Facebook, banks and government agencies to process transactions, and many charge high fees for doing so.
A blockchain system, however, allows for faster direct payments between individuals and can even support micropayments.
“Blockchain solves the problem of manipulation. In the West, people trust Google, Facebook, and their banks. But around the rest of the world, people don’t trust their corporations as much. Blockchain opportunities are the highest in the countries that haven’t reached that level [of trust] yet.” —Vitalik Buterin, founder of Ethereum
2. Learn the top currencies
Bitcoin is here to stay. But the world of virtual currencies is getting crowded with many other “altcoins”. There are over 100 types of cryptocurrency that sell for more than $1 USD, according to CoinMarketCap. Even more are in penny-stock range, but I don’t recommend trading them right now.
There are over 100 cryptocurrencies trading over $1 USD, with a market cap just under $150 billion. Bitcoin accounts for over 50% of the entire market.
What’s important to note is that bitcoin accounts for about 50% of the entire cryptocurrency market, and has the highest volume.
It is undoubtedly the most important currency today. You’ll also notice a difference between the original version of bitcoin, Bitcoin Classic (BTC), and a newer version of bitcoin, Bitcoin Cash (BCH). Bitcoin Cash is a spinoff off of the original bitcoin blockchain.
I’m not going to get into the technical differences between Bitcoin Classic and Bitcoin Cash, but understand they are separate currencies. So far, Bitcoin Classic seems to be favored by the public over Bitcoin Cash, and has an 8X higher market cap. But when people say “bitcoin” (lowercase) they could be referring to to either currency.
The other two currencies I would pay attention to are Ethereum (~40% the size of Bitcoin, also known as “Ether”), and the smaller and more volatile Ripple and Litecoin. Despite a smaller market cap, Litecoin enjoys higher trading volume than Bitcoin Cash and Ripple, likely because it’s one of the three currencies accepted by the #1 digital currency wallet, Coinbase.
3. Understand all inherent risks
Bitcoin is more volatile than practically any other type of asset, including gold or the stock market. Cryptocurrency is still a young technology, and faces many challenges.
While I believe the overall trend for bitcoin is upwards, trading this currency comes with considerable risk. Bitcoin prices are highly impacted by public sentiment about the currency.
It will continue to fluctuate as companies and financial institutions make decisions of how to incorporate (or not incorporate) it into their businesses and workflow. It’s also highly sensitive to regulatory changes, as I will get to in a minute.
To give an example, in early June 2017, Bitcoin was trading at $2,983, before losing 30% of its value a month later in July—crashing to $1,992.
Then it climbed up to $4,764 in September, posting an impressive 139% gain.
What goes up must come down, eventually.
Then as I sit here and write this on September 3rd, 2017, the Chinese government announced a few hours ago that they are banning all organizations and individuals from raising funds through Initial Coin Offering (ICO).
They barred all banks and financial institutions from doing business related to ICO trading. This is significant news, although not a surprise to many people, as representatives from the People’s Bank of China and China Securities Regulatory Commission had previously criticized ICOs as an unauthorized fundraising tool that may open the door to financial scams. (I will explain ICOs in the last section).
The news of the ICO ban in China had bitcoin trading down 12%, Ethereum down 23% and Litecoin down as much as 32%, as shown below.
So don’t go throwing your entire savings account into Litecoin just yet, and being bullish long-term doesn’t mean it will get there smoothly.
High risk, high reward in trading cryptocurrencies.
There is also risk inherent to the exchange itself. Just like the cash in your wallet, the safety of your bitcoins or other currencies depend on your own diligence. While your bitcoins cannot disappear, the transactions are permanent and can only be refunded by the recipient.
This means you should only do business with people and organizations you know and trust, or who have an established reputation.
Remember, bitcoin transactions are stored publicly and permanently on a network, which means that anyone can see the balance and transactions of any bitcoin address. However, only the bitcoin exchanges and/or the parties involved in the transaction can attach the addresses to a real person. So for the most part, the transactions are anonymous.
Other trustworthy exchanges I considered before deciding on Coinbase were (in no particular
order): Bitsquare, Bitstamp, ShapeShift, Kraken, Poloniex, CoinMamma an d Gemini.
For a full list of exchanges by country, click here.
4. Read bitcoin news every day
Don’t miss a day learning about bitcoin and other cryptocurrencies.
Here are some great websites to bookmark for bitcoin news and discussion boards. The combined content here could keep you busy for at least a year.
Brave New Coin
If you’re on Twitter, I also created a list of bitcoin influencers that you can subscribe to and read their content. I find this to be the most efficient way of consuming information quickly before making trades.
Bitcoin Influencers on Twitter
twitter.com/kaleazynews and entertainment on bitcoin, altcoins, cryptocurrencies and all the live commentary. We got you covered!
5. Open a brokerage account
Coinbase is one of the most trusted and well-known exchanges for buying and selling Bitcoin, Ethereum and Litecoin. They are essentially a digital wallet for your cryptocurrencies, and their iPhone and Android app make sending currency and tracking prices super simple.
Coinbase’s iOS app for buying/selling bitcoin.
What I like about Coinbase is they meet all the regulatory requirements in the countries they operate, and they have two distinctly separate but integrated products: Coinbase for buying and selling bitcoin or sending them to friends, and Global Digital Asset Exchange (GDAX) for more advanced and precise trading.
Previously, the GDAX was called the Bitcoin Exchange, but mid-2016 they decided to rebrand. From a product standpoint, you can tell they built GDAX with their own engineers, as the user experience is similar to Coinbase.
You can signup for Coinbase using my referral code, and you’ll get $10 in free bitcoin to play around with.
I would start by making a Coinbase account, then graduate over to GDAX once you feel comfortable.
You can instantaneously transfer currencies between the two exchanges for free, which is really nice.
6. Fund your account Once you create an account on Coinbase (or another exchange), you will need to verify your identity by uploading a picture of your drivers license or passport. This only takes a few minutes, then you can fund the account.
To add a new payment method, go to “Settings” and “Payment Methods” on the dashboard. You can choose a bank account or a credit/debit card. The bank account has higher limits, but takes longer for the funds to settle. The credit/debit card has lower limits, but the transactions happen instantly. If
you go bank account route, you will need to verify two deposit amounts on your account. I personally did both—I funded the account with a few grand from my checking account, and thanks to my impatience I also put few grand on my credit card just so I could get started right away.
Keep in mind, Coinbase charges a 3.99% processing fee for all credit card transactions. I’d recommend using a credit card that gives you at least 3% cash back so you can offset some of the fees (I’ll cover the fee structure in more detail in the next section). You can use PayPay for selling currency, buy not buying currency; for PayPal the funds are available instantly but have lower payout limits. The bank account is usually your best bet.
7. Buy and sell some bitcoin!
Once your account is funded, you can go ahead and make your first purchase. Remember, you do not have to purchase coins in full units. You can buy coins in fractions as low as one hundredth of a millionth, or about less than one-tenth of a cent at current prices. That makes bitcoin and other cryptocurrencies easy targets for speculation.
Coinbase does not charge to transfer bitcoin from one user to the other, which is the point of blockchain. But if you want to transfer money to or from an outside exchange, such as a US bank account, Coinbase charges a small conversion fee.
The charge is 1.49% with a $0.15 minimum if you are using a bank account and 3.99% if you are using a credit/debit card. I’d try to avoid funding with a credit card unless you get ample reward points to offset the higher fees.
For a full breakdown of their fees, click here.
Lastly, if you choose the bank account payment method, the funds take 4–5 days to settle, and you are locked into the market price of BTC at the time of purchase.
In the case above, I am buying 0.2233 BTC at a price
of $4,411.93,totaling $985.32, and I’m losing $14.68 in fees. I am
guaranteed that price regardless how long the funds take to settle. Coinbase essentially buys the bitcoin at that time and saves them for you in a virtual vault, and releases them in your account once they receive the funds from your bank.
8. Graduate to GDAX
Once you’ve bought and sold a few bitcoin on Coinbase, you should graduate to the big leagues. Coinbase’s more advanced trading platform is called
the Global Digital Asset Exchange (GDAX).
It uses the same login and password as Coinbase, and you can easily transfer currency between the two platforms, which is really convenient. The GDAX features a pretty interface with real-time pricing data, order book, charting tools, trade history, and a simple buy/sell order process so you can at least pretend to be a pro.
GDAX offers institutions and professional traders the ability to trade a variety of digital currencies on a fully regulated U.S. based exchange with lower transaction fees.
Once you’re comfortable with GDAX, you probably won’t use Coinbase anymore. GDAX charges lower transaction fees than Coinbase—ranging from 0.1% to 0.25% for “takers” (buyers) and 0% fee on “makers” (sellers), with the fees varying based on monthly trade volume.
The advantage of the Coinbase system, however, is that it is more simple, instant, and your order is guaranteed to fill, in exchange for a higher fee. On the GDAX market, the “maker” order is free, but you risk the order not getting filled and having to set a new price.
Below is a short Reddit post comparing GDAX vs Coinbase.
9. Study charts to find trends
If you, like me, believe that bitcoin and the entire market capitalization of cryptocurrencies will increase in value over time, then the goal is to
collect as many coins as possible, getting in at the right prices, and build a strong diversified portfolio of crypto assets that you can hold.
In order to do this, you must “buy the lows” and let the profits run. I’d recommend entering and exiting positions gradually in case the lows get lower or the highs get higher.
Avoid buying/selling in big emotional or reactionary swoops, and try not to trade more than a few times a week to keep fees down and give your bets a chance to perform.
One way to tell if a stock price is over/undervalued is by reading moving averages. Moving averages are plotted on stock charts to help smooth out volatility and point out the direction a stock may be trending.
As short-term moving averages (red line below) cross over long-term moving averages (black line), this sometimes is followed by accelerated movement in the price.
Also pay attention to spikes in trade volume, as this may imply that strong sentiments of fear or excitement just entered the market.
There are many other strategies traders use to predict trends, which I won’t get into today. These include Head and Shoulders, Trend Lines, Support and Resistance patterns and Candlesticks.