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Let’s get acquainted with the trading dictionary — it will come in handy later. You will see everywhere the following term:
Crypto trading pairs
It’s a pair of crypto assets that can be traded for each other.
There are 2 types of crypto trading pairs:
- crypto/fiat trading pairs
- crypto/crypto trading pairs
The first kind, crypto/fiat trading pairs, involves exchanging fiat currency for cryptocurrency or selling cryptocurrency for fiat currency.
Let’s take BTC/USD, for example. In this trading pair, BTC is on the left. This makes it our base currency — the one we are buying for/selling with.
USD on the right is our quote currency, which means “the second number in a pair” (i.e., the one we are buying with/selling for). Other crypto/fiat examples include USDT/USD, ETH/EUR, XMR/OMR, etc.
Fun fact: OMR, or Omani Rial, is Oman’s fiat currency and the world’s third-highest fiat currency. Still, not a BTC level of “high.”
Let’s continue with the BTC/USDT example.
If the pair value is $43,000, this means 1 BTC = $43,000. The trading pair’s value shows the base currency’s value expressed in terms of the quoted currency. Crypto/fiat trading pairs are common for larger cryptocurrencies like Bitcoin and Ethereum. For other cryptocurrencies, we’ll have to use crypto/crypto trading pairs.
BTC/USDT trading pair
With crypto/crypto trading pairs, we trade one cryptocurrency for another cryptocurrency. Sometimes, this is the only way users can purchase less popular cryptos.
Why does all of this matter? Trading pairs help investors expand their crypto portfolios beyond the most common and popular coins.
A crypto pair is useful if you want to compare the prices of two cryptocurrencies. These pairings help establish and illustrate the value of coins and tokens (e.g., how much BTC is worth in ETH or how much Tether [USDT] you can get for BTC).
At the dawn of cryptocurrencies (boomers remember), there weren’t many options available. Pretty much all trades were tied to Bitcoin.
Today, because the number of altcoins is growing daily, new trading pairs appear all the time. This widens the range of transactions that traders can perform.
To successfully exchange one cryptocurrency for another, you will need to
- find an exchange that supports that trading pair or
- perform a few transactions between different pairs.
Even though the token you want is listed on the exchange, it doesn’t guarantee that you can trade it directly for every other crypto there.
For example, what do you do if you want to exchange Litecoin (LTC) for Dai (DAI), but this trading pair isn’t available? You would have to first trade DAI for one of the larger cryptocurrencies, say BTC, and then trade BTC for LTC.
The main problem here is that you will have to pay more taxes and fees for performing two transactions instead of one. Luckily, Changelly PRO offers hundreds of crypto trading pairs, so you’re unlikely to face such a situation.
Let’s dive deeper into the lore of trading pairs.
Each trading pair has its order book with its bids and asks. Depending on demand, an exchange platform can force you to pay a premium to trade certain pairs.
When choosing the best trading pair, make sure you pick one that offers you an advantage, and you’re not losing money on the trade. Don’t forget to take the current trading volume into account!
| Tommy’s Tips: If a trading pair has a low trading volume, it might take some time before the trade goes through. |
Bitcoin dominance
As the world’s largest cryptocurrency, Bitcoin has a market cap that dwarves that of other cryptocurrencies. Naturally, that gives BTC a lot of influence on the crypto market. To measure that influence, there is a metric called “Bitcoin dominance”, which measures Bitcoin’s share in the total market capitalization of the crypto market.
You can use the Bitcoin dominance chart to determine profitable entry points in altcoins against Bitcoin and increase your overall Bitcoin investment.
Bitcoin dominance chart
Most exchanges, like Coinbase or Binance, have each advantage matched by a disadvantage.
The disadvantages include:
- weekly caps on how much crypto you can buy
- long transaction times
- F2C transactions available only as an investment in crypto CFDs
- complicated interfaces
If you don’t want to sweat over such difficulties, then you should choose Changelly.
Why?
- We’ve been on the market since 2015.
- Over the years, we have grown into one of the best exchanges on the market.
- Changelly offers a wide range of advantages, such as:
– over 400+ crypto assets to buy/exchange
– fast transaction times (the average time is 15-45 min.)
– a straightforward and clear purchasing/exchange process that makes things easy, even for new investors
– an awesome support team
– the desktop version and the app
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A contract for difference (CFD) is an agreement where an investor and a broker exchange the difference in the value of a financial product generated between the time when the contract opens and closes.
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Creating your portfolio
How to create your portfolio? A crypto portfolio is a set of cryptos owned by an investor or a trader.
Everyone knows that putting all your money into just one company is crazy. It is recommended to spread out investments among different companies. There are many basic factors, like risk and profitability, to consider when building a portfolio. Portfolios usually contain various assets, including altcoins and crypto financial products. They are similar to traditional investment portfolios, except you own just one asset class.
As we mentioned before, there are many types of coins and tokens to invest in. Each coin has its particular advantages and disadvantages. Ultimately, it all depends on one’s goals and trading strategy, which is something else we need to remember.
Here’s a quick recap of the 7 categories of cryptocurrencies just to refresh our minds:
- Store-of-value cryptocurrencies hold and increase in value over time. Bitcoin (BTC) is the obvious choice for this category. But other coins like Litecoin (LTC) and Nano (NANO) have also been rising and improving recently and are worth watching.
- Smart contract cryptocurrencies make creating tokenized assets and dApps possible. In this category, Ethereum (ETH) is the big dog. Still, there are several other coins that investors should keep in mind: Cardano (ADA), Stellar (XLM), Polkadot (DOT), EOS (EOS), and Tezos (XTZ).
- Oracle cryptocurrencies bring real-world data to smart contract blockchains. If you’re planning on investing in oracle cryptos, you may consider coins like Chainlink (LINK), Band Protocol (BAND), Augur (REP), Tellor (TRB), and DIA (DIA).
- Payment cryptocurrencies hope to replace traditional payment systems. The most popular payment coins are Bitcoin Cash (BCH), DAI (DAI), and Dash (DASH).
- Privacy cryptocurrencies are designed to preserve your privacy when making transactions or using dApps. Monero (XMR) and Zcash (ZEC) are probably the most well-known coins in this category. But there are some other smaller coins here that have shown promise as well: Beam (BEAM), Verge (XVG), and Grin (GRIN).
- Exchange tokens are owned and operated by the cryptocurrency exchanges they belong to. Binance Coin (BNB) and KuCoin (KCS) are two options worth researching if you decide to invest in exchange tokens.
- Meme coins are usually created for fun based on some meme or joke. Dogecoin is the meme coin of choice for Tesla and SpaceX billionaire Elon Musk. Other meme coins that might be worth checking out include SHIBA INU (SHIB), MonaCoin (MONA), and Tiger King (TKING).
To simplify portfolio management, you can use special trackers to follow portfolios or enter data about your transactions into a spreadsheet yourself. Some of these trackers can be linked to your wallets and cryptocurrency exchanges, making the process even more convenient.
Trading strategies
In the movies, we still see traders yelling in the halls of stock exchanges, calling out new bets every minute. Crypto trading looks much different.
Before we decide what kind of cryptocurrency we want to invest in, there is one key question we should ask ourselves: What is my trading strategy?
Are you going to play the long game and hodl, or are you in it only for the short term, looking to make a quick buck?
Since Bitcoin is a store-of-value cryptocurrency, it’s more suitable for long-term investments, with its value and purchasing power increasing over time.
Other large and well-established coins, like Ethereum, are also good long-term investments. Their value will only increase as cryptocurrencies become more popular and widespread.
Short-term investors are more interested in lower-value altcoins. They are cheap to buy in large quantities, which you can do, hoping their price will soar. In this case, you can sell them at a higher price.
As the market becomes more popular and bullish (with higher prices), it gets harder to find coins for significant short-term gains. Investors must go into the depths of the altcoin market to search for new suitable altcoin projects.
Short-term investors also need to be glued to the charts 24/7 since the crypto market doesn’t sleep, and neither should you if this is your chosen tactic.
The market cap helps investors:
- understand the actual size of the project
- measure the worth of the project on the open market
- roughly indicate how stable a certain coin is
Large-cap cryptos (BTC, ETH) are generally seen as a safe investment. These are projects with a market cap of over $10 billion. They are usually less volatile than other coins. Investing in them is a relatively safe choice.
Mid-cap cryptos (ADA, MATIC) are slightly more volatile but have greater growth potential. They are a little riskier than large-cap cryptos and make a mid-risk portfolio.
Small-cap cryptos are extremely volatile and regarded as risky investments, so you need to have a high-risk tolerance for working with them.
You should also have an exit strategy. A crypto exit strategy is a plan where one determines when and how much of their crypto assets should be sold.
Volatility and Value
Everyone knows finances are volatile. Crypto is no exception, of course.
Sometimes market trends can have an enormous influence on price movements.
Bull and bear market trends can even significantly affect large-cap cryptos, such as Bitcoin. If people sell it, others may follow, and the value of Bitcoin will drop, creating a bearish market situation.
The opposite happens in a bullish market. As demand for the coin grows, the price will increase because investors will be willing to pay more.
The value of a cryptocurrency is another factor that can influence investors and the coin’s popularity. Just like a stock’s price, a cryptocurrency’s price is driven by supply and demand. The more demand there is for the coin, the higher the price will be.
Let’s say you found your old collection of Pokémon cards. If you want to sell one of the more common cards, like Zubat or Magikarp, you won’t get much money for it. There is a large amount of them on the market: you’ll have to offer a lower price; otherwise, no one will ever buy them. However, if you have a rare card, like the first shiny Charizard edition, there will be a higher demand for it, letting you set a much higher price.
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HODL stands for “Hold On for Dear Life,” referring to investors buying and holding a cryptocurrency instead of trading it, regardless if the price goes up or down, hoping it will eventually increase significantly in the future.
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| Fun fact: Hodl actually originated as a typo of “holding” in a drunken post in 2013. A popular trading strategy, it has since become a cult phrase both online and in the crypto community. |
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Market capitalization (market cap) is an indicator that measures and keeps track of the market value of a cryptocurrency. We calculate it by multiplying the current price by the circulating supply of coins.
Current Price × Circulating supply = Market Cap
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A bull market occurs when most investors are buying, market confidence is high, demand is much bigger than supply, and prices are rising.
The opposite of this is a bear market where supply is greater than demand, market confidence is low, and prices are falling.
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Diversification
Another important concept is diversification.
It’s not wise to put all your eggs in one basket, and diversifying your portfolio by investing in several cryptocurrencies can reduce the risks.
The problem with this tactic is that it takes a lot of time, energy, and research. Trying to find a good balance between coins like Bitcoin, and riskier ones, such as EOS and Dogecoin, takes a toll on a person.
Depending on your level of risk tolerance, you can choose many ways to diversify your portfolio. Some might pick a low-risk portfolio, splitting it between larger, more established coins, like Bitcoin and Ethereum.
This kind of portfolio is for long-term investors who don’t want to spend all their time checking the market. A low-risk portfolio would often split the largest part of the investment between store-of-value cryptocurrencies, some smart contract coins, and exchange tokens.
A small part of such a portfolio may include riskier coins, like privacy coins or minor smart contract coins.
For example, it might look like this: Bitcoin (60%), Ethereum (25%), Litecoin (10%), EOS (2.5%), and Monero (2.5%).
A medium-risk portfolio would include a more even split of all categories selected.
Think of mid-range store-of-value coins, smart contract coins, oracle cryptocurrencies, and some exchange tokens. This style is for investors who want to try to balance the risk of loss with the possibility of making more significant profits.
A medium-risk portfolio might look like this: Ethereum (30%), Cardano (20%), Binance Coin (20%), Bitcoin Cash (15%), and Horizen (15%).
A high-risk portfolio follows the idea of “high risk, high reward.” It offers investors a great chance for large rewards, but there is also an even more considerable chance of losing everything.
Usually, this type of portfolio includes smaller, less well-known coins with low prices, making a profit even higher when investors sell coins.
A high-risk portfolio might look like this: Bitcoin (15%), Monero (30%), Chainlink (30%), and Dogecoin (25%).
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Diversification is a risk management strategy in which we mix a wide range of investments in a portfolio. It helps lower the level of risk and often gives a higher yield in the long term.
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Buy signals
Buy signals are another thing to keep an eye out for. Stay up to date with the latest news and media reports by checking popular crypto news sites like Cointelegraph.
Following Twitter pages and subscribing to channels about crypto will also provide you with useful information.
The next major step in building a solid portfolio is doing independent, in-depth research and learning how to read various charts as well as what all crypto-related terms mean. Creating your own unbiased opinion on the profitability of a coin cannot be overstated.
The final key tip to creating a portfolio is to focus on what the facts and the numbers tell you instead of believing the hype. Even though it can be easy to get caught up in rumors about the next big thing, 9 times out of 10, the hype never turns out to be what it promises.
One of the biggest killers in the crypto market is believing in other people’s expectations.
Like with all kinds of investments, a certain element of selfishness and distrust is required to be successful. Otherwise, we’d all be millionaires after investing in every next big thing that’s reported in the news or on Twitter.
To sum up, the main things you need to consider and remember when it comes to your crypto portfolio are:
- having a trading strategy and an exit strategy
- carrying out your independent research before deciding what kinds of cryptocurrencies you want to invest in — that’s something to include in your checklist at all times
- ignoring the hype and trusting in facts and figures
- diversifying your portfolio to limit risk based on your risk tolerance
- keeping up to date with the latest news and information from the crypto sphere
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