Beginners Guide to Trading Bitcoin – It’s 2018 and Bitcoin is all the rage. It’s now gone mainstream with references throughout popular culture as well as daily news updates on traditional financial TV platforms like CNBC (although usually misinformed). So what’s all the hype and why should you care? I’ll try to dive into a list of top questions I had when first taking the plunge in the Wild Wild West of Crypto. While a lot of what’s covered here can be found in various places online, I couldn’t find one central place that covered everything and made it easy to understand. Below is my attempt do that just that.
Let me start out by saying I’m in no way an expert nor am I providing any form of financial advice. While I initially invested a while ago I’m simply someone who recently got more involved in cryptocurrency trading and wanted to share some tips and tricks to help you save time and money by learning from my mistakes. I’m also writing this in hopes the community reading it can offer their tips and tricks as well in the comments section below or correct me where I’m wrong or there’s better alternatives. This is for someone who literally is just starting and knows nothing. There’s plenty I don’t know and am still learning so please offer your feedback in the comments section below.
* I am not a financial adviser, please invest responsibly and do your own research.
What is Bitcoin and/or Cryptocurrency & why do we need them?
Quote from Wikipedia
Bitcoin is a cryptocurrency and worldwide payment system. It is the first decentralized digital currency. Its conception is peer-to-peer and transactions take place between users directly, without an intermediary. These transactions are verified by network nodes through the use of cryptography and recorded in a public distributed ledger called a blockchain. Bitcoin was invented by an unknown person or group of people under the name Satoshi Nakamoto and released as open-source software in 2009.
Bitcoins are created as a reward for a process known as mining. They can be exchanged for other currencies, products, and services. As of February 2015, over 100,000 merchants and vendors accepted bitcoin as payment. Research produced by the University of Cambridge estimates that in 2017, there are 2.9 to 5.8 million unique users using a cryptocurrency wallet, most of them using bitcoin.
So why do we need Cryptocurrencies and what are its benefits?
– No centrally located bank or government deciding the value or devaluing it through manipulation. This is super important in 3rd world countries where economies that are unstable have collapsed due to fraud and over printing of currency by the local governments. It also protects people from manipulation by world leading governments like the US from manipulating the value of the dollar.
– Quicker and less expensive (in most cases) transfers of funds from a person/business to another.
– More secure since it uses the blockchain which is publicly available for anyone to view transactions (not personal identifiable info). Also much harder to steal if proper steps are taken to protect your crypto assets as well as harder to lose compared to cash (fiat).
– More private. It’s nobody else’s business what you spend your money on, but governments around the world tend to disagree. They cry it’s because of criminal activity or terrorism, but in reality they want to control economies for purposes of power and manipulation.
– Ability to be integrated with Smart Contracts which make it less and less of a need to hire attorneys for complicated transactions.
– No risk of chargebacks for businesses which is a real problem when accepting credit cards.
– It’s a great form of stored value similar to gold, but without the physical burdens that carries with it.
Is it too late to get into Cryptocurrencies?
Absolutely not! If we’re comparing it to a baseball game… We’re in about the bottom of the 1st. It’s super early. Think of it like it’s 1994 as far as the internet. These coins are tech companies in every sense.
What’s the difference between trading Crypto and traditional stocks on Wall Street?
While there are many similarities the main differences is with stocks the market is regulated where crypto it’s not, plus you have to purchase an entire share of stock, where with crypcurrencies you can purchase just portions of shares or coins. So if Amazon is trading at $1000/share you’d need to purchase at least one share, but with crypto if Bitcoin is trading at $10,000 you can purchase any amount. $20 worth, $100, $1000 $25,000 etc…
Trading is also open 24/7/365. It never closes like Wall Street does.
Where do I buy Bitcoin and other Cryptocurrencies?
You can buy your Bitcoin and other crypto from Exchanges. Exchanges are kind of a weird thing in Crypto right now because since all of this is so new there’s a number of different ones and they all do things a little different. Some are US based, others in places like China. Some allow you to buy directly from them while others you have to transfer crypto to. One thing to remember regardless of where you purchase your coins from is… never leave large amounts stored in online exchanges/wallets. Nobody knows if they’ll be out of business tomorrow. I’ll touch on this subject more below in a section about where to securely store your coins.
So you’ve done a little research and you’ve decided you want to get into the game of digital currencies. So where do you buy them? While I’m going to list where I and a lot of other newbies have purchased cryptocurrencies I’d appreciate any feedback in the comments section below on other places with low fees.
Coinbase – The first place most newbies get their feet wet is Coinbase. It’s US-based and backed by some big names in the world of tech/investing. They have a super simple to use iPhone and Android app that is as easy as using your online banking app to buy/sell Bitcoin and a handful of other cryptocurrencies as well as an easy to navigate website. You can even connect it to a new Visa debit card from a company called Shift Card that allows you to use the card to make retail or online purchases similar to a typical bank debit card using the balance in your Bitcoin, Etherium, Litecoin or Bitcoin Cash wallets on Coinbase if they don’t already accept cryptocurrency payments.
Ok, back to purchasing your cryptocurrency… You can use your credit/debit card (1.49%) to purchase coins or you can wire ($10) or do an electronic debit (FREE) from your checking account. There are a few things to consider when buying such as how long will your deposit take so you can begin trading. Also some banks (Bank of America, Citigroup, JP Morgan, Capital One, Discover, Lloyds bank, Bank of Scotland, Halifax and MBNA) are no longer allowing credit card transactions to purchase cryptocurrencies. Typically credit/debit card transactions up to $300/week are available instantly. Up to $7500/week via wire transfer available same day if done by daily-cutoff time and $7500/week via electronic debit from checking although this method takes 3-5 business days to hit your Coinbase account. Weekly limits can be increased by doing a ID verification check as well as waiting 60 days.
The one downfall of using Coinbase to purchase your Cryptocurrencies is fees. Coinbase has probably the highest fees for purchases as well as transfers in the industry. While their website and apps are super beginner friendly… that comes with a price. One trick to avoid these high fees when trading is to use their sister site GDAX which is part of Coinbase. Think of GDAX as the “Pro” version of Coinbase. Same company. Even the same login. Just a little more “Pro” and harder to understand, but with little to no fees. You can also transfer between your Coinbase wallets and GDAX wallets free of charge. Once you use it, it’s actually pretty simple and easy to use. I would always suggest transferring coins out of Coinbase and onto GDAX to not only save on transaction fees, but so you can easily move them to other exchanges where there’s a higher selection of available coins to trade. Coinbase and GDAX only have the 5 major coins Bitcoin, Bitcoin Cash, Etherium, USDT and Litecoin. If you want to trade one of the 1300+ other coins, you’ll need to move them to another exchange.
SquareCash – That’s right! The company founded by Twitter Founder/CEO Jack Dorsey that allows small businesses to swipe credit cards on their phones and iPad’s launched SquareCash about a year ago initially to allow people to send/receive money online for free or a low cost and then deposit it into their bank accounts instantly or use the SquareCash debit card online or in retail. A few month ago SquareCash decided to get into the Bitcoin game by rolling out a feature that allows you to easily buy/sell Bitcoin using the CashApp which is available for iPhone’s and Android phones. Simply tap the BTC button and select Buy or Sell and how much. It’s that easy and best of all… NO FEES! That’s right. No fees. Now you can buy Bitcoin on SquareCash using your debit card and either cash out when you want by selling it or you can transfer it to an outside wallet either on another exchange or an offline wallet (which I’ll get into later). To activate that feature, you will need to go through a process to confirm your identity which takes a few days. Unfortunately at this time you can’t transfer Bitcoin or other digital currencies into the CashApp wallet, but hopefully that’s coming in an update.
Binance – One of the largest, most popular crypto to crypto exchanges is Binance. This is where most people trade “alt coins”. Altcoins generally are smaller coins that are trying to solve a problem Bitcoin, Etherium or one of the other main coins hasn’t. They typically market themselves as a better alternative because of a specific feature like privacy or speed. You can’t buy Bitcoin or other coins on Binance with US dollars using your bank account or credit debit card, but you can buy them on places like Coinbase, SquareCash or others and transfer them here so you can trade Altcoins. Altcoins generally aren’t as stable, but also can offer a much larger upside since they’re not as established yet. Binance is easy to use, has a reasonable fee structure, supports a stop-loss feature (which is super important) and is generally considered one of the best trading platforms.
Kucoin – Also a large player, but based out of China is Kucoin. While relatively new to the game, Kucoin has proven itself a market leader through it’s customer support, clean UI and fast transactions. Kucoin does NOT accept deposits in US dollars and it does NOT currently support a stop-loss feature which is definitely a negative.
Bitrex – This exchange is another top exchange that’s US-based and growing faster than it can handle. I can’t go into greater detail as they have not allowed new signups for some time. A few of the top exchanges have been growing so fast that they need to shutdown signups while they build out their infrastructure. If anyone uses Bitrex I’d love to get your comments on it’s pros and cons in the comment section below.
Cryptopia – This exchange is a smaller exchange out of New Zealand that caters towards smaller less known coins that don’t have a big enough market cap or trading volume to warrant being listed on a top exchange. While there might be a lot more upside to getting in early on some of these coins… it also carries a lot more risk due to the volatility as well as track record of the coins and the teams behind them. The exchange itself is pretty basic with no stop-loss feature.
Basic Rules of Trading Crypto
Regardless of which exchange you use (there’s over 1500 currencies trading on dozens of exchanges) there’s always a handful of basic rules to follow…
1. Buy where you can get the lowest transaction fees.
2. Transfer what you buy to exchanges you plan to trade on if it’s not one of the main currencies like Bitcoin, Bitcoin Cash, Etherium or Litecoin, but don’t leave large balances in online wallets regardless. Buy what you need and transfer to an offline wallet (I’ll get into this more below) unless you’re day trading which most of us aren’t doing. Even then, keep large balances in offline wallets.
3. Buy a small portion of the exchanges own currency to save on transaction fees. Most exchanges like Binance allow you to purchase for instance Binance coins. If you do this you can generally save up to 50% off the transaction fees. It will basically deduct the fee from your Binance coin balance. Buy a small amount of them $50 or so and save on fees.
4. Be super careful with security. Use long unique passwords for each account. Always turn on 2FA (Two Factor Authentication) on everything including your email account and all exchanges. Use the Authentication app version when available or get a Google Voice number when it’s not and use that number, NOT your cell phone number when setting this up. People have been getting their phones hacked by people calling their carriers and pretending to be them and getting the rep to give out sensitive info. They then reset your phone to send them the login codes. With 2FA using the Authenticator app or a Google Voice number they can’t do this.
5. Use an exchange with a Stop-Loss or Stop-Limit feature. This is huge for when you’re busy or are going to bed so if a coin plummets while you’re sleeping, you can mitigate the damage. You can also use this feature to protect your profits during a rise in price by setting it just below the current price and then keep changing it higher as the price goes up. You can also set parameters so if the price drops to a certain point it will automatically sell for you. This is a huge feature and Binance does have it as well as GDAX. It’s piece of mind. Just make sure to set it so the start to sell point (STOP) is far enough away form the actual sell price (LIMIT) that there’s other trades within those prices. So for instance let’s say you’re going to bed and a coin is at $100 and you just bought it at $90. You’re about to go to bed so you set the (STOP) at $85 and the (LIMIT) at $84. This means if the price of the coin drops it will initiate the sell at $85, but won’t execute it until it hits $84, but the tricky part is there has to be another trade from someone in the world between $85 and $84. Now there’s usually millions of people trading all the time so as long as there’s enough of a gap you’re fine as there’s trades going through ever second, but in the case of a collapse you need to leave enough room between those two points or it’ll skip right over you. I suggest looking at the current trades and you can see what prices are being bought and sold and the volume at which this is happening so you can set those two points accordingly. Usually it’s just a penny or in some cases 10 cents or in cases like Bitcoin where the price is in the thousands it might be dollars. Just look at the Trade History column of the coin you’re setting it at on your exchange. This isn’t as important if you’re investing long-term and plan to HODL (Hold).
How do I transfer Cryptocurrency from one exchange to another?
While you can only buy cryptocurrencies on some select exchanges like Coinbase/GDAX, SquareCash & a few others, you can transfer digital currencies to and from them as much as you want for a fee. One thing I learned the hard way was that certain coins cost a lot more and take a lot more time than others to transfer. For instance Bitcoin is rather expensive to transfer and can take hours or even longer in some cases. While Etherium is less expensive to transfer it’s still not the cheapest or fastest. My experience so far is Litecoin is super cheap (usually a dollar or so depending on the amount you’re transferring) and it’s fairly fast (usually within minutes). I’ve also seen people saying NEO is free to transfer, but maybe someone can provide more info in the comments below. You always want to find the least expensive way to transfer your coins. It’s like poker in a way… if the rake is too high, it makes it almost impossible to beat the game.
If you want to find out which exchange trades certain coins, you can find this info by going to Coin Market Cap, clicking on or searching the coin you’re interested in and clicking the Markets tab. This will show you all the exchanges that coin is currently available on.
Once you’re ready to transfer a coin from one exchange to another… go to the Deposit page on the exchange you’re transferring to and select the coin you want to transfer in. It will then give you a QR code and address. Copy this address into your clipboard. Hold tight cause you’ll need that in a minute. Now go to the withdrawal page on the exchange you’re transferring from, select the coin you’re transferring out and paste the address you just copied in. Enter the amount of that coin you’re transferring out and hit SEND. That’ it! Depending on which coin you’re transferring it could take a minute or hours. Just hold tight. It’ll get there. It has to be approved by multiple nodes on the blockchain first.
Also… I can’t stress this enough, but make sure you always triple check the address you’re sending to cause if you put in the wrong one you’re pretty much shit out of luck. There’s nobody to call or ask for help once that hits the blockchain and if you sent it to the wrong address you probably just lost it similar to throwing cash out of your car on a busy freeway at 5PM going 70MPH except there’s no lucky son of a bitch who finds it. That shit’s gone!
Where do I store my Cryptocurrency?
I briefly mentioned this above. Each website or exchange and sometimes even coin have their own online wallets. Coinbase has a wallet for each of their currencies as does Binance, as does Kucoin etc… Think of it like on online bank account or PayPal. While you can use these online wallets to store currency you’re currently trading, I wouldn’t store large amounts for long periods of time. Just like you probably wouldn’t want to store tens of thousands of dollars in PayPal or Venmo, you don’t want to here either. If the website gets hacked or they go out of business or steal your coins, your money is most likely gone. If you are going to store coins in on online wallet, but notice things across the board are tanking and losing value one might ask how you make it through it. Well, you can hold and weather the storm, sell, but that’s probably a bad idea if you’re looking at these investments long-term, but if you do decide to sell and don’t want to cash out to an offline wallet cause you’re day trading, one option is to convert it into USDT (Tether). Tether is supposed to be backed one to one by the US Dollar. It’s very stable and never fluctuates much more than a few %’s either way. Now there’s been recent debate about its liquidity and their unwillingness at a true independent audit, but for short periods of time it’s probably fine. This would be mostly used when markets overall are tanking and you’re trying to get out of one trade and are waiting for things to stabilize before jumping back in. Otherwise you’re not only fighting the price of the coin you’re in, but also the price of Bitcoin or Etherium when you sell coin and you’re going to have to convert it back to Bitcoin, Etherium or Litecoin usually before buying another coin as most altcoins have to be traded (paired) with Bitcoin, Etherium and sometimes Litcoin. For instancee if you own NEO but want to sell it to buy another altcoin, you’ll need to sell it and convert it back into Bitcoin, Etherium, Litecoin before buying the other altcoin.
For long-term investments or any large amounts I would store them on an offline wallet such as Trezor or Ledger. You can find out more about online and offline wallets here. I would also suggest to only buy them directly from the manufacturers and not Amazon or another 3rd party online store as there’s a small chance those have been compromised. Once you have your offline wallet you can then transfer coins directly to the address on the offline wallet while it’s temporarily connected to your computer. Think of it like an external hard drive that’s only used for crypto. Once you’ve transferred your coins to it, you then can disconnect it from your computer and hide it somewhere safe like safe or safety deposit box. If for some reason your house burns down or someone steals it they can’t access anything unless they have the secret key to access it so keep that in a separate place.
One last note on wallets… Each wallet has a public key and private key. Public keys can be shared with others to receive payments, but never ever ever share a private key. Most online wallets like on Coinbase don’t show you a private key as they handle that for you so you don’t worry about it, but offline wallets private keys should never be shared. I’m probably not explaining this exactly correct so if you can do a better job, please comment below.
How much should I invest and into what coins?
I have no idea. What I can say is it depends on your own financial situation and how much risk you’re willing to take on. Most “experts” I’ve seen suggest 5-25% of your allocated funds for investments. Always diversify. If you’re single and young you can probably bare to risk a bit more. Regardless of how much you decide to invest in cryptocurrencies always do your homework. Every coin has a white paper (which is like a business plan for the business) as well as a website detailing their future plan including a team page where they list their team members and advisors. I suggest looking for ideas you find value in as well as teams with impressive credentials. Look for teams where leadership comes from known projects like they’re a former Google engineer or were successful in a previous tech startup. If the team is unimpressive or lacks details… stay away! You can find this info by going to Coin Market Cap, clicking on or searching the coin you’re interested in and clicking the website link.
How do I track the prices of coins?
You can track prices and stats on coins via websites and apps. I’ll list a few website’s below. I know there’s a number of apps for iPhone and Android that also offer the ability to set alerts for certain coins. If anyone can list some of their favorites in the comments below I’d appreciate it.
Coin Market Cap (Probably most well known list)
Coin Codex (Has near real-time auto updates which seem a few minutes behind)
Live Coin Watch (Also supposed to be live, but doesn’t seem as accurate or close to real-time as Coin Codex)
Are there Crypto Scams and if so, what should I look for?
Yes. A ton of scams, ICO’s (Initial Coin Offerings like a stock IPO) and shitcoins. Here is a list of what to look out for.
1. Coins or ICO’s offering unbelievable returns that are guaranteed.
2. No risk investments.
3. YouTubers and other marketing “gurus” promoting certain coins especially if they’re being paid to promote that coin which they don’t always disclose.
4. Terms like Hot or Cheap. (Thanks to Doug Polk for pointing this one out)
5. Twitter accounts pretending to be official accounts and asking you to send them X amount of bitcoins or another currency and they’ll send you back double. These are fake accounts. If there’s not an official Blue Checkmark from Twitter it’s probably not an official account, plus the companies would never ask you to do this. If you do that, your money is gone forever.
6. Anything connected to Bitconnect or it’s promoters. This is a separate company not associated with Bitcoin in anyway that recently was exposed for running a ponzi/pyramid scheme that collapsed last month. The founders, if uncovered, along with many YouTube shills are facing investigations from numerous states as well as class action lawsuits. This had all the signs of a scam, but people were greedy and making money at the beginning like all ponzi schemes do, but eventually they ran out of money and new investors to pay the old. It eventually collapsed and now thousands of people are out their life savings. Stick to well know, well researched coins. Google them, look for reviews, look at their teams.
What are some trusted websites where I can go for news, informations and entertainment?
Please comment below with any other great sources for crypto content.
In closing I’ll try to recap my main points…
1. Buy your Bitcoin and other main coins like Bitcoin Cash, Etherium and Litecoin at the places with the least amount of fees. I suggest buying Bitcoin from SquareCash or Coinbase if you’re in a hurry to get started and then sending it to another exchange like Binance where you can convert into the coins you want. This only works for smaller amounts as there are weekly caps. For larger amounts or if you’re not in a hurry, but want to save money I suggest buying on GDAX using your checking account or via Wire Transfer and then transferring them. You’ll first need to setup your Coinbase account which you can use to login to GDAX.
2. Convert then transfer funds using Litecoin or NEO to save on time and transfer fees.
3. Save on fees by buying a small portion of the exchanges own coins.
4. Triple check address you’re sending to.
5. Don’t store large amounts in online wallets. Use an offline wallet and keep the secret key separate from it.
6. Take security very seriously.
7. Invest only what you’re willing to lose.
8. Don’t become victim of a scam.
9. Research coins for their purpose as well as the team behind the company.
10. Stay up to date on recent news you know where the market is so you can make informed decisions with your money.
Remember kids… it’s the unregulated Wild Wild West right now. That means there’s plenty of scams & pitfalls so invest wisely, but it also means there’s huge room for growth and upside. Life changing. Only invest what you’re willing to lose & if something sounds too good to be true… It fucking is so stay away and don’t let greed end up costing you thousands or more. If you get scammed, nobody cares. It’s not like the bank down the street messing up. Getting anything back from a scam will be next to impossible so if you see any of the tell tale warning signs. STAY AWAY!!!
Good luck! Now sit back, relax and hodl.
If there’s anything i missed, which I’m sure there is, please let me know in the comments section below.