In Part 1 of A Beginner’s Guide to Cryptocurrency Trading in India, we introduced you to the basics of crypto trading…
In its second outing, we delve into the how, especially since investing in crypto assets is becoming increasingly popular among Indian investors. This comprehensive guide tells you about how to choose a cryptocurrency and an exchange to trade in, while also detailing crypto strategies so you can understand which is the best one for you. If you’re looking to begin trading in cryptocurrency, this is a good place to begin your research.
Choosing The Cryptocurrency
It’s no secret that many crypto assets are either coins with no real-world value/use cases or memecoins. After all, spammy crypto posts and ads abound everywhere. That being said, there are many trusted and reputable crypto assets as well; all you need to do is solid research. Since crypto investing and trading are still considered quite high-risk, there are a few factors you can seek out to make your choices more informed and less risky.
Market Capitalization
Market capitalization, a.k.a. market cap refers to the current price of any digital asset multiplied by the circulating supply of coins. Used to compare the relative sizes of assets against each other, assets with higher market caps are usually considered more stable. In terms of market cap, Bitcoin, Ethereum, Ripple, Binance, and Solana have the largest market capitalization in India. In fact, by the time this article went to print, even cryptocurrencies like Tron, Litecoin, and Pepe had made their way into the top five!
Use Case
The use case is another factor you could look at, as crypto assets that have a real-world use case have a more substantial intrinsic value. If used with a purpose, they could be viewed as a more sensible investment. For instance, Bitcoin has evolved into a store of value, just like other assets such as gold. Moreover, layer one (L1) blockchains like Solana, Ethereum, etc., are the foundations upon which most other blockchains build their own applications. Since they have built apps on top of them, these cryptocurrencies have much greater value than their peers and are, thus, likelier to be a better investment.
Choosing A Cryptocurrency Exchange
Next, you need to decide what kind of platform to buy cryptocurrency on, which, in India, are broadly classified as centralized exchanges (CEXs), decentralized exchanges (DECXs), and Centralized Finance platforms (CeFi).
- Centralized Exchanges: Acting as intermediaries, CEXs facilitate transactions between sellers and buyers with diverse trading pairs. Moreover, they usually mandate Know Your Customer (KYC) protocols, requiring details such as names, addresses, and official IDs (like Aadhar, etc.) and operate under stringent regulatory frameworks. So, they’re highly regulated with a wide range of crypto assets, even if their features are overwhelming. And since they’re custodial, they hold and manage cryptocurrencies and funds on their systems. While newbies to the crypto world might need some assistance navigating these platforms, they mostly provide resources for learning.
- Centralized Finance Platforms: CeFi platforms, akin to CEXs, operate under stringent regulations, mandate KYC verifications, and are custodial and highly regulated. However, they’re user-friendly, making them easier to navigate, and have a smaller range of crypto assets, which have undergone thorough vetting anyway. Even then, you’ll find all the popular cryptocurrencies here, including Bitcoin and Ethereum.
- Decentralized Exchanges: Unlike CEXs and CeFi, DEXs are built upon layer-centralized blockchains and aren’t intermediaries between users and buyers. Rather, they support person-to-person trading, with transactions eliminating middlemen and being controlled automatically via self-executing smart contracts. Not only are they non-custodial but also they don’t require KYC verification.
Furthermore, users can control their assets in DEXs by holding them in their personal crypto wallets. Now, DEXs might be safer as compared to CEXs in terms of data breaches and hacks, but they do require a deeper understanding of how cryptocurrency trading works.
Cryptocurrency Trading Strategies
- Day trading: This involves entering and exiting trades on the same day. In this strategy, one needs to constantly and persistently monitor the market with the help of technical indicators with the objective of benefiting from price movements.
- Swing trading: Swing trading lasts between one day and one month, taking advantage of anticipated price movements. The strategy employs technical analysis, which looks at short-term significant price movements. However, since cryptocurrency values could change on weekends or even overnight in unanticipated ways, it does feature risks.
- Momentum trading: This trading strategy capitalizes on rising and falling crypto trends and momentum over a period of time.
- Scalping: This technique employs trading large volumes to earn profits, even if it means making minimal profits from every transaction. Scalpers’ earnings usually accumulate throughout the day due to frequent and different trades.
- Other strategies: Other crypto trading strategies prevalent in India include Dollar-Cost Averaging, High-Frequency Trading (HFT), and Range Trading.
When it comes to crypto trading, it’s a good idea to start with a ton of research, especially since you need to not just familiarize yourself with the market but also pick a crypto, an exchange, and a strategy. With a promising future, crypto trading seems to be on an upward rise, making it one of the most exciting new financial instruments in the Indian financial investing landscape.