If you are to trade cryptocurrencies effectively, it is important that you understand the unique economics underpinning the market. Supply and demand are the most important part of this, since there is a limited source of crypto tokens available in the world like Bitcoin.
This is because, through a complicated and time-consuming process, they have to be electronically 'mined'. In total, a circulating supply of 16.7 million Bitcoins is thought to be on the market.
The uncertainty defining cryptocurrencies such as Bitcoin underpins this relative lack of availability, although it was also assumed to be largely responsible for its rapid price growth as demand rose exponentially in 2017.
This also has an impact on cryptocurrency liquidity, with certain tokens boasting higher liquidity levels than others. For example, take Bitcoin, which combines high demand to dominate the marketplace with low bid-ask spreads and limited price impacts.
Making the most out of your crypto trading tools
The next move is to create a diverse portfolio using a variety of tools once you have learned to understand the economics behind cryptocurrencies. To start with, you will certainly need access to a viable trading platform, as this allows you to create and manage a portfolio in real-time and through a single guide.
This platform also gives you access to a wide variety of analytical resources and objective charts that can educate your crypto trades and improve your chances of profit.
You may also consider reviewing technical analysis metrics such as the Relative Strength Index (RSI) by examining the past output of a token, which calculates the speed and strength of individual price changes in the market.
Diversifying crypto trading portfolio
For each effective portfolio, the value of diversification is central, as this spreads risk across strategically selected assets and markets. In this case, it is vital that you recognize the individual risk level of each coin, as this will inform every single selection and contribute to a balanced portfolio (and ultimately sustainable).
Tokens can essentially be classified into three different categories: low, medium and high-risk cryptocurrencies. This could translate into an efficient and successful trading strategy over time, and one that can help generate returns over time.