A Trader's Guide To Cryptocurrencies

So far, 2017 has been a banner year for equity markets, with the major indexes setting and passing new highs on a near-weekly basis. But despite all of the action happening in stocks, the most notable financial headlines have been about cryptocurrencies, the most high profile of the which being Bitcoin.

Aside from Bitcoin’s staggering 600% growth in in value over the course of 2017, Wall Street has buzzed with news of Fidelity joining an initiative to develop blockchain infrastructure for financial institutions and creating bitcoin and ethereum mining operations to finance leaders voicing their opinions on cryptos. JPMorgan Chase & Co. JPM CEO Jamie Dimon went so far as to call Bitcoin a fraud.

The latest in the deluge of crypto news is the announcement from CME Group CME that the trading platform plans to start allowing Bitcoin futures trading before 2018.

Because of these developments in the industry’s torrid relationship with cryptocurrencies, more traders than ever are looking to invest in cryptos, and Bitcoin specifically, even if they’ve never traded currencies before. But that interest also leads to a host of other questions about whether now is the right time to trade cryptos, and if Bitcoin should be their first choice.

I raise that question because the “staggering” growth in Bitcoin I mentioned earlier pales in comparison to how some other cryptos have performed in 2017, For example, Litecoin, another popular currency, is up 1,300 percent while Ethereum, Bitcoin’s main competition, is up more than 3,500 percent year-to-date. Another mitigating factor: both of those currencies are a fraction of the cost of the , with one bitcoin equal to more than $7,100 as of this writing. Litecoin, on the other hand, is currently priced at about $60 and Ethereum around $290.

While these questions might be moot for currency traders who are simply excited for the opportunity to begin trading BTC/EUR or AUD pairs, other traders who are just curious about dipping their toes into the crypto waters might want to look to introducing these cheaper alternatives into their asset portfolio before jumping into Bitcoin futures.

In any case, whenever I am asked about cryptocurrencies, how they should be handled, whether they’re good for IRAs or if they’re short term only, I always advise traders do a lot of their own homework. Because, despite the press and their wider acceptance, Bitcoin and cryptos are in their infancy.

While the exchange of cryptocurrencies (primarily through blockchain, a kind of digital ledger) has gained greater security and scrutiny, there are still risks in owning money not backed by something like gold or a government.

The best general tip I can give for buying and selling any digital currency is to stay abreast of any developments. Like with volatile stocks, breaking news in cryptos can cause dips and spikes, and those are patterns every trader should be able to recognize. The upside of this strategy is that the pace of news on cryptos doesn’t seem likely to slow any time soon.