Buying/Trading Bitcoin For Alt. Coins
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Summary:
-Learning where to buy bitcoin and other digital currencies.
-Where to store digital currencies as well as some brief info about what to know when storing them.
-Some mistakes to not make when first starting to trade digital currencies.
-As an active day trader for the past two years and investor since 2013 in digital currencies, I have seen this space blow up immensely. Especially in the last couple of months (if not weeks) following bitcoin’s massive bull run to nearly 20K. I was shocked, I was amazed, and I was in awe. I couldn’t believe it. This was huge, as I believe it has now catalyzed the growth for both bitcoin, blockchain, and other cryptocurrencies; with it, also the growth of new investors wanting to jump in on the revolution. I welcome it.
This article is for those of you who are new to investing in Bitcoin (or other alt. coins) or those interested in trading bitcoin. For those of you who don’t know what an alt. coin is, it stands for “alternative currency.” Basically anything that is not bitcoin is considered an alt. coin, or simply “alt’s” as we say in crypto lingo. These alt’s include Ethereum, Litecoin, Ripple and so many others.
This article will explain to you how to start trading, what to look for when trading, and what beginner mistake's not to commit when trading in these markets. This is not the stock market, or your typical trading platform that many of you are probably used to. For one, it is much more volatile and extremely riskier if you don't know what you're buying or investing in, but I love it.
Knowledge builds nerves in my books as someone who has seen over 100% gains, as well as over 50% losses… only to see my losses come back to becoming gains 10-50 fold. 100% gains in a matter of hours; it’s unheard of for most of you but for me it’s a daily thing. The cryptocurrency markets are open 24/7 therefore non-stop trading 24/7. I really do enjoy what I do and do it well enough that I can now write about it. Worldwide current events can make even the quietest alt skyrocket “to the moon.” That's crypto lingo for basically “winning.”
Getting your feet wet as a first time buyer
First thing is first. If you want to trade or invest in other digital currencies, you must first purchase Bitcoin, Ethereum, or USDT (which I do not recommend anyone ever do). Why? Because these are the traditional currencies used, to be traded against different alt currencies. If you want anything, you have to buy and sell it in bitcoin or ethereum on virtually every exchange out there (there are exceptions though). If you’ve heard of Ripple (XRP) or you’re thinking of buying another type of cryptocurrency that you think is going to hit it big, it must be bought using the main currencies mentioned above.
As someone who was fortunate to purchase all of my bitcoin very, very low, I haven’t needed to buy anymore. But for those of you who are new and not knowing where to buy, I personally used coinbase.com when I first was purchasing bitcoin. It’s really simple if you have the patience depending on your method of buying. You can either link you coinbase account to your debit/credit card or directly to your bank account if you want to purchase bigger sums. However currently, I personally believe the fee's coinbase charges have just become way to high and I recommend you buy from Gemini.com, or GDAX.com (coinbase owned), or if you’re lucky enough to have people selling bitcoin locally you can use localbitcoins.com. I like to sell my bitcoins to people through craigslist sometimes, and that also might be a good way to acquire some. Especially with their recent news of people now being able to be pay in cryptocurrencies for goods and services. You can read about that here.
All of these websites (Coinbase, GDAX, Gemini, etc.) offer in house wallets to store your bitcoin. What this means is that they basically hold your bitcoin in their exchange wallet, which you have access to at any time. This can be tricky and challenging sometimes though, depending on the development of Bitcoin. For example, if there is a fork in bitcoin that the community has agreed on but the exchange you are using does not support it; and your bitcoin is in their exchange wallet; then you will not be rewarded the same amount of that new “alt” that has forked from bitcoin. Such was the case with Coinbase back in August when bitcoin was forked and bitcoin cash (do not confuse the two) was born. Forking is another story that perhaps I shall cover in another article.
Wallets: Private and Public Keys
Once you have your bitcoin, you must make a decision on where you want to store it. If you purchased from one of the main exchanges, you have the option of either keeping in their wallet or moving it to a more personal one. Personally, I really enjoy using the Jaxx software wallet because it's so versatile and able to hold many different alts. They also have a mobile wallet too. Jaxx also feature's “ShapeShift” which is built in the wallet itself, and allows you to readily convert your bitcoin to other alts supported on Jaxx (for a fee); all without it ever having to leave your personal wallet. When you decide on a wallet such as this, there are two things to keep in mind: (1) your public address and (2) your private keys.
Basically, a wallet is a key for your private keys. When you create a wallet, a randomly generated private key is given to you. Never share that private key as it gives you (or others) complete use of the funds stored in that wallet. It should be kept a secret and away from people. That being said, you have many private keys for convenience.
From the private key can be derived the corresponding public key known as a public address. Together they form a key pair, which is one of the many characteristics of the underlying blockchain protocol and how it works.
This public address is basically the routing number of your wallet. For example, if you wanted to send bitcoin from Coinbase to your software wallet, you would input the address found in your software wallet in the “send to” address on Coinbase. This also works vice versa; you can send bitcoin from your software wallet to your exchange wallet with the address that is randomly generated for you by the exchange. These principles are the same for any ans all wallet transactions.
If you do choose to go this route (or any transaction for that matter), I recommend everyone always send bitcoin in litecoin because it’s so much faster and so much cheaper. $14-16/transaction to send bitcoin vs $1/transaction to send in litecoin; then you can easily convert it back at a fee to bitcoin. Either way, it’s still cheaper to do it this way than paying the expensive fee for sending solely in bitcoin. However, this will probably change in the future.
Your public addresses’ are virtually made for privacy. Most wallets’ (like Jaxx) use different public addresses’ when transacting to and from the wallet(s). To keep it simple, this is mainly due to the way the blockchain works; yet another story best saved for later. But why though? Well if you are constantly sending transactions to the same address, it can become obvious that all the transactions correspond to one private key (the same person). By using a new randomly generated address every single time, the transactions are still linked to your private key (thanks to the blockchain tech.) but it’s no longer obvious that they are linked, and usually appear unrelated. No worries in doing anything here because most wallet's already randomly generates a new address for you when making transactions.
The types of wallet people use depend on the individual. These wallets include online wallets, mobile wallets, software (desktop) wallets, hardware wallets, and paper wallets. With an online wallet, your bitcoin is stored online over the internet and can be accessed from the web browser anywhere. The mobile wallet allows your bitcoin to be stored on your mobile device. Software wallets you must download to your computer allowing you to store it on your hard drive. A hardware wallet is usually thought of as a portable USB, which keeps your bitcoin stored offline and away from your computer. It is a good wallet to use if you don’t want to risk your bitcoin to be stolen, just don’t lose it. Finally there are paper wallets, which is referred to as a cold storage wallet. This wallet is considered the most secure and is kept offline with a paper address.
Trading
To trade you must move your funds to a cryptocurrency exchange like Kraken, Poloniex, Bittrex, Bitfinex (if youre not in the US), Binance, and many others. My favorites are Bittrex and Binance. They're the ones I actively use to trade. Open an account and then deposit your bitcoin in their designated wallet address specifically for you.
Also, please make sure to enable 2FA (Two Factor Authentication) before sending funds, as it gives your account a second level of security. Enabling this requires you to now input a special code before logging into your exchange account that can be sent to you either via text or through a third party like Google Authenticator. You may also wish to verify yourself to the exchange if you plan on sending (or withdrawing) a large amount of funds. Always make sure you have proper security with your money.
There is a variety of different cryptocurrencies you can buy on any of these exchanges. Bittrex and Binance have a good number of different currencies including the main ones. Some of them may not have the ones you're looking for, so always look to see what exchanges have the crypto you want. A good website to have in your favorites is CoinMarketCap which always has the latest price, history, currency website(s), and information on all cryptocurrencies.
From here on, you can trade as much as your heart desires 24/7 in the crypto markets. You heard of XRP and want to buy? Now you can on these exchanges. Remember, the only way to buy or invest in other types of alts must be done through bitcoin, ethereum, or USDT.
Purchasing an Alt Coin
I must now mention what to do if you are wanting to this type of investing and want to withdraw your funds in the image of your new buy. To convey this, imagine you transferred bitcoin from Coinbase to Bittrex. You have just traded your bitcoin at market price for Ripple (XRP) because you loved it so much and think that it’s a great investment going forward. But, you don’t trust keeping your XRP in the exchange wallet, and want to withdraw it to a secure wallet. If you’re not using a wallet that universally can accept and hold XRP then you must download one that can.
For example, you would want to go to the official Ripple website and download their official wallet to be able to hold XRP. Basically, what I want to get at is: not all wallets store the cryptocurrency you may want to hold and if so, you must find the wallet from the actual developers to store it.
If you’re a day trader like me then it might be best to just leave it in the exchange wallet because you’ll be pretty active in buying and selling. If you’re investing however, you might find it best that you want to withdraw your funds elsewhere. Ultimately, the choice is yours.
Mistakes to not make when trading
(1) When trading never look at the dollar amount, ever. The amount is always changing every day. You might even do yourself harm if you start trading this way. Why? The dollar price is always dependent on bitcoin because it's the main currency for trading/buying. It's the main currency (bitcoin) to buy against the dollar. That being said, the amount of bitcoin one hold's stays the same but the dollar value doesn't. The value is either going up or down for any specific amount of bitcoin. Instead, you must trade on the satoshi value (the decimal amounts of bitcoin).
For example, you have 0.5 bitcoin today that is worth $10.00 per-say. Let's say you trade it and buy 50 of XRP at 0.00325 BTC (bitcoin) value which equates to $0.10 each in dollars. In total then you have spent 0.1625 BTC for your XRP, currently totaling $5.00 US, and you now have 0.3375 left in bitcoin that also totals $5.00. In total you still have 0.5 worth of bitcoin at the current market price. You think it's a great buy in XRP and that the dollar price will eventually be worth more tomorrow.
You're right! The next day XRP is now worth $0.16 US but in satoshi value it is at 0.0015 BTC, and bitcoin has increased in value. Your XRP is now worth 0.0015 BTC at $0.16 and you think you're winning because the price is up in dollars. So you decide to sell it all. You didn't win. Why? Because what you actually did without noticing was sell your XRP at a lower satoshi price than a higher price and in the end: it just matters how much bitcoin your investments are worth since it's the prime currency the dollar is traded against.
What you actually did was sell your amount of bitcoin worth in XRP at 0.0015, but you bought it at 0.00325. You actually lost value in bitcoin and sold your XRP (now totaled at 0.075 BTC) for less bitcoin than what you bought it for initially. Even if the dollar price is actually up for XRP and you sold it for $8.00 total. Remember you initially bought 50 XRP at 0.1625 BTC. Therefore you now have 0.3375 BTC (the amount you didn't spend yesterday) + 0.075 BTC (amount you sold XRP for) and have 0.4125 in BTC that now totals perhaps about $15.00. Who knows, bitcoin is always worth something different, every single day. Yesterday you had 0.5 worth $10.00, but today you have 0.4125 BTC worth $15.00. Imagine if you had just kept the 0.5 BTC.
My point here is: if you're trading, make sure to sell at a higher satoshi value than what you bought it for. The dollar amount means nothing as it is always fluctuating. You maybe increasing your dollar value, but you overall bitcoin value may begin to diminish if you're not careful.
(2) Another tip: never ever try to margin trade any type of cryptocurrency ever. Just don't do it. I'm not even going to explain why because you just shouldn't do it. It's way too risky and prices are just way to volatile. Do not be that guy that loses all his money to a margin call.
(3) Scams are everywhere. With little regulation and so much happening, alot of people are being scammed. Always remember to never give out your private keys. Never use a generated address given to you on the internet through some address generating website. Don't invest into an ICO if someone asks you to online. Just be aware of these things.
(4) Always double check your addresses that you are sending your coins to and make sure that they are the correct currency you are sending. For example, don't send your bitcoin to a litecoin address. Make sure they're the same type of transactional currency when sending money. The last thing you want is to know that your money is lost forever because that's what happens with a vital mistake such as this one.
(5) Know what you're investing in, always. In this field, knowledge builds nerves. If you know why you're buying different types of cryptocurrencies, its because you understand what they aim to do, know it's future use cases, understand it's hidden value, and have a belief in why you're buying it for. Don't buy just any type of crypto just because you like the name or think it's cool. If you don't understand it, don't buy it. Consider consulting with someone who knows.
Thing's get sweaty when your trading or investment is losing value. People panic, even worse they sell! Only to see the price recover at some point. Then they beat themselves up and let it get to them. I've seen it happen. Either way, if you truly know why you bought it in the first case then you shouldn't have to worry about the price because you know there will come a point in time where the price will match it's true value. This is what separates novices from those who have been in the crypto markets long enough. Where people panic and sell, I know to buy more.
Thank you for reading.
The way I like to explain to people who are barely getting into cryptocurrencies and wishing to invest/trade is like this: bitcoin is just like IBM when they introduced some of the first computers. Like IBM, bitcoin was the first to come about and do it. That being said, Apple did it better. This is just how I feel about bitcoin. There are other cryptocurrencies out there that I personally believe have much more potential and are way better than bitcoin.
If you enjoyed this article and have benefited with some understanding of how buying and trading cryptocurrencies works then please follow me. I also like to discuss other relevant cryptocurrencies that are up and coming. This is in no way financial advising in any way or form, but my sole opinion based on my understanding of cryptocurrencies and current events surrounding them.
To close, if you are interested in learning more and wanting understanding crypto please stay tuned as I begin to publish a lot of what I know in this space regarding investing and trading. I'll be attending some upcoming events and conferences regarding fintech, blockchain, their uses, and will be actively writing about my opinions and reviews of cryptocurrencies, blockchain technology, and its future.
I do not receive compensation for this article besides SeekingAlpha, and am in now way affiliated with any of the companies mentioned in my article or any other type of cryptocurrencies for that matter. I am a full time crypto trader and investor. Thank you