Ever since Bitcoin hit the scene, cryptocurrencies have become appealing assets for pursuing financial opportunities. News from the crypto world is frequently the focus of public attention. Even people who do not own cryptocurrency follow the news about price changes to Bitcoin, Ethereum, and other crypto coins. For example, we all watched Dogecoin boom after Elon Musk invested over $180,000 in it.
The cryptocurrency rush started when Bitcoin was launched in 2008 by Satoshi Nakamoto. This new digital form of money makes decentralized, secure, and transparent online payments possible. All crypto transactions are recorded on a blockchain network, an infrastructure that serves as a public ledger to store and verify payment data by cryptography. And so cryptocurrencies have become a new gold.
After Bitcoin’s success, many more cryptocurrencies appeared. Now, there are more than 4,000 digital currencies. Of course, some are more valuable than others. For instance, Ethereum places second after Bitcoin among all cryptos by market cap ($252.11 billion, as of June 20, 2021). For this reason, investors tend to add Ethereum to their financial portfolios when pursuing opportunities in the crypto market.
What is Ethereum?
Ethereum is based on blockchain technology with smart contracts developed by Vitalik Buterin. The programmer was inspired by Bitcoin and the blockchain-based network and decided to create a new platform for decentralized and secure payments. Ethereum went live in 2015. The digital currency, or tokens, circulating within the Ethereum blockchain are called Ether (ETH).
Smart contracts also play a major role in the Ethereum blockchain, just like in that of Bitcoin. They are used to store and execute payment data across all nodes in the blockchain. A person who creates smart contracts defines and negotiates the rules with other users involved in the transaction processing. Once smart contracts are saved in the Ethereum network, no one can change them, ensuring the security of the financial agreement.
The Ethereum blockchain shares a lot of similarities with Bitcoin’s:
- The transactions made within it do not need third-party validation.
- Payment data is distributed across thousands of computers, ensuring no single point of failure that could interrupt the network.
- All transaction data is public to guarantee transparency.
- Ethereum’s digital currency uses unique and inconvertible nonfungible tokens.
- Internet users can use Ethers to buy and sell goods and services.
However, there are a few things that make the Ethereum network stand out:
- Ethereum enables the creation of decentralized apps (DApps) for gaming, finance, medical records, etc.
- The Ethereum platform makes it possible to create other digital currencies.
- The Ethereum network ensures faster transactions than the Bitcoin network.
How can I get Ethers?
There are several ways to get and try this new form of payment. Let’s review some of them.
1. Cryptocurrency mining
Mining is the primary way to get new crypto tokens. This process is time-consuming and requires a lot of money for robust hardware and intensive electricity consumption. Nevertheless, there are around more than a million miners of Bitcoin, Ether, and other cryptocurrencies. Moreover, mining is critical for maintaining a public ledger and introducing new cryptocurrency into circulation. And the more cryptocurrencies are mined, the harder it becomes to get new tokens, but the results can be rewarding.
2. Cryptocurrency exchanges
When people are not ready to go through the painstaking process of mining but still want to own cryptocurrencies, they can buy them on cryptocurrency exchanges, such as Coinbase, Cash App, Binance, and Bisq. A crypto exchange operates as an online financial institution. It ensures the security, privacy, and transparency of transactions. A cryptocurrency investor buys and sells digital money on the exchange and stores it in a cryptocurrency wallet that contains a public or private key for the transaction. The wallet also provides encryption. Forgetting the password to a wallet is one of the biggest fears of a crypto investor.
People can access any exchange online and buy Ethereum, Bitcoin, or other digital currencies. Investors can also exchange Ether for other cryptos or fiat money. However, many popular cryptocurrencies, including Ether, are very expensive, and some people find their prices unaffordable.
3. CFDs on cryptocurrencies
There is a way to avoid ownership of digital currencies but still pursue financial opportunities with them. Investors do not need to enter the exchange. Instead, they can find an online broker and speculate on the direction of cryptocurrency prices with contracts for difference (CFDs).
To trade CFDs, an investor could open a position by making predictions on either the rising or falling price of Ether or another cryptocurrency. If their predictions are correct, they receive potential profits. If not, they may experience losses. The bad thing about CFD trading is that crypto prices are extremely volatile, and their directions are hard to predict. This is why any CFD trade involves high risks for losing money.
What are the risks of CFD trading?
Cryptocurrency CFD trading may seem straightforward; however, derivatives, such as CFDs, are complex financial products. Thus, investing in CFDs on Ether, Bitcoin, Dogecoin, Stellar, Ripple, or other digital money involves high risks.
Risk connected to trading with leverage
Leverage means an investor opens a trade and invests just a portion of a trading lot’s total value. A broker covers the rest of the price. The amount of initial investment depends on the size of a trading lot and the size of leverage available for a trader, based on the conditions on their brokerage account.
Leverage can be 1:2, 1:4, 1:10, 1:30 1:50, 1:100, etc. For example, if a trader wants to buy CFDs on Ethereum and enter a position worth $1,000 with a 1:4 leverage, they might deposit $250. The broker would add $750 to their account to give them the possibility to open a trade worth more than their initial investment.
Leverage could increase buying potential. However, it can also magnify losses. That’s why investors should always consider how much risk they can afford to take when opening a trade.
Market risk
It's impossible to avoid market risk, but we can try to lessen how it affects us. To try to mitigate market risk, a trader needs to pay attention to the factors that influence the Ether price.
The main factor is the rule of supply and demand. These two economic indicators drive the cryptocurrency market. When the demand for Ether exceeds supply, the digital currency value rises, and vice versa. Other factors that affect price include:
- Costs required for the mining process.
- Government regulations concerning Ether sales.
- The demand for other digital currencies in the market.
- The number of Ethers received by miners.
How to minimize risks when crafting investment strategies?
There are a few options for predicting Ethereum value fluctuations in the market and making a potentially good investment. Two types of market analysis, technical and fundamental, could help a trader adjust to the cryptocurrency market’s nature, calculate risks, and evaluate the intrinsic value of a crypto.
Technical analysis focuses on the past performance of assets. Traders can collect crucial market data by reviewing multiple technical indicators, such as Bollinger bands, Relative Strength Index, stochastics, moving average convergence divergence (MACD), or Fibonacci retracement. For instance, they can identify price trends and patterns, support and resistance levels, and digital currency strength and volatility.
Fundamental analysis involves researching the political and economic events influencing a cryptocurrency’s value. Traders find out more information about such events from the news and learn about changes in currency exchange rates, government policies concerning cryptos, supply and demand, etc.
Traders can combine and manage both types of market analysis to collect data from different perspectives and optimize their investment strategies. However, it is critical to remember that technical and fundamental analyses may help forecast prices, but they do not guarantee a forecast will coincide with future market prices.
In addition to these two types of market analysis, traders could also seek independent investment advice before investing in Ethereum or other digital coins.
Start investing in CFDs on Ethereum with InvestGlo
InvestGlo is a financial service provider offering CFDs on Ethereum, Bitcoin, Dogecoin, Ripple, Stellar, and other digital coins. For those looking to buy Bitcoin or Ethereum CFDs, we offer a regulated environment, tight spreads, and many other compelling conditions for trading. As a trader with InvestGlo, you can:
- access information about digital currency trading and do research for your strategies in our education center.
- trade CFDs from any device with a robust MT4 platform.
- get quick assistance from our dedicated account managers.
- make a CFD investment in a few clicks.
If these conditions are what you’re looking for, open an account in 3 simple steps:
- Provide us with your personal data, including your full name, home address, and phone number.
- Fill in a questionnaire to set up an account matching your skills.
- Verify your account by sending copies of your ID and proof of residence.
After this quick registration, you can immediately make a deposit and start investing in CFDs on Ethereum. We accept various popular payment methods for making investments.
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FAQ
What does it mean to invest in Ethereum through derivatives?
Investing in derivative products, such as futures, forwards, or CFDs allows traders to trade cryptocurrencies, including Ethereum, without owning actual assets. Derivatives are usually traded with leverage, an instrument that can magnify your potential profit and losses. That is why traders are recommended to invest only a sum they can afford to lose.
Should I mine Ethereum or other cryptocurrencies?
Mining is never easy. It requires a lot of electricity and powerful hardware. It’s also time-consuming: as of June 22, 2021, it takes around 51 days to mine a single token.
The answer to this question depends on your goals. Consider whether you have or want to invest in the necessary expensive hardware and want to go through the labor-intensive process. Or you can just buy Bitcoin or Ethereum on exchanges or invest in their CFDs. Be aware that CFD trading involves the high risk of losing invested funds rapidly due to leverage.
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