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Ethereum is a platform for decentralized applications. The concept of this system was offered by Vitalik Buterin in 2014. Canadian developer positioned his project as an alternative Blockchain system with brand new tools for developers around the World. This is a complete Ethereum trading guide for beginners, which will help you to understand how to buy this crypto and what are the main aspects that influence Ethereum’s price.
Why Ethereum looks attractive for traders and investors
This system has wider tools as compared to Bitcoin. Main Ethereum’s idea is to provide businesses as well as individuals with reliable tools for transactions and their activities.
One of the most interesting features of this network is a smart contract. It helps parties to cooperate without mediators. Those smart contracts are autonomous and are executed automatically once parties meet all conditions, written in this digital “agreement”.
Ethereum has better scalability than Bitcoin meaning the higher speed of transactions and their lower fees. The project has an open-source nature allowing businesses to create their own Blockchains.
The key factors to influence Ethereum’s price
Ethereum is a decentralized network with no governmental body to supervise it or to affect coins’ prices. There is no regulatory authority as compared to traditional markets where central banks have the right to issue currencies and to affect them by their decisions.
The only thing that matter here is the supply and demand. The higher the last is, the more expensive coins will be. Ethereum’s price has grown significantly since the first day but because of lack of liquidity, Ethereum remains volatile.
Cryptocurrencies’ trading is not an easy trip to do. You need to monitor several aspects in order to make a decision as they influence demand, which is crucial for Ethereum’s price. Here they are:
Experts’ opinion
This is one of the main factors that affect the ETH’s cost. Those experts may be famous investors or developers from cryptocurrency community. Their comments are very important for traders and may result in huge price changes. It is to mention that Vitalik Buterin’s view is also a key factor that may influence Ether price.
In addition, Ethereum’s cost is vulnerable to opinion towards the crypto industry in general. When some famous investors such Warren Buffet make statements related to coins, their price may rise or fall depending on the nature of comments. Please, notice that Buffet is strongly negative towards this industry in general in the moment of writing.
Deployment of technology
Ethereum is more than just a cryptocurrency as this platform allows users to make a contract and create dApps (decentralized applications). This is one of the key factors of Ethereum’s success. The wider this technology will be spread, the more users it will attract and the more investments Ethereum will get in the future. This may positively affect ETH’s price.
Ethereum’s popularity grows as this technology attracts the attention of both businesses and consumers. Smart contracts, for example, offer the opportunity to conduct transactions without mediators. How do they work?
Let’s see a simple example. A person wants to purchase some goods in an online shop. Before the appearance of smart contracts, buyers had to pay in advance and depended on banks. Smart contracts offer the opportunity to exclude all mediators between the business and its clients as they include all conditions of a transaction.
Let’s say a buyer purchase a keyboard online. He does all the necessary steps on the website. The funds, necessary to complete the transaction are frozen within the Smart contract, which includes the price of this keyboard, and the delivery conditions. Once the buyer receives the keyboard, he confirms the transaction and his funds are transferred to online shop.
Events and investors’ moods
Every professional trader and investor has seen at least one huge price drop irrespective of the market they trade. There was significant price falls on stock markets during 2008-2009 crisis period, provoked by investors’ panic and rumors.
In order to make Ethereum’s trading successful, you need to monitor all important events and predict investors’ reaction to them. Let’s say there are rumors that US government is going to strengthen measures towards exchanges. What will happen in this case with cryptocurrencies? They will likely to drop as such rumors lead to panic.
All bans and restrictions lead to fears and result in downtrends. However, when there are positive events, Ethereum’s price goes upwards.
Technology uniqueness
One of the main factors of Ethereum’s success is the uniqueness of the technology. As we had mentioned it before, this system was created not only to support the inner cryptocurrency or to allow a user to conduct faster and cheaper transactions as compared to Bitcoin but also to provide businesses with a wide range of tools to create different applications and to use smart contracts.
Mining features
Ethereum is based on PoW (Proof of Work) consensus mechanism which means that new coins appear with new blocks. There are no emission limitations as compared to Bitcoin meaning new coins will appear endlessly. This is an important aspect meaning Ethereum has no inflation model inside of its network.
However, the head of the project has announced that he plans to change the consensus mechanism to Proof of Stake. This will affect ETH’s price significantly as there will be no need to buy expensive hardware or to invest in cloud mining in the future.
How this will affect Ether’s cost? There are different views. Some experts think that the cryptocurrency will drop as it is supported partially by miners nowadays. Once fired, they may turn their back to this coin and pay attention to those cryptos that offer mining possibilities.
Security issues
Ethereum’s security system is strong. However, some experts criticize it and compare with Bitcoin. BTC was created long ago. This cryptocurrency has also some serious issues. However, being the most popular, the first cryptocurrency is considered to be the most reliable one due to its powerful ecosystem and mining net.
Ethereum’s net is “younger” and had survived fewer attacks. Some community members have doubts on the reliability of this system if the number of attacks increases.
Ethereum trading and volatility
It is not a secret that Ethereum is a rather volatile cryptocurrency meaning it has a wide range of fluctuations. ETH/USD’s daily fluctuations may reach more than 30 percent. This is much higher as compared to traditional currencies.
Why Ethereum has such huge volatility? The main reason is lack of liquidity meaning trading volumes are significantly lower as compared to traditional financial instruments including currencies, stock and even commodities.
It is to mention that the whole crypto market has these liquidity issues. This is a big disadvantage from one side as the risks of losing invested capitals are higher. However, for traders and investors huge volatility may also be a big advantage as they have an opportunity to earn more during the uptrends (or even downtrends when they do exercise margin trading).
Volatility is not a constant parameter. It may change depending on many factors including the popularity of this or that coin within the community. The more interest investors show to it, the more liquid it will be meaning the volatility will decline.
Ethereum trading and Technical analysis
You can use both Fundamental and Technical methods when trading Ethereum. The first helps to understand the reasons for price fluctuations. Fundamental analysis is useful but is not a simple one to conduct.
When you use Technical analysis, the only thing you need is the chart. You can place all sorts of indicators and other analysis tools there in order to understand the current market situation and coin’s perspectives.
Ethereum trading with Technical analysis requires knowledge of how those tools work and where to apply them. However, this type of forecasting method is much easier than Fundamental one.
How to start trading Ethereum
Before we end this Ethereum trading guide, we would like to underline the most important steps that everybody needs to do before placing his or her order:
Alex Dovbnya
Dan Burgin
Vladislav Sopov