Smarter Team

About the Author Smarter Team

Smarter Analyst was established to fill a gap in financial reporting for sell-side investors, where they can read exclusive reports in real time. Smarter Analyst provides coverage of equities research, unique analyst insights, and outstanding articles from knowledgeable contributors, in addition to the latest stock market news, all hand-picked by our editors.

5 Ways to Trade Crypto in 2021

As Bitcoin has caught the imagination of retail and institutional investors in 2021, you can take a look at the various ways in which you can get exposure to this highly disruptive asset class.


Digital currencies are poised to witness stellar gains this year, given the apprehension regarding fiat currencies, as uncertainties surrounding the pandemic continue to weigh on global economies.

The surmounting fiscal expenditures in major economies have also raised concerns regarding potential inflation and higher interest rates. The ongoing NFT frenzy has extended the use of cryptocurrencies in the art and entertainment industry as well, making crypto wallets the next big thing in 2021.

Thanks to the decentralized nature of cryptocurrency, companies can make faster international payments without associated exchange rate risks. As a result, multiple companies have adopted Bitcoins and other major currencies as an acceptable mode of transaction. Tesla, Inc. (NASDAQ: TSLA) has invested $1.5 billion in Bitcoins, while financial services companies like Paypal Holdings Inc. (NASDAQ: PYPL), Mastercard Inc. (NASDAQ: MA), and Visa Inc. (NYSE: V) facilitate cryptocurrency transactions on their platform.

Popular Cryptocurrency Trading Strategies

Bitcoin has currently lost momentum after touching a record high in the last week. However the widespread adoption of cryptocurrencies and institutional investments are expected to drive Bitcoin prices higher in the upcoming months. Here are some of the best ways to trade cryptocurrencies in 2021:

Copy Trading

Given the intricate workings of the cryptocurrency market, many investors hesitate to invest in it, in fear of potential losses. However, copy trading allows such novice investors to profit from the ongoing crypto rally, as they simply replicate the trades of experienced traders, thereby generating similar returns on their portfolio.

Copy trading platforms such as Bingbon allow investors to use an analog token Virtual USTD or VST during demo trials, fulfilling margin requirements. Bingbon explains the profit generated from VST demo trading has no real value but users can familiarize themselves with margin trading without the risk of losing real assets.

Bingbon uses Advanced Mark & Index Pricing system for crypto pricing verified from spot exchanges like Huobi, Binance, and OKEx, with trades settled in real time. Copy trading strategy is also immensely time saving, as investors are not required to study the markets closely in order to place his or her bets.

Bingbon has over 300,000 registered users and the platform completes $20 million worth of copy trades each day.

Margin Trading

Margin trading requires investors to borrow funds they are planning to invest, thereby increasing the potential profit margins on open positions. Generally preferred by experienced investors, margin trading erases the limited funding problem, as they generally borrow capital to place large bets. For example, one of the largest crypto exchanges in the world, Currency.com provides traders with a leverage of up to 1:500. This means for every dollar of cryptocurrency you trade you will be eligible for a margin position of $500.

Albeit relatively riskier, a majority of the transactions undertaken by institutional investors are leveraged, allowing them to multiply their expected returns significantly.

Crypto Derivatives

Cryptocurrency derivatives are identical to stock derivatives. Investors speculating the market movements or aiming to hedge their portfolio against immense fluctuations can invest in crypto futures, options, or swaps.

Though the overall market for cryptocurrency is expected to grow in 2021, the short-term fluctuations can discourage investors regarding trades made on the spot market. For example, the recent bitcoin sell-off declined the currency’s market cap by nearly $200 billion, causing many traders to exit their positions.

However, the derivatives market helps traders bypass any losses from such temporary fluctuations. Speculative investors can also try to capitalize on such market movements through a combination of long and short positions.

Bybit is one of the fastest growing crypto derivatives exchanges with over 1.6 million registered users. It has a varied product portfolio including inverse perpetual contracts, linear perpetual contracts and inverse future contracts.

CFDs

Crypto CFD (Contract for Difference) stands for a contract signed between an investor and broker for a particular trade to be executed. CFDs enable investors to trade in the international markets without a separate account, along with providing around the clock trading benefits.

One of the major advantages of CFDs over direct selling is the short selling option. As Bitcoin prices have been declining over the past couple of days, betting that the sell-off will continue will require an investor to short the currency to profit from the price movement. CFDs also enable various auto trading orders to be placed on a trade, such as stop loss and limit orders.

Blockchain ETFs

Blockchain ETFs or exchange traded funds extensively invest in a variety of cryptocurrencies. The units or NAV of ETFs can be bought and sold like stocks on standard exchanges. As ETFs essentially pool investments to bet on the most profitable cryptocurrencies around the world, blockchain ETFs offer a steady stream of returns with limited risk exposure. Further, these instruments can be traded directly in the secondary markets, making them more accessible to beginners.

One such index is the DeFi Pulse Index which is a blockchain-based product where users can gain exposure to DeFi (or decentralized finance) through a single asset. This index uses a capitalization weighted index where the value weight is calculated based on the market cap of a DeFi project.

One of the most popular DeFi applications is Balancer. It is similar to an index fund but for cryptocurrencies. Balancer was launched in March 2020 and recently released V2 in beta for developers.

Bottom Line

Cryptocurrency is undoubtedly the future, with a significant impact on economies worldwide. Certain studies show that cryptocurrency traders are expected to add approximately $2 trillion to the global GDP by 2030.

The recent Coinbase IPO should make cryptocurrency transactions grow at a rapid pace and further boost liquidity. As a result, these above-mentioned methods can help people build their portfolios before prices reach all-time highs in the near future.

 

Stay Ahead of Everyone Else

Get The Latest Stock News Alerts