A beginner's guide to trading cryptoassets on eToro
If you've been online at all recently, you'd have felt the crypto buzz rippling across the world.
With the 'OG' cryptoasset bitcoin reaching all-time highs, digital art selling for millions on the blockchain, and heightened interest in the alternative investments, crypto is certainly having its day in the sun in 2021.
For Australians looking to get in on the action eToro's platform is one way to invest in the asset class that's got everyone talking.
You'd be hard pressed to have been to a dinner party recently and not sat through someone's lengthy explanation of what's been going on in the crypto markets.
For some investors, cryptoassets represent an exciting, fast-moving and unpredictable new market; one that's shaking up the global financial sector and even the art world.
Despite significant interest in crypto from the online investment community, the concept of what crypto actually is to the uninitiated remains opaque - it requires at least a rudimentary understanding of terms like 'distributed ledgers', 'blockchain', and 'NFTs'.
Armed with this beginner's guide and an eToro account, you should be ready to start investing in cryptoassets with CFDs in no time thanks to the trading platform's effortless way to buy crypto.
What is crypto?
Bitcoin. Ethereum. Cardano. They all sound like words that were pulled directly out of a science fiction film. But they're actually all complex, and potentially revolutionary, financial products.
Essentially, cryptoassets are digitally secured assets that can be stored, transferred and traded electronically. Cryptoassets aren't backed by a financial institution and that makes them popular for some people.
This defining feature is underpinned by distributed ledger technology - or DLT for short. All of the information about transactions and trades done by holders of crypto is kept on a database which is stored across this network that has no central administrator or centralised data storage.
With the DLT, any transaction that takes place on the network is recorded in multiple places at the same time. This means there is a higher level of security relative to a centralised ledger held by one body and stored in one place like a traditional bank.
You might've heard of blockchain technology before - this is one type of DLT used by many popular cryptoassets, including bitcoin. The blockchain makes it virtually impossible for anyone to forge a transaction, and all transactions that take place on the blockchain are public to the entire world.
Why is this important? Well, in one of the more recent 'real world' examples of how crypto is being used, it can publicly display who owns certain assets. This has really taken off in 2021 with the emergence of non-fungible tokens (NFTs), which artists connect to a new artwork. They then sell the ownership rights to this NFT in exchange for crypto. Thanks to the DLT, everyone can see who owns the work, and how much they paid for it. Because the DLT is immutable, i.e. it cannot be deleted, we are left with a permanent record of ownership for assets recorded on the blockchain.
Recently a digital artist called Beeple tapped into this wildly popular trend and sold one NFT for the crypto equivalent of US$69 million - positioning him among the top three most valuable living artists.
This is just one example of how cryptoassets are being used. Beyond the art world, NFTs are being created for things like real estate, music, and used to trace the origin of goods. So while you might hear about bitcoin booming, it's really indicative of the general population taking note of how the blockchain can be used, pushing up the value of the tokens used on these new platforms.
The pros and cons of trading cryptoassets
Like any investment, crypto has its risks. In fact, because crypto is so volatile these days, one could see the price rise or fall by as much as 20 per cent in a day.
This volatility presents numerous opportunities for traders and investors, and eToro offers its users an opportunity to get in on the action.
Here in Australia, eToro won't let you buy or sell crypto itself, rather it gives traders the option to trade price movements via Contracts for Difference (CFDs).
Essentially this means traders are using a synthetic product representing the price of the underlying asset, rather than buying the asset itself. A CFD gives users the option of trading in both directions, either buying or selling crypto.
Obviously, the downside is you don't actually own the crypto itself with eToro. This is only really a problem though if you're intending on buying crypto to buy and sell goods or services.
What cryptoassets can traders invest in on eToro?
eToro offers a wide variety of the world's most popular cryptoassets and is constantly making more coins available for trading. The current offering includes:
- Bitcoin (BTC): The largest cryptoasset by market cap, considered to be the first wide-scale implementation of blockchain technology.
- Ethereum (ETH): This leading cryptoasset has received international recognition from technology giants such as Microsoft and Intel., Ethereum supports transactions on its platform via "smart contracts" and is one of the largest blockchain networks for developers to build decentralised finance protocols on.
- Litecoin (LTC): The first crypto to implement SegWit, a method of speeding up transaction times without compromising the underlying blockchain technology.
- Dash (DASH): Based on Bitcoin's technology, Dash's additional infrastructure enables faster transactions and higher liquidity, though unlike other cryptoassets, Dash is a decentralised autonomous organization (DAO).
- Cardano (ADA): Inspired by Ethereum, Cardano differentiated itself with a dual-layer structure running each layer separately, as opposed to Ethereum, where both layers are intertwined.
- Tezos (XTZ): Tezos' ICO in September 2018 was one of the largest in crypto history, raising a record-breaking $232 million.
See eToro's full selection of cryptoassets, including crypto crosses here.
eToro is the world's leading social trading platform, which offers both investing in stocks and cryptocurrencies, as well as trading CFD with different underlying assets.