Business

What every Zimbabwean should know about cryptocurrencies

….An overview of cryptocurrency trading

Cryptocurrencies were first introduced in 2009 with the invention of Bitcoin, which was created by a mysterious entity operating under the pseudonym Satoshi Nakamoto as a reaction to the housing market crash.

Since then, several other cryptocurrencies have been created, and as such digital currencies represent an emerging market which is growing in popularity, with major cryptos such as Ethereum and Bitcoin becoming increasingly used in mainstream transactions.

Most cryptocurrencies today are facilitated by specifically developed technology which is referred to as the ‘blockchain’.

Cryptocurrencies are fundamentally different from fiat currencies in that they are wholly decentralized, and do not fall under the regulation of any central bank or financial authority.

Because cryptocurrencies are not subject to the same inflationary impacts as fiat currencies, countries undergoing particularly volatile economic periods have also come to accept them as alternative currencies, most recently Venezuela and Zimbabwe.

Trading cryptocurrencies is somewhat different than traditional markets such as indices or commodities, since they are relatively new assets which are not subject to some of the same movements as those in customary markets.

As such, traders can speculate on a range of cryptocurrencies, some of which are more popular than others, and each of which have varying degrees of volatility.

Some of the most popular cryptocurrencies to which many online brokers provide access include:

  • Bitcoin
  • Bitcoin Cash
  • Ethereum 
  • Litecoin 
  • Ripple 

How to trade cryptocurrencies

While cryptocurrencies are not generally subject to the same forces as more traditional markets, the act of cryptocurrency trading is rather similar to forex.

As such, traders speculate on cryptocurrency prices, and employ several strategies also used on the forex market, which we will discuss in more detail later, including futures contracts and binary options.

That said, Bitcoin and altcoin trading are subject to high volatility, so that the frequent use of leverage on these trades is generally not recommended for new traders.

Traders can access cryptocurrencies in two ways, namely through an exchange – which involves buying and sells cryptos directly – or by using an online forex broker.

Trading cryptocurrencies through a forex broker involves the purchasing of a Contract for Difference, or CFD. Using this method, traders do not own the coins, but speculate on the price movements in either direction.

The increasing popularity of cryptocurrency trading in Africa

The use of cryptocurrencies has been on the rise across the African continent in recent years, with greater trade volume, crypto ownership and regulation being adopted.

As such, a report released by Arcane Research and Luno showed that several African nations, including Kenya, Ghana, South Africa, Nigeria and Uganda are listed in the top ten countries showing Google searches for Bitcoin.

The report found that Africa represents one of the most promising continents for the proliferation of cryptocurrencies, with several factors driving this trend.

These factors show important similarities despite the widespread diversity across the continent, including economic instability, rising inflation and increasing volatility amongst national currencies.

As well as the more popular Bitcoin, other cryptocurrencies such as Dash and Lisk are used in African countries including Botswana, Ghana, Kenya, Nigeria, South Africa and Zimbabwe.

In Zimbabwe, cryptocurrency trading became increasingly popular from 2019 onwards as the local government banned the settlement of local transactions using the USD, driving Zimbabweans towards the more reliable Bitcoin option.

This drive in the country towards the adoption of cryptos is spurred by the fact that Bitcoin is cheaper for many transactions compared to traditional methods, while Ethereum is cheaper for all transaction types.

Bitcoin currently has the lowest inflation rate of 4% and a future inflation rate of 1.5% in the next 2.5 years.

Additionally, the monetary policies of both Bitcoin and Ethereum are such that the inflation rate is already or will shortly be well below the historic average inflation rate of the Zimbabwean dollar.

This essentially means that in terms of transactions costs cryptocurrencies are currently superior to fiat and already have or will have lower inflation costs. 

The growth of cryptocurrencies during the coronavirus pandemic

With many African economies impacted by the effects of the global coronavirus pandemic, many Africans have found themselves largely bereft of a traditional means of income.

The greater accessibility to stable internet connections and general tech growth have seen many Africans turning to trading and investments as a new means of economic empowerment, giving many an opportunity to trade cryptocurrencies online.

As such, cryptocurrency trading has largely been touted as a solution to many of the continent’s challenges, which cuts across several sectors, and provides a means of income for many traditionally disadvantaged groups, including women.

Cryptocurrency trading has also provided individuals with the opportunity to develop skills in the bitcoin and blockchain arena.

As such, Blockchain skills are in high demand internationally and may unlock new career opportunities to establish successful trading careers and businesses going forward.

Trading strategies used by seasoned traders to combat cryptocurrency volatility

As with all currency trading, seasoned traders employ several risk management strategies to combat the inherent risk within the crypto markets, of which the three most popular are described below:

Sell Calls

Employing the use of selling call options provides traders with the opportunity to enhance their earnings and mitigate potential losses.

This strategy involves selling a call option, which gives the buyer the right to buy the crypto asset at the strike price on the expiry date, with the seller being paid an instant premium.

Buying Puts

Traders employ put options in order to protect their positions and to make speculative bets. When buying a put, traders profit from the drop in value of a crypto assets, and have the right to sell a crypto asset at the strike price on the expiry date.

Collar strategy

The collar combines the use of the previous two strategies, and involves selling a call above the market price and buying a put below market price.

Buying the put option protects the crypto asset from downside risk, though it is bought at a premium, while selling the call earns the trader an instant premium.

Using these two methods in tandem, the trader uses the instant premium from selling the call to offset the cost of buying the put.

Other risks of cryptocurrency trading and how to avoid them

Cyber-theft

Because cryptocurrencies are fully digital, they are susceptible to crypto-theft from cyber hackers. This can be avoided by keeping your currency in cold storage or using an e-wallet that has full encryption and protection measures in place.

Regulation

Because the cryptocurrency market is completely decentralized, traders generally cannot benefit from regulatory oversight that comes with other financial markets.

The best means of combating this is to sign up with an online broker that is regulated by a reputable organisation, provides transparent documentation, and offers due recourse for client queries.

New technology

Cryptocurrency technology is still very young, and is continuously developing, with new changes to the protocol being debated.

As such, it is still difficult to see how the market will develop in the long term, so that traders will benefit from consistently educating themselves and remaining aware of market movements.

The best trading platforms for cryptocurrencies in Zimbabwe

eToro

Trading cryptocurrencies with eToro is facilitated in an advanced and secure trading environment, mainly through the eToro trading platform, wallet and exchange.

Cex.io

Cex.io Exchange offers traders a marketplace to instantly buy or sell cryptocurrencies, trade cryptoassets, as well as for the exchange of cryptos for fiat currencies.  

Binance

Traders with Binance have several great services including the trading, listing, fundraising, and delisting of a variety of cryptocurrencies.

Coinmama

Coinmama is an interesting option as it allows traders to buy Bitcoin using credit and debit cards, and offers Bitcoin exchanges to several countries around the world. 

Coinbase

Coinbase is both a digital currency wallet as well as a platform where users can trade in a variety of cryptocurrencies. 

Coinbase allows traders to link either their bank account, debit, or credit card to their Coinbase account in order to facilitate cryptocurrency purchases.

Learn more about trading by visiting – https://makariosfx.com/

Share

Related Articles

Leave a Reply

Your email address will not be published.

Back to top button
Show Buttons
Hide Buttons

Adblock Detected

Our website depends on Advertisements. That is how we keep the lights on. We promise that the Adverts running on our site are neither invasive nor malicious. Please disable your adblocker so you can access our content