Ethereum Investment Guide

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Investing in Ethereum is simple and profitable if you know how to do it the right way. Learn all the details about this crypto and check out our list of the best brokers to trade Ethereum.

Best Brokers for Ethereum Trading

Why invest in Ethereum?

According to CoinMarketCap data, the accumulated capital of this project already exceeds $85 billion, meaning that Ether (Eth) – the cryptocurrency of the Ethereum system – is now the third largest cryptocurrency on the market, surpassed only by Ripple (by a very small margin) and Bitcoin.

This significant capitalisation makes investing in Ethereum synonymous with stability and confidence. However, one must always bear in mind that it is a highly volatile market, and this is precisely one of the main reasons for its growing reputation: it is not uncommon to find sessions in which this cryptocurrency oscillates between 4% and 8%, a tremendously wide range, which is practically impossible to see in other currencies.

This feature is attracting more and more attention from investors and is the main advantage that Ethereum trading has over any other traditional currency pair. However, it has its good and bad sides: if you win, you make a lot of money; but if things go wrong, you also lose a significant amount.

When we talk about Ethereum, we are not only talking about a virtual currency, but also a protocol, a platform, a programming language and a cryptocurrency (Ether). All this allows users to create applications, a sort of smart contracts based on virtual currencies, whose use is not exclusively financial, but is absolutely valid for activities such as betting, crowdfunding, voting…

And one last point, which is common to trading any cryptocurrency: when trading Ethereum online, you speculate on price changes in the digital currency and you do not physically buy it. In other words, you are gambling with its value and possession, but the currency in question never actually comes into the hands of the investor.

Ethereum has agreements with major institutions

The attractive possibility of using these “smart contracts” in the development of applications that are capable of solving complex problems and adapting to corporate needs is attracting the attention of large companies that have decided to back Ethereum.

To encourage the use of this cryptocurrency, and as a call to these companies, the Enterprise Ethereum Alliance was created, whose main objective is to connect with large companies (some of the Fortune 500), entrepreneurship projects, technology providers and people from the academic world. This technology is currently used by renowned companies such as Microsoft, Santander, BBVA and Intel.

Ethereum vs Bitcoin

Bitcoin is the virtual currency par excellence. Those who are not experts in this field may only have heard of it, not of Ethereum or other currencies. But is Bitcoin losing ground? It seems obvious that it is, and one of the main reasons is that it has stopped innovating, it is reaching its maximum capacity and this is clearly detrimental to its former popularity.

In a direct comparison between Ethereum and Bitcoin (see “The best Bitcoin brokers”), one aspect above all stands out – which puts the former ahead of the latter and which has already been mentioned -: it allows the creation of DApps. What are DApps? Open source, decentralised applications that depend on the community that uses them and not on a central system.

Moreover, Ethereum’s technology is more advanced than Bitcoin. Although both are based on blockchain, Ethereum’s platform is more reliable, as it uses a more robust proof-of-work hash function and a more complete Turing system. For those unfamiliar with these concepts (which are very relevant in the field of computer science), it can be translated as Ethereum is equivalent to a complete programming language.

The project’s own website explains that the above applications “can run as programmed, without the possibility of downtime, censorship, fraud or interference from third parties”.

Initial Coin Offer (ICO)

Continuing with the advantages of trading with Ethereum, we cannot fail to mention the Initial Coin Offer (ICO) offered by Ethereum. These are events in which a blockchain-based project (such as Ethereum) sells “tokens” to some users in exchange for cryptocurrencies.

For those who do not know, a token is a unit of value created by an organisation for use in its own business. It can be compared to casino chips (not for nothing does “token” mean “chip”), since these, even if they are later replaced by real money, are only valid for operating in the environment for which they were created.

There are other cryptocurrencies based on Ethereum.

Ethereum’s applications include the creation of other cryptocurrencies. Its very flexible technology allows currencies based on it to exist. They are tokens that benefit from the existing blockchain, thus allowing developers to avoid having to create a new blockchain from scratch. This is good for Ethereum’s reputation, as it establishes it as a leading currency and suggests that it will not disappear easily.

Entrepreneurs who have decided to invest in Ethereum as a catalyst for their new tokens (usually launched through ICOs) often use the ERC20 standard. This Ethereum interface ensures interoperability between tokens. Some examples of cryptocurrencies based on the Ethereum blockchain are: Basic Attention Token (BAT); Civic (CVC); Lunyr (LUN); Aragon (ANT) and Golem (GNT).

Basics of trading Ethereum with CFDs (Contracts for Difference)

  • Short selling: “Sell high, buy low”. Short selling is marked by the belief that the price is going to go down, thus allowing you to buy at a low price and then profit. The ABC’s of CFD trading.
  • High leverage: financial leverage involves using debt to finance a transaction. It can be said to be financing a transaction with equity and credit. This makes it possible to operate with much larger amounts than have actually been invested. But, once again, you have to see both sides of the coin: if it goes well, perfect, you earn a lot of money with a minimal investment; if it goes badly, you will have to return the amount proportional to the amount that was moved in the market, not the amount that was actually invested.
  • Automated trading: is a programme that creates automatic orders to be executed in the market. They are able to perform repetitive tasks at high speed and replicate the moves of experienced traders who have achieved high levels of success. However, we always recommend trading with regulated online brokers.

Analysis of the crypto market

In trading, whether with Ehtereum or any other currency, there is only one goal: to make money by taking advantage of market movements. And to make the most of these swings you need to have a thorough understanding of the market. Spend some time on this before you start. To do this, two types of analysis are usually carried out: fundamental and technical.

The first is generic, analysing the position of the cryptocurrency in an overall picture of the market in which it moves. The second goes deeper by studying different charts to try to foresee future price movements and anticipate them (a basic premise for success in this adventure).

Both analyses are necessary to devise a strategy that is perfectly suited to your risk profile. If you are just starting to invest in cryptocurrencies (and, of course, you are concerned about risk), it is best to start your career trading Ethereum, Bitcoin, Ripple or Litecoin, as they are projects that have already capitalised a significant amount of money and, therefore, can be considered functional and stable. As stable as you can get in a sector as volatile as this one (it never hurts to repeat that).

  • Investing in Bitcoin
  • Cryptocurrency Trading
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