The question of whether or not the cryptocurrency market should be regulated has long been debated owing to the huge number of dodgy deals registered in this space. The financial press has reported immeasurable losses suffered by members of the public, tainting the image of digital currencies as a viable investment in 2020.
Innovators are constantly trying to find ways to get past the challenges presented by the initial virtual currencies including Bitcoin and Ethereum, efforts that seem to have resulted in the development of Ripple (XRP) and several other coins.
But even with Ripple came a new set of problems, most of which have made the coin’s price extra volatile. So whether you’re looking to learn how to buy Ripple (XRP) or are already trading it, we’ve highlighted three common pitfalls you seriously need to avoid as revealed by Invezz.
Pitfall #3: Bitcoin is too expensive, I’ll go for Ripple
Sound familiar? Well, for most novice traders, it’s more about the price of a currency rather than its market cap. The same way a company can be evaluated using its market cap performance, calculated by multiplying the market price of each share by the number of shares, in the same way an altcoin such as Ripple is assessed.
When analyzing Ripple, you ought to multiply the number of coins in circulation by the price of each coin. Since Ripple is a low-priced coin, buyers tend to be influenced psychologically.
Different to stocks, it does not matter whether a single Ripple is equivalent to a dollar with a billion coins in circulation. It, therefore, means when analyzing coins including Ripple, be sure to look out for what truly matters - its market cap, as opposed to focusing on the price of each coin.
Pitfall #2: Procuring the hype
Unlike the fiat currencies, altcoins such as Ripple are more susceptible to seasonal market hypes. This normally brings about “The Fear Of Missing Out - FOMO”. Trading activities surrounding Ripple and other small coins can sometimes be very slow, paving way for the “whales” or big players to trigger material fluctuation in prices.
As markets are pushed upwards, crypto traders may opt to “jumping in on the wagon” to make a purchase and turn a profit. And as the price of a coin keeps rising, some investors are always tempted to buy in with the hope that it will keep rising and they may miss out. This is what is referred to as the FOMO.
If you wish to trade Ripple, you want to make sure that you're not influenced by the fear of missing out as sharp rises, more often than not, signify sharp declines. Take for instance a massive 35000% rise by the Ripple token in 2017 that hit an all-time high of $3.84 by early 2018. But the coin plunged to less than $1 by the end of February the same year, dealing a blow to the FOMO-driven investors.
Pitfall #1: Thinking Ripple is a cryptocurrency like Bitcoin
This is one of the most common misconceptions beginner traders have when looking to buy Ripple.
Ripple in itself is not a cryptocurrency like Bitcoin. In its simplest, Ripple represents a cryptocurrency exchange and remittance system with a payment settling feature meant for payment platforms for banks. XRP, on the other hand, is an actual cryptocurrency utilized by Ripple to facilitate funds transfers between different currencies.
Most exchanges use the dollar as the underlying currency of conversion between different currencies. Apart from taking up time, this also incurs currency exchange costs, reasons why financial institutions typically take up to three days to process international funds transfer. However, by directly converting funds for transfer to XRP as opposed to USD first, transaction costs are significantly reduced as well as processing times.
Several banks including the Commonwealth Bank of Australia, Fidor Bank, Santander, plus a group of more than 60 Japanese banks, have either expressed interest or are testing Ripple’s payment network. There is also MoneyGram, which is renowned for using the Ripple payment network and has recently been considered for acquisition by Western Union.
Contrary to Bitcoin, XRP is a token used to initiate transfers across Ripple’s payment system. With Bitcoin, coins are created to reward parties with computing skills utilized for the maintenance of the blockchain technology. On the other hand, Ripple introduced 100 billion XRP tokens during its launch.
If you’ve made any of the above mistakes, don’t sweat it - smart traders acknowledge their mistakes and learn from them, thus honing their industry skills. While trading cryptocurrencies such as Ripple comes with a level of risk pretty much like any other investment, investors can increase their chances of success by avoiding certain paths.