How Traders Capitalize on Crypto Market Crashes and Liquidations

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When the crypto market is bullish, it is easy for almost anyone to make a profit. But some traders generate significant profits even when the market trends are bearish. It is dramatic moves and sudden unexpected behaviors that cause liquidation cascades and crashes in the lending crypto market. However, when it comes to the collateral liquidation markets, such moves create unique and big buying opportunities as well.

Why are Crashes and Liquidations Investment Opportunities?

When a token's price declines below its average price, crypto market crashes occur and cause amateur and newbie investors to panic and sell the assets that they have had for a long time. This behavior causes liquidations and further lowering of the costs. The reason why investors resort to panic selling is to make at least some profit before the price of the cryptocurrency goes down further and below the price that they made their initial investment on.

Here are a few steps that professional crypto market traders take in order to capitalize on market liquidations and crashes:

They Conduct Extensive Cryptocurrency Research

A declining price of a cryptocurrency usually makes investors want to buy its tokens, and it does seem like the right time to do so, does it not? However, that should not be the only factor to consider, and an investor should perform due diligence before making an investment. One thing to look for is the previous performance of the token to understand whether or not it has the ability to rise again. It is true that most cryptos do bounce back after crashes, but that alone should not make you blindly place your bets on it.

Professional traders that are able to capitalize on crypto market liquidations and crashes read the history of the coin to look for similar situations. If the crypto has come back out of those situations in a strong manner, they go forward with the investment. Another thing that such traders make sure of is to invest only in cryptos that they deeply understand and can hold on to for a long time. Purchasing a currency with an aim to make small profits and short-term holding is usually not their thing.

Loss-bearing coins with a past record of outperforming liquidation are also a popular option among such investors. The key is to conduct research in order to identify the most elementary investment with the ability to offer you big profits after the market crash and liquidation end.

They Figure Out a Cryptocurrency’s Potential

It is true that determining the potential of a cryptocurrency to rise back strongly after liquidation is a challenging task. Traders want to have conclusive evidence, stronger than just the historical performance and charts, before placing their investments. For this purpose, crypto market trading experts look at a few other components, including the blockchain network the cryptocurrency represents and its potential and use cases, as well. The cryptos that have good use cases have the ability to easily survive liquidations and crashes. 

The importance of use cases, along with extremely loyal and huge following and demand, indicates the strong survival potential of crypto. For instance, there are multiple use cases, such as smart contracts and DApps, that Ethereum represents. It is also an enterprise blockchain and hosts several other blockchain networks as well. Similarly, Bitcoin is extremely popular and enjoys high demand and the largest crypto market capitalization since its inception. For these reasons, you can be sure that BTC and Ethereum are equipped with the potential to overcome liquidations and crashes of all intensities.

They Devise and Follow a Trading Strategy

Crypto trading requires you to be persistent and determined. Successful crypto traders understand that the cryptocurrency market is a highly volatile trading place that can swing in all directions. The key is to stick to your investment decisions, or you might end up without any profits. Expert traders create trading strategies that have clearly laid out guidelines to help them enter and exit any trade. There are several different strategies out there that traders employ, but the key to creating a winning strategy is market research and alignment with your specific trading goals.  

Creating a strategy is one thing, and sticking to it is another. When the crypto market fluctuates or crashes, traders get really strong gut feelings telling them to deviate from their strategies. And while gut feelings can sometimes bear fruits for you, staying true to your strategy can be more beneficial in the long run. 

Regular investment guidelines, as well as a budget, are parts of the strategies that expert traders create. They use only the amount that they can afford to keep in the trade as going over the budget can cause one to exit at the wrong time with losses in their hands. Another benefit of it is that it allows investments at regular intervals and discourages putting in all the money at once. Averaging investments enhance the chances of profits and mitigate the chances of heavy losses.

They Create a Balanced Portfolio

Fluctuations within the global crypto market occur due to several different factors, such as popularity, liquidation, use cases, demand, etc., unlike national stocks. For this reason, professional and successful traders that capitalize on market liquidations and crashes always create a balanced portfolio and invest in several different coins.

This means that even if a cryptocurrency has a history of performing well, it does not mean that it is sure to continue doing so in the future as well. Crypto market crashes and liquidations are like swords that are double-edged and require a balanced portfolio to lower the chances of losses.   

The crypto market can change hundreds of dollars in a single day and has the ability to cost traders their fortunes. With that said, cryptocurrency market liquidations and crashes are opportunities for making big profits as well. The charts indicate that most cryptocurrencies arise even more strongly for a better future after crashes. Expert crypto traders use the above-mentioned trading strategies to seize the right opportunity as soon as they see liquidations and crashes in the crypto market.

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Crypto signals: how to prioritize the best options

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Trading bots, replicating trades from experienced investors, and technical indicators are the three primary crypto signals that traders utilize. Trading bots are computer programs that monitor the value of cryptocurrencies and trade them automatically depending on criteria defined in the code. A trading bot, for example, may include code that instructs it to purchase when the price falls and trade when the price increases.

It's also a crypto indication to copy the trades of seasoned investors. A seasoned trader will inform several investors about the transactions they are making. The group's investors can then use this knowledge to make their trades based on it. The participants count on the trader's skills to complete the transaction.

Ultimately, you may use technical indicators to advise your cryptocurrency trading. Examine moving averages (MA), relative strength indexes (RSI), and average directional indexes (ADX). These indicators might offer you information about a cryptocurrency's price changes. Although there are many various kinds of indicators, the most commonly utilized signals include trading bots, duplicating trades, and technical indicators.

What are cryptocurrencies?

There are dozens of distinct forms of crypto-assets – or cryptocurrencies, as you may know, them. Bitcoin, Ripple, Litecoin, and Ethereum, to name a few, have all lately been highlighted in the headlines. But what is it, precisely?

Let's begin by dissecting the term "cryptocurrency." The name 'crypto' means 'hidden' or 'secret,' describing the security features used to keep track of whoever owns what and make payments between individuals.

The second half of the name, 'currency,' explains why cryptocurrencies were created primarily: they are a form of digital cash.

Cryptocurrencies, on the other hand, are not the same as the currency we use. They are virtual and operate on a peer-to-peer basis. So there is no banking system or government to oversee the system or intervene if it fails.

Some individuals find this intriguing because they believe it gives them greater control over their money, but there are substantial hazards involved. If your assets are looted, no one is accountable for assisting you to get your money back because there are no institutions or central authorities to safeguard you.

What are trading signals?

A trading signal is generated by the analysis that has you prepared to take action, whatever could be your preference, if buying or selling. That analysis can be created by people using technical landmarks, or by algorithms related to statistics and the market behavior, eventually in connection to other market aspects likewise economic figures.

These could also be used to restructure a portfolio, change category allocations, or add new assets.

Traders may develop trading signals based on a range of parameters, ranging from basic ones like profits and volume booms to more complicated signals drawn from previously generated signals.

Are crypto signals legit?

Cryptocurrencies are incredibly volatile and their profit margins are virtually impossible to predict. Signals, on the other hand, can assist you in making knowledgeable selections. Signals can inform you where the best chances in the crypto exchanges are right now. This can help you make more money, but it does not ensure that a transaction will be lucrative.

Every signal is constrained by its own set of parameters. A human error exists while copying other traders; the trader you are copying might make a mistake.

Trading bots can make mistakes if they do not grasp a certain circumstance with a currency. While signals can give you the knowledge you need to execute trades, they do not ensure that the transactions will be profitable. It is likely to lose money merely based on signals.

How to select the best crypto signals?

Various crypto signal administrations have grown up as a result of the popularity of cryptocurrency trading. So, how exactly should you use the finest method for delivering critical data to ensure you are sharing the best? To learn all there is to know about what a leading stop order is, go here and receive all of the answers.

Administration nature

This is among the most important factors to consider when selecting a helper. The trading platform should have a fast rate of gauging and provide useful suggestions to guide you through trading and market trends. Signs should also be provided swiftly to keep up with real-time market activity.

Trustworthy

Remember that you will guide your organization by trusting them, which is why you should choose someone you can entirely trust to make a safe conclusion. This means you should choose a source that is 100 percent genuine. Despite whether they are professional dealers or computerized programming, a provider who explains how they make signals is more trusted. In a world full of ruses, you should be extremely cautious about who you choose to deal with.

Valuing

Even if you start with a free trial, you will eventually have to pay for administration. Don't give away free signage to vendors since they could not be genuine. Whatever the case may be, avoid being duped into overpaying for a subscription. The price should be reasonable for the level of service that you expect. Calculate and examine your options so that you may make the best decision possible.

Backing

They must consider electronic money transactions and the systems they provide you, in addition to being available 24 hours a day to assist you. Without this type of assistance, you will find it difficult to appreciate the value of the services you receive.

Hottest Telegram crypto signals group

The signs will assist you in determining which coin to buy, where to invest, and how to earn it. Estimating your profits, on the other hand, is difficult. The signal community in the crypto world — including short-term and long-term — is constantly up for debate since it varies so often. Whatever the case may be, you will need the correct information to generate money, which signal operators provide.

Fat Pig Signals is probably one of the most popular Telegram groups for Bitcoin and other major cryptocurrency trading signals. Some people may consider it a pioneer of crypto exchanges and signaling because it is led by skilled traders.

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What Keeps Bitcoin Prices Similar Across Crypto Exchanges?

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Bitcoin is the world’s most popular cryptocurrency, given so many people keep investing in it. Since people have sufficient trust in Bitcoin, it’s sold in many parts of the world and traded at numerous exchanges. However, you’ll be surprised to know that Bitcoin is sold at almost the same price everywhere.

The crypto market is full of different assets, securities, and traded products. So, what keeps Bitcoin’s price the same. How is the value of transactable Bitcoin or spot BTC determined in the crypto exchange? Let’s explore these questions and determine how Bitcoin’s price remains the same across different exchanges.

Explaining Arbitrage

Before we understand the mechanisms behind the comparable prices of Bitcoin, allow us to explain a concept you might not know: arbitrage. Arbitrage is the process of buying similar assets from different markets to take advantage of the price difference. Many investors use this strategy to generate profits as this indeed is an intelligent strategy.

When an investor is in the market to trade some assets, they analyze the market thoroughly to study how much the same assets are priced. They begin buying those assets and selling in different markets to earn sufficient profits. Arbitrage has become a common strategy to implement amongst frequent investors as it helps them increase their net worth.

How Is Bitcoin Prices Similar Across Exchanges?

Since you’re familiar with the concept of arbitrage, we can begin explaining how Bitcoin’s prices are similar across different exchanges. Arbitrage has a considerable role in Bitcoin’s prices remaining the same. Arbitrage is e of the few aspects that help the crypto market sell Bitcoin at a stable rate. Crypto-runners are fully aware of people implementing the arbitrage approach, which is why they try their best to price Bitcoin similarly everywhere.

For example, if Bitcoin in one market is sold at $70,000, and the other sells it for $80,000, people can easily navigate both markets to earn a profit of $10,000. Investors will take advantage of this price gap and sell the $70,000 BTC in the market where it’s sold for $80,000. Bitcoin prices are kept similar so that its value remains the same in every crypto market, preventing people from making unfair profits on their BTC.

Bitcoin Doesn’t Have Standard Pricing

Another reason Bitcoin’s price remains the same at every exchange is its decentralization. Bitcoin is an independent cryptocurrency that isn’t linked to USD or any other fiat currency. Bitcoin is one digital currency that’s free from any economic factors. Since Bitcoin isn’t affected by any economy, it’s priced similarly everywhere.

The decentralization factor helps Bitcoin not to have a standard pricing system. Bitcoin’s price always depends on its supply and demand, ignoring any aspect that can play a part in its varying prices across different exchanges. As long as the demand and supply fluctuate, Bitcoin’s prices will too. However, the fluctuation will also be the same everywhere. No matter the country or exchange, there will be the same price dip everywhere. The same can be said for price surges.

The Challenges of Valuing Bitcoin

A major issue with Bitcoin is valuing it adequately. As mentioned earlier, there’s no unit of measure to do so, making it more challenging to determine the world’s most famous cryptocurrency’s value. Many crypto analysts have stated that Bitcoin’s valuation depends on how efficient a medium of exchange it becomes. Bitcoin’s ability to identify as a strong medium of exchange can then determine how significant its value is.  

Bitcoin has garnered tons of speculation over the last few years (since its conception) that keeps driving its prices up and down. Bitcoin immediately witnesses an increase in its prices when its demand grows through investors’ interest. The significant speculation and curiosity regarding Bitcoin drive plenty of attention, capturing the media’s interest in the process.

Since Bitcoin’s demand is never guaranteed, it becomes even more challenging to value it. Nobody knows when speculation will rise, dropping Bitcoin in a lost state. This becomes a major problem for Bitcoin investors as the sudden drop in demand results in its value going down substantially. Bitcoin has managed to gain plenty of attention; however, its future is pretty uncertain.

Bitcoin’s Supply

Unlike gold and fiat currencies from all over the world, Bitcoin isn’t infinite in its supply. It’s said that there will only be 21 million Bitcoins ever to exist. When this supply runs out, there won’t be any left for investors to purchase. This digital asset’s code only determines a certain amount of it to be circulated worldwide.

Bitcoin has a maximum supply, out of which some of it gets released in its current supply now and then, thanks to the mining technology. However, no matter how many BTC are released, the maximum supply is believed to remain constant. A lot of work goes into creating sufficient BTC to circulate the whole world, which says a lot about its value.

Many people compare it to gold as it proves an excellent storage unit. Many crypto specialists refer to Bitcoin as digital gold, given people can use it to transfer massive sums of money a lot easier than other hedge funds. However, one significant difference between gold and Bitcoin is that the latter is limited in supply and riskier to invest in.

Conclusion

Bitcoin is priced the same across every exchange. This uniformity helps people trust the cryptocurrency more since they know the value will remain consistent throughout a specific period. Every Bitcoin investor should understand that Bitcoin is substantially different from other assets, with unique features and varying functions. Bitcoin's price fluctuation also works according to various aspects, eliminating economic factors.

The more you invest in crypto, the more you’ll acknowledge the significant difference between cryptocurrencies, such as Bitcoin, and other securities and assets. Bitcoin is the world’s most-traded digital currency and comes with a different profitability and risk ratio. It wouldn’t be wise to compare Bitcoin’s pricing with other assets as the entire demand and supply game is utterly different for Bitcoin.

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Crypto 101: how to start investing

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Considering its well-known fluctuations, cryptocurrency is booming, and many traders are hoping to cash in on the trend. Savvy investors are also speculating on cryptocurrency for years. So,.it is time for you to discover more about Crypto 101, and act safe in the trading environment.

1. Crypto 101: What is cryptocurrency?

Cryptocurrency, also referred to as "crypto," refers to any decentralized, digital money based on encryption. To understand that, you must realize that there are the so-called flat currencies such as:

• Dollar;
• Euro;
• Yen, and other ones.

Decentralized means that, differently from these, cryptocurrency is not controlled by an institution or other central authority – for example: a government or bank.

Despite some cases, the value of most crypto is neither credited to a fiat currency such as the mentioned above, nor by a precious metal such as silver or gold.

Even though some people refer to crypto in tangible terms (such as coins), crypto is created and distributed digitally. The majority of cryptocurrency transactions is stored on a blockchain network, which is a kind of digital ledger.

With the debut of Bitcoin in 2009, the usage of distributed ledgers as the basis for cryptocurrencies had begun.

2. Crypto 101: How does cryptocurrency work?

Virtual currencies are established on a blockchain. This is a decentralized public ledger that contains the values and is up to date by currency bearers.

Mining requires using computational power to resolve complicated math calculations in order to earn coins. Users may also buy the coins from traders, something that they can then keep in encrypted wallets.

If you own bitcoin, you don't own anything tangible. You have a key that allows you to move data or a reference from one user to another without the use of a trusted third party.

3. Crypto 101: What is blockchain?

Blockchain technology became extensively employed as the basic foundation for most sorts of crypto in 2009. Since an interesting application of blockchain allowed the successful operation of Bitcoin. As a result, many people mistake blockchain for bitcoin, despite the fact that blockchain technology has several applications.

Blockchain is essentially an append-only ledger that may be used to track or record almost any type of asset. For instance, products, services, trademarks, smart contracts, and more.

This is possible due to the fact that the system is made up of blocks of data that are linked chronologically (thus the term blockchain). All operations are visible to anyone on the group, and blockchain records are theoretically unchangeable.

In blockchain technology, cryptography is used to protect information. In the case of many types of cryptocurrencies, mine coins, and tokens. A blockchain is made up of nodes, which are decentralized computers that allow consensus (peer-to-peer) validation, allowing for fast and reliable transactions. The validation can happen by different methods: proof of work and proof of stake.

Both proofs of stake and proof of work are two different validation methods and they reward verifiers. Adding bitcoin before transactions are added to the blockchain. To verify transactions, most cryptocurrencies employ these methods of validation. Each computer, referred to as a "miner," solves a problem.

It assists in the verification of a block of transactions, which is then incorporated into the blockchain ledger. The rush to solve blockchain challenges might consume a lot of hardware performance and power.

Proof of work is a way of certifying activities on a blockchain by giving computers a mathematical equation to solve. Every prospector computer solves an equation to help with the certifying of a transaction, which is then put to the blockchain. The race to tackle blockchain problems might use a lot of computing power. Miners may be capable of breaking even with the coin they are mining after factoring in the price of power and computer resources.

4. Crypto 101: What is crypto mining?

Crypto mining is a process of launching bitcoin units into the market as a result for transaction confirmation. While it is an alternative that the average person practice bitcoin mining, this process is getting increasingly difficult with proof-of-work systems. 

It is important to remember that processing Proof of Work bitcoin consumes a lot of electric energy, which is not truly a sustainable activity. According to studies, bitcoin farming consumes at least 0.21 % of the world's power.

Also, according to specialists, most Bitcoin miners spend 60% to 80% percent of their revenue on power.

While mining cryptocurrency under a proof of work system is impossible for the average person, the proof of stake approach does not.

5. Crypto 101: What are crypto exchanges?

Trading crypto on a traditional market is almost difficult, apart from new crypto-based securities. That is why some individuals seek a crypto exchange. Currently, there are some different crypto exchanges: hybrid, centralized and decentralized.

Whilst centralized platforms are now the most common way to trade cryptocurrencies, decentralized exchanges are becoming more popular. It is, however, critical to understanding the differences between the three so that you can select the best solution for you.

A centralized marketplace is a platform that allows users to buy and sell cryptos with the help of a third party. You may trade crypto as well as regular or fiat money like the dollar.

Decentralized exchanges (DEX) are more in line with the soul of cryptocurrency. Since they permit crypto traders to negotiate in a straight line with one another without the need of a middleman. Because there is no central platform that may be hacked, a DEX may be more secure in principle.

Hybrid exchanges are less known in comparison to the concepts of decentralized or even centralized exchanges. They strive to mix the best of both ideas, for instance, the fluidness of a centralized exchange with the protection and discretion of DEX.

6. Are Crypto legit?

Stick to the facts rather than the hype when you are thinking of investing in cryptocurrency. In the market, there is a lot of excitement.

Before you acquire or trade digital money, educate yourself on the risks. So you can evaluate whether or not it's a worthwhile option for you and your money. Almost every government and financial authority in the world has warned investors about the risks of investing in cryptocurrencies.

When an investment surfaces in headlines or via advertising and promotion as a way to make money, investors rush in without understanding the risks. One of bitcoin's distinctive traits is its tremendous volatility. You may make big money, or you could lose it all.

Cryptocurrencies companies may be embellishing the amount of money that can be made by dealing with cryptocurrency simultaneously downplaying the risks.

While the government almost always protects bank deposits, this is not always true with bitcoin investments. If a crypto exchange goes bankrupt, there's no guarantee you will receive your money back.

7. Where to find trustful crypto 101 alerts?

When dealing with crypto markets, one of the main factors to consider is timing. Crypto coin alerts, which arrive as an instant message on your mobile, are one of the greatest cryptocurrency trading tools. Fat Pig Signals offer alerts to its clients. There are a few different sorts of alerts that might help you get an advantage.

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Crypto alerts: how to trust them

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If you add crypto alerts to your trading game, you can become a smarter, faster trader. These alerts send you in-depth info on the market volume and prices for the assets you are investing so that you can earn the best profit out of them.

But if the cryptocurrency market is as volatile as they say, how can you trust a crypto alert to give you the best advice when trading? Of course, there is no magical formula. Large price fluctuations happen daily in the virtual economy and they are, indeed, a risk for your investments.

However, crypto alerts provide you the necessary tools to track prices and better analyze the market. At the very least, it will allow you to react faster to buy or sell a cryptocurrency, avoiding big losses and also making valuable profit. If you still do not trust crypto alerts, keep reading to find out why you should give them a chance.

What are crypto alerts?

Crypto alerts are trading notifications that tell you the price of an action, the technical conditions and even economic results related to the value of a cryptocurrency you are interested in. It is an easier way to keep track of a cryptocurrency activity in the market.

Those alerts are usually divided into three different kinds:

• Price alerts, which are notifications that follow a crypto move in the market in relation to a specific percentage of investment or as points of movement;
• Technical indicators that tell you when certain parameters are met, such as the stochastic oscillator or RSI (relative strength index;
• And economic result alerts notify you of the most relevant economic events, like interest rate announcements and central bank meetings, that are on the way, which can be helpful when planning your trading strategies and market decisions.

Crypto alerts, however, are no guarantee of a successful trade, since they work as a guess on the market movement, not necessarily a prediction. So, before making any decisions about your assets, you should take under consideration those alerts and add up to your own personal research, carefully analyzing the data, and then decide if it is a good opportunity for your profit goals.

Why are crypto alerts so relevant?

Numerous factors make crypto alerts so relevant on a traders journey. First of all, it is a good way to manage your investments and the time you spend on them, both trading and researching. Especially if you own several different investments, it is important to keep track of the potential losses each asset offers you. With crypto alerts on, that task can be easily done.

When trading, it is necessary to try and predict the potential prices of cryptos. Along with the price changes, you can get alerts about potential new prices and coin entrants, which makes your predictions for trading operations somewhat more accurate.

It also helps you protect yourself from unforeseen losses due to drastic price changes. The crypto alerts will warn you about the potential threats your investments are suffering so that you do not lose the money and time you invested while trading.

The alerts also allow you to keep track of the profits you make from your investments, since they notify you of every profit and loss you have.

Last but not least, by activating crypto alerts, you can become a successful trader in an easier way. Since trading requires a quick reaction to the market volatility, you can use these alerts to make both fast and smart decisions, turning you into a more competitive player on the market.

How to set crypto alerts?

Today, there are several different groups of crypto price alerts that you can find online. Usually, they are either issued by the cryptocurrency exchange itself (like Coinbase), or as an independent service you can hire to receive the notifications. Most of the big exchange networks offer this notification system in a user-friendly way, both for your internet browser and as a separate app for your cell phone.

If you want to set the alerts on your network exchange, it is very simple, you just need to follow these 5 steps:

1. Log in to your trading platform of choice;
2. Select the item ‘alerts’ on the menu;
3. Decide what the parameters for your notifications are, based on your cryptos of choice and trading goals;
4. Set up the alert or alerts;
5. Decide whether you want to open, edit or close your market position once the alert is triggered.

How to get crypto alerts?

Although it is common to get crypto alerts from the crypto exchange itself, it is natural for traders to seek a second opinion on the market moves. For that, you can sign up to a crypto signal service.

By joining a crypto signal platform you will receive the latest updates on the cryptocurrency world, charts analyses, tips on which crypto to buy, sell or trade and all the alerts on market moves and on market moves and crypto trends.

These signals are sent by professional, experienced traders who research the crypto market day and night so you do not have to do all the heavy work - and some of them even offer these signals for free.

By combining the alerts from your exchange platform to the crypto signals from your platform of choice and your individual research, you could get a better grasp on the cryptocurrency market trends, which coin is more likely to increase your profits and what investment moves you should avoid for a while.

The best way to get free crypto alerts

As mentioned, the best way to get free crypto alerts is by joining a good crypto signals platform, which gives you the best of both worlds when it comes to digital market analyzes.

Today, one of the best crypto alerts platforms available is Fat Pig. Their alerts are sent daily by professional traders with over 15 years of trading experience through a Telegram group chat. Their alerts offer daily market analyzes, the toppest cryptocurrencies of the day and a personal input of your own trading strategy, allowing you to evolve your trader game with some personal advice. The more information you get, the better your trading game will be.

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What Does It Mean to Burn Crypto?

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If you’re still new to crypto trading, there is still a lot for you to learn. That being said, if you follow the crypto market regularly, you must have heard of a term called crypto burning.

But what does it actually mean? This article will give you a detailed explanation of what it means to burn crypto and how it affects crypto trading.

What is Coin Burning?

The process of intentionally sending cryptocurrency to an unusable wallet address is called coin or crypto burning. It removes the coin from circulation permanently. Now the real question is, why would anyone want to burn coins that are so difficult to mine in the first place?

One thing is for sure; it is not an act that people would do for the heck of it. Burning coins would essentially mean wasting precious money.

Generally, coins are burnt by developers to increase the demand by reducing supply. This spikes the price of crypto, which earns crypto holders massive profits. It is a simple yet effective strategy that gives investors an edge in trading. However, the burning process does not always give you guaranteed results. For some, crypto burning is an entirely pointless process that has little or no benefit to offer.

Even still, developers burn coins every now and then. Why do they do so? There are mainly two reasons for it. These are:

• To deceive investors. Many developers claim to burn crypto when, in fact, they are sending the coins to a wallet that they can control. If you don’t want to be deceived by such tactics, it is essential to do your homework when investing. You can also stick to safer options when investing in crypto where burning isn’t involved.
• To hide whales. Whales are people who hold a significant number of tokens and have the power to control the price of the cryptocurrency. For instance, if a developer launched 1 billion tokens and burned 600 million while keeping 100 million for themselves, they are left with 400 million tokens. It would seem like the developer holds 10% of the total shares to the investors, but in reality, they now have a 25% share, much larger than the former percentage.

How Did Crypto Burning Start?

Crypto burning is not a new concept. If you are into the stocks market, you should know the concept of a stock buyback. If you don’t, here is a detailed explanation for you:

In a stock buyback, the company that launched the stocks repurchases the shares at market price. As a result, the company gains more shares which ultimately reduces the supply of the stocks for investors. While there are a few differences between coin burning and stock buyback, the underlying concept for both remains the same.

As for how crypto burning started, in 2017, developers burned many coins to boost the price by reducing supply. Initially, crypto burning started with Binance Coin, Bitcoin Cash, and Stellar. Newer cryptocurrencies have also adopted this practice as well. It is more common in cryptocurrencies that are launched in massive numbers.

The key tactic is to launch crypto tokens in trillions with little monetary value. The low price immediately attracts investors, and when a significant number of people have invested, the developers start burning the token. Burning leads to an artificial increase in the price, which ultimately benefits both developers and investors.

Blockchain and Proof of Burn

Blockchain is a consensus algorithm that keeps a record of all the transactions of cryptocurrencies. It confirms the transactions and keeps the network secure. Proof of work (PoW) and proof of stake (PoS) are two of the most widely used blockchains. But there is a new blockchain called proof of burn that can be used as an alternative.

Proof of burn is also a way of validating transactions and preventing fraud. Using this blockchain algorithm, users have to burn the same tokens they need to mine. The more tokens are burnt, the more tokens can be mined. The same cryptocurrency that needs to be mined is mainly burned, but in some proof of burn blockchains, you can also have the right to burn other cryptocurrencies.

A significant advantage of proof of burn blockchain is that it does not have extreme energy requirements like the proof of work model. Moreover, this model is effective and more efficient in allowing only valid transactions to go through.

Which Coins Can Be Burnt?

Any cryptocurrency sent to a burn address can be burnt. The crypto burning is not limited to certain types of cryptocurrencies. But if you want real-life examples of cryptocurrencies, there is a long list you can go through. Here are the top few:

1. Binance: In 2017, the Binance Coin initiated quarterly burns of the cryptocurrency. The crypto trading company will continue holding these quarterly burns until 50 percent of the coin supply is burnt and removed from circulation.
2. Stellar: In 2019, Stellar burnt around 50 billion XLM tokens which were more than half of the supply. This was done to spike the prices of the coin.
3. Shiba Inu: In 2021, the developers of Shiba Inu gave almost half the supply of the coins to Ethereum’s co-founder, Vitalik Buterin. Buterin burnt almost 90 percent of the supply and donated the remaining 10 percent.

Conclusion

Crypto burning is an intelligent strategy for boosting the price of coins and tokens in the crypto trading market. However, it is essential to burn the coins at the right time for getting the best results, or it could yield zero results, and you would just be wasting precious money. Once sent to a burn address, there is no way to retrieve the eliminated digital money. It is entirely removed from the circulation once and for all. But when used right, it can earn heaps of profits to both developers and investors.

Since the proof of burn algorithm’s requirement isn’t energy-intensive, it is also a great option to consider if you’re concerned about the environment and the excessive energy consumption of the proof of work model.

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