What Is the Crypto Market and How Does It Work?

In some ways, the crypto market is similar to the stock market that you may be familiar with. It’s a place where you can purchase cryptocurrency and digital assets and sell them as needed. If you’re new to this industry, you may have questions about how the cryptocurrency market works and what it takes to be a successful trader.

The value of the crypto market was just under $1.5 billion in 2020, and analysts expect it to be near $5 billion by 2030 [1]. This growth will likely keep attracting new cryptocurrency platforms and investors. As this trend continues, understanding the market’s fundamentals is valuable for everyone involved.

Read more: How Does Cryptocurrency Work? A Beginner's Guide

What is the crypto market?

The crypto market is a collection of exchanges where you can trade cryptocurrency. These exchanges generally have no physical presence like a stock brokerage firm. Instead, they exist as digital platforms. Crypto exchanges typically fall into one of two categories based on how they operate: centralized or decentralized. Some exchanges work as a hybrid of the two. This is how they differ:

1. Centralized exchange

A centralized exchange (CEX) backed by a company facilitates transactions between a crypto buyer and seller. These exchanges tend to be popular with investors—notably beginning crypto investors—because they are reliable and easy to use. However, they have a greater risk of hacking and may charge higher transaction fees. Coinbase is a well-known CEX.

Read more: Cryptocurrency: What Is It and How Does It Work?

2. Decentralized exchange

Decentralized exchanges (DEX) are peer-to-peer networks through which investors can acquire and liquidate digital assets without the assistance of a third party. These exchanges usually offer greater privacy and have a lower risk of hacking. Decentralized exchanges typically don’t accept fiat payments and may be more complex to navigate. Uniswap is one example of a decentralized exchange.

How does the cryptocurrency market work?

The cryptocurrency market creates a space where investors can trade cryptocurrency by buying and selling crypto assets. To do this, you must choose a trading platform and set up an account. Before trading, it's important to understand the pros and cons of centralized and decentralized exchanges and which type of exchange best suits your investing style.

You can fund your new account (usually through a deposit or wire transfer) after you set it up. Then, you can begin placing orders to buy crypto. The coins you purchase stay in a digital wallet, and records of your transactions become part of the blockchain. 

Cryptocurrency order types

In the crypto market, order types indicate how much of a particular cryptocurrency an investor wants to buy and how much they will pay. These orders also let the investor designate when they’re willing to sell. The following list includes examples of common order types:

• Instant order: If you have a specific amount to spend or the number of coins to sell, you may consider an instant order. With this type of order, the exchange looks for a buyer or seller willing to make the trade under the specified conditions.

• Limit order: A limit order allows you to set the price you’re willing to accept or pay for cryptocurrency. You’ll be able to continue investing without always watching the market’s performance.

• Market order: You can use a market order when you want to buy or sell cryptocurrency and have no restrictions on the amount you’re willing to pay or accept. These orders take place immediately when market conditions are right.

• Stop order: A stop order can help protect your assets from the volatility of the crypto market. With this type of order, you can buy or sell tokens when the price reaches a specific point. 

Defining crypto market cap

In the stock market, the market cap is a measurement of a company’s worth, and the crypto market cap is a measurement of the total value of a token. To calculate a coin’s market cap, multiply its price by the number of coins it has in circulation. For example, a coin priced at $10 with 10,000 coins in circulation has a market cap of $100,000.

Since the coin's price is a factor in the market cap formula, variations in the token’s price can affect its market cap. Still, it can be a more objective measure of a cryptocurrency’s value than comments in online forums and social media accounts. As such, investors can look at market cap when comparing crypto and making predictions about a token’s potential performance as an investment.

Popular cryptocurrency platform exchanges on the crypto market

No two cryptocurrencies are alike. Some focus on giving customers more value, while others aim to provide an assortment of crypto investing options. The following list highlights the exchanges that tend to be popular with investors, along with key features:

• Binance: This exchange’s easy-to-use interface and low fee structure make it a good choice for beginners.

• Coinbase: Beginners can benefit from the simple interface and impressive educational materials available through this exchange.

• Kraken: Compared to other exchanges, this one offers investors low fees.

• BitMart: Not only does this exchange offer a large number of cryptocurrencies, but it also gives investors crypto-earning opportunities.

• Crypto.com: This exchange’s user-friendly mobile app offers investors a wide range of crypto products.

• Gemini: This highly liquid exchange protects users with its strong security protocols.

Read more: Popular Cryptocurrencies (+Investing, Careers, and More)

Crypto industry and market dynamics

Understanding cryptocurrency market dynamics like supply and demand and regulation can help you make decisions about your investments. The cryptocurrency market is notoriously volatile, with dramatic dips and peaks. The more you know about the forces behind these rises and falls, the better prepared you are to know when to buy and when to sell. Some factors affecting market performance are similar to those at work in the stock market:

• Company news: When good news about a coin’s performance goes public, the value tends to increase. The opposite happens after bad news like developer scandals or industry drama. 

• Competition: When a company introduces a new coin, it can shift the interest of investors enough to affect the crypto market's value.

• Production costs: Crypto miners rely on costly equipment that consumes considerable energy. As the cost of mining coins increases, so can the coin’s value. Conversely, if miners cannot cover their costs, the value of a coin may decrease.

• Regulation: Crypto markets remain largely unregulated, and it’s likely a matter of time before the government begins issuing rules for the industry. In a country with many crypto owners, banning or restricting the use of crypto can affect its value.

• Supply and demand: When demand for a particular coin goes up, and the available supply is insufficient, the value also tends to increase. For this reason, the work of the coin’s miners can directly affect its value.

• Whale investors: These investors have such large crypto holdings that they can affect the available supply—and the value of the cryptocurrency. Their trades can create temporary swings in the market. 

What to look for in a crypto exchange

Before choosing a crypto exchange, it’s to your advantage to research the available options and what they have to offer. Although all exchanges ultimately provide a way to buy and sell crypto, how they operate can affect your experience on the platform and your bottom line. Investigating the following details may be useful as you evaluate crypto exchanges.

1. Accessibility

Does the platform operate only on a website, or does it also have a mobile app for on-the-go access to your account? Depending on the device you plan to use and your trading style, you may prefer one option over the other. You also should make sure the exchange can legally operate in your state.

2. Fees

Most exchanges charge fees when you buy and sell tokens, and these fees can range widely. If you plan to trade crypto actively, you may consider an exchange with lower transaction fees. Some platforms charge you a fee when you deposit and withdraw money.

3. Security

The signup process is one of the first indicators of an exchange’s security. Note the level of identification the platform asks you to provide. The exchange may be less secure if it’s too easy to get an account. Also note the type of security protocols the exchange uses, such as two-factor authentication and encryption.

4. Selection

Find out what types of cryptocurrencies are available on the platform, and make sure the list includes the tokens you want to trade. The bigger exchanges tend to offer the greatest selection of coins, but you may need to turn to a smaller exchange for new or less-known tokens. Some exchanges also give you access to traditional investments like stocks, which can be a factor for some investors.

5. Trading volume

When you’re ready to cash in on your crypto investments, you want the money sooner rather than later. An exchange with heavy trading volume and a well-established track record may be able to process your transaction and get the cash to you quicker than an exchange that processes fewer transactions.

Trading in the crypto market: Skills you may need

You'll need to build your knowledge and skills to trade wisely and safely in the crypto market. Understanding how blockchain works and the different tokens is a great starting point. The following skills can help you choose investments and develop an investing strategy:

• Technical analysis

• Smart contract development

• Trading strategy

• Risk management

• Discipline

• Portfolio management

• Research

• Financial analysis

Degrees and qualifications needed to be a good crypto trader

You do not need a degree or additional qualifications to trade crypto for yourself. However, you may need formal education to pursue a career as a professional crypto trader. An employer may expect you to have a degree in finance or a related field like business or computer science.

Alternatively, you may consider learning the fundamentals of blockchain. This technology forms the foundation of cryptocurrency. Understanding how blockchain works can help you decide which types of crypto to invest in based on how crypto companies use blockchain and what makes them different from the other coins on the market.

Read more: What Is a Blockchain Developer (and How Do I Become One)?

Ready to learn more about the crypto market?

The crypto industry continues to grow, with many people investing in blockchain and cryptocurrency. If you’re new to the crypto market, learning the fundamentals of cryptocurrency and blockchain can be useful. 

Consider taking the Bitcoin and Cryptocurrency Technologies course offered by Princeton University to learn how cryptocurrencies like Bitcoin work. You may also decide to take your training further with the Blockchain Specialization from the University at Buffalo. Through these courses and more available on Coursera, you can build a foundation to begin trading cryptocurrencies and help you decide whether you want to pursue it on a professional level.