Potential for growth
Some assets have risen a great deal over several years. That is the main attraction, and it comes with the opposite possibility: the same assets have also lost most of their value in short periods.
Crypto basics: what it is and why people invest
A plain-English introduction for people who have heard the terms but have never had them explained. It takes about ten minutes to read.
Who this page is for
It is written for beginners and for people who want a refresher before they make a decision. You do not need any financial or technical background to follow it.
We explain how crypto-assets work, why their prices move, what volatility means and how risk can be managed. At the end there are short answers to questions beginners often ask.
Information only. This page is general information, not a recommendation, personal advice or a promise of returns. Crypto-assets are high risk, and you can lose all of the money you put in.
What cryptocurrencies are
A cryptocurrency is a digital asset. It exists as an entry on a blockchain, a shared ledger copied across many computers. No single bank or company runs it, and no one can quietly edit past entries.
| Term | Meaning in plain English |
|---|---|
| Digital asset | Something of value that exists only in digital form and can be owned and transferred. |
| Blockchain | A shared record of transactions, grouped in blocks and linked in order. |
| Wallet | The tool that holds the keys needed to access and send your assets. |
| Exchange | A marketplace where people buy and sell crypto-assets, often for Australian dollars. |
| Supply and demand | How many units exist and are for sale compared with how many people want to buy. |
How a transaction works
- 1You request a transfer
- 2The network checks it is valid
- 3It is added to a block
- 4The ledger updates for everyone
Each unit of a crypto-asset can be split into very small parts, so you do not have to buy a whole one. What you own is the right to move a certain amount on the ledger, which is controlled by a private key. If you lose that key, or give it to someone else, no bank or helpdesk can restore your access.
The price of a crypto-asset comes from supply and demand on markets that are open all day and night, every day of the year. More buyers than sellers pushes the price up, and the reverse pushes it down.
Why people choose to invest in crypto-assets
There are good reasons people take an interest, and equally good reasons to be cautious. Both are worth knowing.
Diversification
Crypto-assets do not always move with shares or property. A small allocation can change the mix of a portfolio, although in a market-wide sell-off they have often fallen together.
Open all the time
Trading never closes, which suits people who work irregular hours, but it also means prices can move while you are asleep.
Access
Anyone with an internet connection and a verified account can take part, without a minimum investment that rules most people out.
Why prices change
Prices move because many different things happen at once. Understanding the common ones helps you read a headline without panic or excitement.
It is rarely a single cause. A positive headline can be ignored if investors were already expecting it, and a modest piece of bad news can trigger a large fall if sentiment is already fragile. Prices often react to what people think will happen next as much as to what has happened.
- 1News or event
- 2Investors react
- 3Buying or selling rises
- 4Price moves
| Factor | Effect |
|---|---|
| Trading volume | Heavy volume gives moves more weight. Thin volume lets small orders move prices. |
| News | Regulation, company announcements and security incidents can change expectations fast. |
| Investor sentiment | Optimism and fear spread quickly and often overshoot. |
| Economic and global factors | Interest rates, inflation and risk appetite in other markets all feed through. |
What volatility is
Volatility is a measure of how much and how quickly a price moves. A calm asset moves in small steps. A volatile one can jump or drop by a large amount in minutes.
| High volatility | Low volatility | |
|---|---|---|
| Price swings | Large and fast | Small and gradual |
| Potential for gain | Higher, because moves are larger | Lower |
| Potential for loss | Higher, for the same reason | Lower |
| What to keep in mind | Expect surprises, size positions modestly and avoid borrowing to invest | Calm periods do not last forever |
It helps to think about volatility in terms of what you can tolerate. If a fall of one third in a month would make you sell in a panic, your allocation is probably too high for you, however good the long-run story sounds.
Most crypto-assets have been more volatile than shares or currencies. That is one of the reasons people are drawn to them, and one of the reasons they are risky.
Managing risk
Risk management is the set of habits that stops one bad outcome from turning into a disaster. You cannot remove risk from markets, but you can decide how much of it you take.
- Decide your limit first. Work out the amount you can lose without it affecting your rent, bills or sleep.
- Spread it out. Not everything in one asset or strategy.
- Start small and increase only when you understand what is happening.
- Protect your accounts. Two-factor authentication and unique passwords.
- Review regularly. Look at reports and change limits when your circumstances change.
A simple test is to imagine the whole amount going to zero tomorrow. If you could absorb that without changing your plans for the year, the size is probably reasonable. If not, reduce it. And be wary of any plan that depends on a rapid recovery to make you whole.
Be equally careful about borrowing to invest, chasing a price that has already run, and following tips from people you do not know. Those habits turn ordinary volatility into serious losses, and they are avoidable.
What Valorstead provides
Tools that let you set an allocation, choose when strategies run, receive alerts and pause trading, plus a pause mechanism that can stop activity in very volatile conditions.
The platform does not make investment decisions for you, and it does not guarantee any result. These tools support your decisions. They do not replace them.
Beginner questions
There is no right time. What matters more is understanding the risks and only using money you could do without. Learning first and deciding after is always an option.
On this platform, losses are limited to the money in your account. Other products, such as leveraged ones, can lose more than you invest, which is one reason to read terms carefully.
Yes, they can be bought, sold and held. They are subject to tax and to AML/CTF rules, and service providers must meet registration and reporting requirements.
Each exchange has its own buyers and sellers. Small differences are normal, and larger ones can reflect fees, liquidity or delays moving money between them.