Market Volatility, Illiquidity Can Be Quite Profitable for Bitcoin Traders

Market Volatility,
Illiquidity Can Be Quite Profitable
for Bitcoin Traders

Introduction to “spreads”

The cryptocurrency markets are often volatile and suffer from periods of limited liquidity. Combined, they increase the risk profile for Blockchain asset investors. But with increased risk, the potential for reward should increase as well. In this post we explore one method professional traders use to handle volatility and liquidity issues and explore ways to profit from these inefficiencies.

Introducing mean-reversion strategies

Volatility is driven by uncertainty. Some strategies, however, profit from volatility and even illiquidity. At the same time these strategies help mitigate market inefficiencies and should be rewarded for that. Mean-reversion is the assumption that a stock's price will tend to move toward its average price over time. In other words, deviations from the average price could be exploited for profit, based on the knowledge that the price should tend to revert to the mean in time.

A simple implementation of this strategy is to quote both a sell and a buy price, like a market maker. If the market is in fact mean reverting, then the strategy profits from the difference between the buy and sell price. The difference is also called the quoted spread. Mean-reversion strategies trade the market as if the market oscillates around a fair price for an asset. The swings are driven by the uncertainty of other market participants or illiquidity at different market levels. Mean-reversion strategies bridge the gap between buyers and sellers and can expect to generate a profit from that.

This strategy is most effective in markets that are both high in volatility and are mean reverting. Volatility measures the size of the market’s swings. With high volatility, market swings are large and the mean-reversion strategy has a high probability of generating a profit. In markets with low volatility only small spreads are possible and the strategy is less profitable. The best market scenario for mean-reversion is a sideways market with large volatility or market swings. This market scenario is damaging for trend-following strategies but profitable for market making or mean-reversion strategies.

Simple example

The figure below shows an example of a profitable trading day using a mean-reversion strategy. At the beginning of the day, both buy and sell orders are placed in the market. The day develops and volatility drives a random walk of the price. Throughout the day, the strategy buys one Bitcoin at $4377.70. At some point later during the day, you sell this Bitcoin at $4421.48 and generate a profit of 1%. From this profit, fees have to be added or deducted. Some exchanges charge as little as 2.5 basis points for providing liquidity using such passive strategies.

Implementing mean-reversion?

As we have already learned, mean-reversion strategies capitalize on the spread between buy and sell prices. These are usually placed around a mid price. The mid price incorporates all assumptions about the true price. For example, if the market exhibits large trends, these would be considered to adjust the mid price.

In general, buy and sell orders are determined by

Buy/Sell = Mid Price +/- Spread

The spread is determined largely by the market’s volatility and the skew of the its returns. The skew is determined by the probability of up or down moves of the market. Such moves are usually not equally probable and therefore the spread is adjusted. The volatility determines the size of the spread. With a high volatility, buy and sell orders are executed with a higher probability because the market shows larger price swings. On the other hand, if the volatility is small, the buy and sell might not be hit and the strategy keeps a long or short position, i.e. either ends up holding the underlying asset or holding cash and being short the asset.

The recursion is usually initiated with the variance over the first 10 days. λ determines the half-life of the EWMA system. The half-life is the time required for the system to forget half of its former value. With daily data, the half-life is usually set to 10 days and therefore λ set to 0.93. The figure below shows the annualized volatility for Bitcoin prices as estimated by the EWMA model. Bitcoin is fluctuating around an annualized volatility of 116%.

Strategy’s performance

To test the mean-reversion strategy we explored to quote buy and sell prices every day since the inception of Bitcoin through the end of September 2017.. All data is taken from Cryptocompare. Given a 116% average volatility, we chose the quoted spread as 1% between buy and sell prices. If returns would be normally distributed this spread would be hit with a probability of 99.6% over, for example, 10 days.

Of course, Bitcoin returns do not follow a normal distribution. So what is the likelihood that a trader could both buy and sell Bitcoin over the course of 10 days and earn 1% each day? Based on our data, this strategy would have been successful in 2297 out of 2615 days, or 87.84% of the time. For this backtest, we calculated the buy and sell orders on +/- 0.5% of the last closing price and compared this price with the highs and lows over the course of the next 10 days. Of course, this strategy would result in some large long or short positions in Bitcoin. In fact, for 189 of the days, the strategy would have sold Bitcoin, but not bought. And for 129 of the days, the strategy bought Bitcoin, but did not sell it. The main reason for this is the large upward trend in Bitcoin prices.

To account for the trend in Bitcoin prices, we use the moving average return as an estimate and arbitrarily chose the look-back as 60 days, based on a previously published strategy. We also tested other look-back periods which produced similar results, and the look-back of 60 days is in the range of general trend-following strategies.

Adding the moving average to shift the spread increases the number of days the mean-reversion strategies buys Bitcoins and reduces the number of days that it only sells Bitcoins. Therefore the strategy ends up with a long position in Bitcoin rather than a short position. In total, this strategy would have made 1% profit on 2288 days out of 2615. On 327 days, the strategy either only sold Bitcoin or only bought Bitcoin. Adjusting the mid-price for trend resulted in more days that the strategy only bought Bitcoin and therefore accumulated Bitcoin over time. As an additional rule, the strategy could sell the additional Bitcoin at the end of each month or even keep them as a market position.

A trader can improve this strategy by considering the volatility estimate and adjusting the spread. With higher volatility estimates, the strategy would aim to profit from a larger spread and vice versa. Other models use more sophisticated supervised learning algorithms to predict market movements. While some search for trading signals in order books, others use market news as an input to make directional predictions (Li et al., 2014; Kanagal et al., 2017). When trading a mean-reversion strategy, the liquidity of the market has to be considered. Here we did not consider any limitations to the ability to trade at the quoted prices. Obviously, that is not always the case and largely depends on the deployed capital.

Broader market benefits

Trading a mean-reversion strategy also plays a crucial role to establish efficient market mechanisms. While efficiency has already improved dramatically over the recent years, cryptocurrency markets still face fundamental issues that are typical for any new market. Illiquidity, matching inefficiencies and unstable spreads are frequent symptoms that can be observed across all currently available exchanges. Mean-reversion strategies provide additional liquidity to the market and therefore resolve these frictions. They bridge the liquidity gap, for which they get paid.

Market making strategies extend mean-reversion strategies, in that they trade on the spread many times a day with relatively large volumes on both sides of the trade. Market making strategies provide the liquidity that is essential for any well-functioning financial system. Abrupt spikes of demand or supply, like when traders either buy or sell large volumes, are absorbed by market makers. Any successful Bitcoin buy order requires a seller who is willing to take the opposite side and sell the particular volume of coins to the quoted price. The exchange (broker) matches both parties to make the trade happen.

This frequently leads to order delays and varying fulfilment prices, at the cost of traders. By placing orders at each side of the trade, market makers have the capacity to make more trades happen and thereby eliminate fulfillment delays. Bitcoin markets still observe very unstable spreads, which are absorbed by the market makers. By fixing bid and ask prices for other traders, market makers profit from keeping spreads low and stable. The more liquidity they provide, the narrower and more stable the spread becomes.

Conclusion

Mean-reversion strategies are very profitable in high volatility markets and can be adjusted for trends. This strategy can be easily applied to Bitcoin trading and improve the performance of a buy-and-hold strategy. The mean-reversion strategy would post buy and sell quotes around the current market level and earn the spread.

Since the strategy is independent of the market level, it can add an independent performance to a buy-and-hold strategy. As an example, the strategy could use 1% of the portfolio assets and then aim to earn an additional 1% per day on this part of the portfolio. Historically, this strategy would have added 24% per year to the portfolio performance.

Mean-reversion strategies are providing liquidity to the market. On the other hand, these strategies might end up long or short the asset, if the market does not revert to the mean. In that case they are taking a market position. On the other hand, providing liquidity should earn these strategies a potential profit that rewards the trader for his risk. Market making strategies extend mean-reversion strategies by quoting bid-ask spreads more frequently.

Chuck Reynolds


Marketing Dept
Contributor
Please click either Link to Learn more about -Bitcoin.
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There are now more than 120 hedge funds focused solely on bitcoin, digital currencies

There are now more than 120 hedge funds focused solely on bitcoin, digital currencies

  • Data shared exclusively with CNBC from financial research firm Autonomous Next shows the number of funds investing in digital assets like bitcoin has grown rapidly to 124.

  • Autonomous Next also estimates that the "crypto-funds" have about $2.3 billion in total assets under management.

  • While several leading Wall Street banking executives remain skeptical about bitcoin, more seasoned money managers are moving into digital assets management.

More than 90 funds focused on digital assets like bitcoin have launched this year, bringing the total number of such "crypto-funds" to 124, according to financial research firm Autonomous Next.

Data shared exclusively with CNBC Friday showed that the largest share of the funds, 37 percent, used venture capitalist-type strategies and had about $1.1 billion in assets under management. Funds focused on trading digital assets came second at 32 percent, with about $700 million in assets under management.

Funds specifically using machine learning, data science or statistical arbitrage on digital currencies came in third at 10 percent and $100 million in assets under management, the data showed.

Total assets under management by crypto-funds now stands at $2.3 billion, according to Autonomous Next's estimates.

Source: Autonomous Next

This year's surge in the price of bitcoin and another digital currency, ethereum, have drawn attention to the cryptocurrencies and the potential of their blockchain technology. Proponents say blockchain could transform the world as much as the internet did, and several major banks are researching or developing blockchain projects.

Digital currency enthusiasts also attribute much of the latest surge in bitcoin to record highs above $6,100 to increased interest from institutional investors. While several leading Wall Street banking executives remain skeptical about bitcoin, more seasoned money managers are moving into digital assets management.

Notably, former Fortress hedge fund manager Michael Novogratz is launching a $500 million digital assets fund through his new firm, Galaxy Investment Partners. The fund is expected to be the largest of its kind.

 

Besides investing in digital currencies like bitcoin and ethereum, enthusiasts are betting on a slew of new digital coins for projects built on the same blockchain technology. The tokens are launched through a process called an initial coin offering and have raised just over $3 billion, according to Autonomous Next.

That said, many of the digital coin projects are still in very early stages. China has banned initial coin offerings, while the U.S. Securities and Exchange Commission has warned investors about the risks of investing in them.

The overall number of crypto-funds and their assets under management is also still minuscule compared to the record $3.15 trillion held by the hedge fund industry in the third quarter, according to HFRI.

WATCH: What is an ICO?

 

 

Author: Evelyn Cheng

 

 

Posted by David Ogden Entrepreneur
David Ogden Cryptocurrency Entrepreneur

David https://markethive.com/david-ogden

Here’s What Gold Bugs Miss About Bitcoin’s ‘Intrinsic Value’

Here's What Gold Bugs Miss About Bitcoin's 'Intrinsic Value'

Gold bars are pictured at the German central Bank Bundesbank,

in Frankfurt, Germany (BORIS ROESSLER/AFP/Getty Images).While bitcoin would appear to be a libertarian’s monetary dream at first glance, the reality is that many of the longtime gold bugs have yet to go all the way down the cryptocurrency rabbit hole. For those most part, these gold bugs do not believe in the long-term viability of bitcoin due to its lack of “intrinsic value”.

Peter Schiff is one such gold bug who is a noted critic of bitcoin. I recently dissected some of the arguments he made against bitcoin on The Joe Rogan Experience in another post. Indeed, I also followed this line of thinking when I first found out about bitcoin. One of the first questions I had about this new digital commodity was why it was not backed by a physical commodity such as gold.

However, that was back in 2011. And I eventually learned that the lack of physical backing behind bitcoin is a feature, not a bug. Without physical backing, bitcoin is able to act as the world’s first digital bearer asset, which can be stored and transacted without interference from a third party custodian or government. Like many others who have researched bitcoin thoroughly over the years, my understanding of money and intrinsic value has been flipped on its head by Satoshi Nakamoto’s financial innovation.

Bitcoin’s Intrinsic Value

So how does bitcoin have any value at all? How can you go from zero to one? In the early days, bitcoin was nothing more than a collectible to most people who were looking into the new technology. This is in contrast to the “cryptocurrency” and “digital currency” monikers that would eventually be placed on it. In an early thread on the Bitcointalk.org forum regarding how bitcoin should be defined, Nakamoto stated, “Bitcoins have no dividend or potential future dividend, therefore not like a stock. More like a collectible or commodity.”

This speculative view of bitcoin as a sort of collectible for crypto-anarchists and other like-minded individuals is where bitcoin first attained any value at all. The fact that there was a limited supply of bitcoins meant you had to convince someone else to send you theirs (or put in work as a miner) if you wanted to have any.

The Collectible Use Case Bootstraps More Value

Once bitcoin gained a price in other assets, it could then be used to transmit value over the internet in a censorship-resistant manner. “If it somehow acquired any value at all for whatever reason, then anyone wanting to transfer wealth over a long distance could buy some, transmit it, and have the recipient sell it,” Nakamoto wrote back in 2010.

One Bitcointalk.org user famously traded 10,000 bitcoins for a couple of pizzas, but the best illustration of bitcoin’s use as a censorship-resistant medium of exchange likely came in the form of darknet marketplace Silk Road. The bearer nature of bitcoin made it the perfect option for illicit commerce on the internet.

Chuck Reynolds


Marketing Dept
Contributor
Please click either Link to Learn more about -Bitcoin.
Interested or have Questions. Call me 559-474-4614

 

David https://markethive.com/david-ogden

‘A Real Bubble’: Billionaire Warren Buffett Doubles Down on Bitcoin Doubt

Billionaire investor Warren Buffett has joined the ranks

of those who believe the market for bitcoin is in bubble territory. According to MarketWatch, Buffett touched on the subject during an annual question-and-answer session held in Omaha earlier this month. While Buffett focused on a range of topics, he honed in on the cryptocurrency market during his remarks. "People get excited from big price movements, and Wall Street accommodates," he was quoted as saying. Describing bitcoin as a "real bubble," according to the publication, Buffett also criticized the idea of applying a value to bitcoin.

He told attendees:

"You can’t value bitcoin because it’s not a value-producing asset."

Buffett's comments came amidst a significant month for bitcoin's price, according to CoinDesk data. After fluctuating around $4,300 at the beginning of October, the price surged to more than $6,100 less than a week ago. That Buffett would take a harsh stance toward bitcoin is perhaps unsurprising, given that, in 2014, he advocated that investors stay away from bitcoin entirely.

"It's a mirage basically," he was quoted as saying at the time. Nor is Buffett the only market observer to issue remarks around the market's recent developments. Earlier this week, Saudi Prince Al-Waleed bin Talal said that he expects bitcoin to fail. Others, however, have adopted a different approach. On Oct. 24, New York University's "Dean of Valuation," Aswath Damodaran, argued that bitcoin is a true currency and not a fraud in a new blog post.

Chuck Reynolds


Marketing Dept
Contributor
Please click either Link to Learn more about -Bitcoin.
Interested or have Questions. Call me 559-474-4614

David https://markethive.com/david-ogden

Bitcoin Price Storms to $5,955 as Bitcoin Gold Fizzles

Bitcoin Price Storms to $5,955 as Bitcoin Gold Fizzles

Bitcoin Price Storms to $5,955 as Bitcoin Gold Fizzles

The crypto markets experienced a moderate recovery on Thursday, as the bitcoin price began to recover from the dip that it entered following the Bitcoin Gold hard fork. Many altcoins achieved slight price bumps as well, enabling the total cryptocurrency market cap to rise above the $172 billion mark.


Chart from CoinMarketCap

Early in the day, it appeared that the markets were heading south, continuing their movement from the previous day. However, they began to tick up on Wednesday afternoon, and the crypto market cap currently sits at $172.5 billion, which represents a 24-hour increase of $5.1 billion.


Chart from CoinMarketCap

Bitcoin Price Recovers Near $6,000

The recovery was fueled by a 7.5% bitcoin price rise. After beginning the day in decline, the bitcoin price consolidated support at the $5,485 mark and reversed its trajectory leading into Thursday morning. At present, the bitcoin price is trading at $5,955, which translates into a $99.1 billion market cap.


Bitcoin Price Chart from CoinMarketCap

It is not immediately clear what is fueling this march back toward $6,000, but many analysts believe it is an early phase of bitcoin’s eventual transformation into a mainstream asset. Standpoint Research’s Ronnie Moas, for instance, recently predicted that the bitcoin price will reach $50,000 over the course of the next decade.

 

Ethereum Price Stuck Below $300

The ethereum price made a minor gain on Thursday, advancing about seven-tenths of one percent to increase to a present value of $299. Nevertheless, it was unable to pierce the $300 mark or break out of that threshold’s gravitational pull. Ethereum maintains a market cap of about $28.5 billion.

Ethereum Price Chart from CoinMarketCap

Cash’ Rises as ‘Gold’ Fizzles

The bitcoin cash price outperformed the majority of top-tier cryptocurrencies on Thursday, rising as high as $347, although it has since tapered to $340. This is likely due to the dismal performance of Bitcoin Gold — another altcoin created from a Bitcoin fork — during its first few days on the exchanges.


Bitcoin Cash Price Chart from CoinMarketCap

Unlike Bitcoin Cash, Bitcoin Gold has virtually no community and institutional support, and that has been reflected in its declining price. After debuting near $500, the bitcoin gold price has plunged to $131 — even amid buy pressure from margin traders who needed to purchase it to pay back lenders — and this may worsen when the network officially launches and traders are able to begin making deposits on exchanges.


Bitcoin Gold Price Chart from CoinMarketCap

This bodes well for bitcoin cash, because industry observers theorize that subsequent forks of bitcoin will have diminishing returns and that the forked coins may cannibalize one another. Though it is still early, it appears that bitcoin cash will emerge the victor in this contest with bitcoin gold.

 

Altcoins Post Minor Gains

Altcoins — led by bitcoin cash — generally made gains on Thursday, although a few top 10 cryptocurrencies did not participate in the advance.


Chart from CoinMarketCap

The ripple price rose about one-half of one percent, but this was not enough to push XRP’s market cap back across the $8 billion threshold. The litecoin price increased 3%, while dash and NEM sat the rally out. Bitconnect led top 10 cryptocurrencies, posting a 12% increase that raised its price to $219, but the NEO price dropped below the $30 mark after a 4% pullback. Tenth-ranked monero achieved a minor gain, but its price continues to trade below $90.

 

Author Josiah Wilmoth on 26/10/2017

 

Posted by David Ogden Entrepreneur
David Ogden Cryptocurrency Entrepreneur

David https://markethive.com/david-ogden

With BTCChina Ready to Stop Withdrawals, China Bitcoin Gates are Closing

With BTCChina Ready to Stop Withdrawals, China Bitcoin Gates are Closing

BTCChina, the largest Bitcoin trading platform in China

On Oct. 23, BTCChina, the largest Bitcoin trading platform in China, has updated an announcement that it will shut down the exchange business and stop providing withdrawal services on Oct. 30. For speeding up its shutdown, BTCChina is going to adjust the withdrawal transaction fee to remind and urge users to withdraw as soon as possible.

Until Oct. 25, the platform will remain with the previous withdrawal transaction fee standards:

  • Withdrawal transaction fee for BTC: 0.0015 BTC;
  • Withdrawal transaction fee for LTC: 0.001 LTC;
  • Withdrawal transaction fee for ETH: 0.01 ETH;
  • Withdrawal transaction fee for BCC: 0.0005 BCC.

Start on Oct. 25, new withdrawal transaction fee standards will be activated:

  • Withdrawal transaction fee for BTC: 0.0045 BTC;
  • Withdrawal transaction fee for LTC: 0.003 LTC;
  • Withdrawal transaction fee for ETH: 0.03 ETH;
  • Withdrawal transaction fee for BCC: 0.0015 BCC.

After Oct. 30, the platform is very likely to stop the service of online withdrawals. By announcing the increase in withdrawal transaction fees beforehand, BTCChina wants to check out and return all money on time. With the final date coming, the largest Bitcoin trading platform is to say goodbye to its users and the market. The job of checking on and returning funds is the last step of BTCChina’s shut down. On Sep. 27, the platform stopped accepting CNY and Digital Asset deposits. On Sep. 30, it stopped accepting fiat and cryptocurrencies and shut down all trading functionality on BTCChina Exchange. Besides BTCChina, other Bitcoin Chinese trading platforms like OKCoin and Huobi have also announced that they will close CNY trading market based on the “Seven Regulatory Bodies” Announcement issued before by the regulators.

Hopes

However, though the Chinese government currently bans Bitcoin trading, the government didn't consider it absolutely illegal. Some scholars believe that this means that Chinese government might free Bitcoin trading under certain circumstances in the future. When the regulation system is complete, the Chinese government might reopen the gate for Bitcoin. Additionally, both Huobi and OKCoin stated that they would keep communicating with regulators and try to recover CNY trading market in the future.

Chuck Reynolds


Marketing Dept
Contributor
Please click either Link to Learn more about -Bitcoin.
Interested or have Questions. Call me 559-474-4614

David https://markethive.com/david-ogden

Hong Kong and Singapore Will Launch Blockchain-Based Project to Link Their Trade Finance Platforms

Hong Kong and Singapore Will Launch Blockchain-Based Project to Link Their Trade Finance Platforms

 Hong Kong and Singapore announced that they are going to cooperate

on a cross-border trade project based on Blockchain technology by linking their trade finance platforms. The announcement from Hong Kong Monetary Authority reads: “The Hong Kong Monetary Authority (HKMA) and the Monetary Authority of Singapore (MAS) signed and exchanged a Co-operation Agreement (“Agreement”) in Hong Kong today (25 Oct. 2017) to strengthen co-operation on fintech, with a view to bolster ties between the two cities and fostering fintech development within the region.” Last year, HKMA with banks including HSBC and Standard Chartered worked on building a trade finance platform by using Blockchain technology to digitize and share trade documents, automate processes and reduce the risk of fraud.

At the same time, Singapore planned to build a similar platform as well. The cooperation between Hong Kong and Singapore on this project will “enhance the trade finance corridor between the two financial centers,” according to Ravi Menon, managing director of MAS. What’s more, the platform could significantly increase the efficiency of trade finance in the future. It will replace humans to do time-consuming paperwork. HKMA and MAS stated that linking the two platforms is just a part of a broader plan between their future collaboration on the Blockchain and other fintech projects. Details about the cooperation will be announced by the two authorities next month.

Threat of Blockchain and Cryptocurrencies Distant But Inevitable, Says Moody’s

Threat of Blockchain and Cryptocurrencies Distant But Inevitable, Says Moody's

Moody’s Investors Service analyst Stephen Sohn and his team have reassured the US payments sector that the threat of Blockchain technology and digital currencies is still distant, but businesses will eventually adopt the technology. The team claimed that Blockchain is a disruptive technology and may compete against the payments sector in the long-term. In their report “Consumer Digital Payments – US,” Sohn and his team also highlighted several “tech-enabled entrants” that are revolutionizing the electronic payments market in the US.

Part of the report reads:

“Providers that are considering adopting Blockchain technology, which was originally created as a platform for the Bitcoin ‘cryptocurrency,’ may pose another potential threat to all of the current payment constituents. Blockchain is a chain of blocks of encrypted information that form a database or ‘ledger,’ which may eventually lessen the need for the intermediary platforms that currently approve, clear, and settle payments.”

Blockchain benefits financial services industry

Meanwhile, Moody’s associate managing director, Sean Jones and his team also released a separate report in April claiming that Blockchain has several possible applications and benefits beyond the leading digital currency Bitcoin. They said that the technology can revolutionize the clearing and settlement sector and it can also “promote transaction transparency, improve data security, and lessen the risk of a single point of failure.”

However, Jones and his team cited several obstacles that should be resolved before the economics of investments in the technology can be realized. Among these hurdles are the technical issues related to interoperability and scalability, as well as disagreements on industry standards and terms of collaboration. The report also highlighted the generally supportive stance shown by financial services regulators on Blockchain, but cited the lack of definitive view on how the technology will eventually be treated.

Chuck Reynolds


Marketing Dept
Contributor
Please click either Link to Learn more about -Bitcoin.
Interested or have Questions. Call me 559-474-4614

David https://markethive.com/david-ogden

Managing Enormous Risk – Bitcoin and Altcoin Investment Strategies

Managing Enormous Risk - Bitcoin and Altcoin Investment Strategies

Managing Enormous Risk – Bitcoin and Altcoin Investment Strategies

While some have made millions investing in digital currencies, others would call it degenerate gambling. If you’re reading this, then you know how exciting and unpredictable the crypto world is. Fortunes are built and demolished in seconds, new and exciting technology pops up every day, and controversy rules the land. It’s pretty much the Wild West of finance.

The unprecedented growth of cryptocurrencies has attracted investors from all walks of life, many of whom have been enticed by the staggering returns made by early investors. If this sounds like you, then keep reading. Unfortunately, we're not going to teach you how to get rich in a few days; in fact, we're going to try and deter you from that objective.

Not that we don’t want you to be super-rich, don’t get us wrong. But we prefer to have more grounded goals and we want you to do the same. Investment is a tricky game and the patient person usually wins. Avoiding “fear of missing out” (FOMO) is essential, especially in crypto, where disinformation, fake news and drama are commonplace.

So what exactly is the point of this article, you may wonder? Well, today, we want to give new players in the cryptosphere some ideas on how they can begin to navigate the tricky world of investment. We feel this is important due to the growing amount of scams and low quality projects out there.

We’re not saying that the strategies we discuss are foolproof or even profitable. They are not based on any mathematical formula nor were they devised by any experienced investment professional. These are simple ideas that are popular among entrants and old school digital currency investors alike.

It’s important to note that this article is not to be taken as investment advice and that you should always remember the golden rule of investment: Never invest more than what you can afford to lose.

Diversify and play it safe

This is a simple one. If your portfolio only has one coin on it, you’re doing it wrong. Now, we know some people will say Bitcoin is the only cryptocurrency you should own, but at this point it’s safe to say that this is an absurd statement founded on feelings and ideals, rather than actual facts.

Bitcoin is thriving because it is the first and most popular cryptocurrency out there. It has the first mover advantage and it is also backed by an extensive network of miners who keep it safe. In terms of technology or features, however, Bitcoin falls short of its peers. We’re not saying you shouldn’t have Bitcoin, but you should also acknowledge other cryptocurrencies out there.

It may be a good idea to play it safe, however, and to “bet” on the most popular coins only, such as the top 10 by market capitalization. At present, those are: Bitcoin, Ethereum, Ripple, Bitcoin Cash, Litecoin, Dash, NEM, NEO, BitConnect and Monero.
 

Bet on the idea, not the project

The world of Blockchain technology has evolved to a point where currency is just one of the many functions a cryptocurrency can have. There are smart contract platforms like Ethereum, NEO and Qtum, there are decentralized storage networks like Storj, Sia Coin and Filecoin and there are decentralized exchange platforms like Waves, Bitshares and others.

Our suggestion is, instead of buying one cryptocurrency in each category, you should spread your investment throughout multiple options inside each category. This will allow you to reduce the risk of investing in one single currency. In the world of crypto, a technical difficulty or even a grievance within one of the teams can lead to an rapid crash in the price, regardless of how promising the project and tech are. Just look at what happened with Tezos.
 

Hedging

Again, diversification is the name of the game. If you’re in crypto, then you are probably aware of how risky it all is. The cryptocurrency movement could end in days if some major security flaw was discovered or if all governments decided to ban them. The same can happen if some new and improved alternative to Blockchain technology comes along. These are, of course, worse case scenarios that are unlikely but possible nonetheless.

So, if you’re not one to have all your eggs in the same basket, you may want to extend your investment strategy to instruments outside of crypto. Precious metals, stocks, and other traditional investment vehicles may be a great addition to your portfolio and will allow you to reduce the risk you would take by investing in cryptocurrencies only.

Some companies, for example, manage cryptocurrency investment funds that combine cryptocurrency investments with investments in other sectors, like real estate. We talked to Kirill Bensonoff, CEO and founder of Caviar, about the importance of heeding your investment in the cryptocurrency space with traditional instruments.

He stated:

“We found a couple of major issues with crypto-asset investing, namely, it’s difficult and time consuming, and all assets are highly correlated. There is no ‘safety’ asset that also produces an income. We also see a movement towards having crypto be backed by traditional assets, such as gold, real estate and others, and we are addressing this head on.”

Liquidity, liquidity, liquidity

This is something that many new players forget about. You may find yourself investing in a cryptocurrency, having it increase in value several times over, only to realise that you can’t really sell it. If you try to sell large amounts at once, you’ll crash the price. Why? Because there is no liquidity. If a coin has no trading volume, significant price swings are bound to happen.

You can play it safe and avoid low volume coins all together but if you don’t want to, the least you can do is to know the risk you’re taking. CryptoCompare has a portfolio tool that allows you to analyse several risk factors in your portfolio, including volatility, exposure and, of course, liquidity. Their tool allows you to get an estimate of how long it would take to sell a certain coin based on the current volume. We asked Charles Hayter, CEO of CryptoCompare, why this tool is important for entrant users. He stated:

“We want to make it easy for users to track how well they're doing. Crypto is risky in the extreme and we want to help people understand where these risks lie and how to quantify them.”

Room to grow

Remember what we just told you about liquidity? Well, this strategy is somewhat contradictory, but it’s important to note that not all of these strategies are compatible with one another. Also, some involve more risk than others, and this one is risky. So, what do we mean with “room to grow”?

Small market cap cryptocurrencies have more growth potential than the ones at the top. Of course, other factors will determine if the price will rise or not but the idea is that, if you invest in cryptocurrencies before they are big, you may get to see your investment grow several times over.

Now, before you go to the nearest exchange and start stacking up on useless meme coins, have a think about what you want to buy. Then, perform your due diligence, check the roadmap, check the team, read the whitepaper, learn about the technology. Do everything in your power to ensure that your investment is justified. This will also make it easier for you to stick to your strategy, knowing that you are invested in something you believe in.

Technical analysis

Yes, chart wizardry. To be honest, I have no idea how it works and I admire anyone that does. All those numbers and lines give me headaches. Nevertheless, if you have it in you, learning T.A. can do wonders for your investment strategy even if you only touch the surface! We asked Jonathan Hobbs, CFA and author of the Stop Saving Start Investing: Ten Simple Rules for Effectively Investing in Funds investment book how technical analysis can be useful even for a newbie investor. He stated:

“Any good investment strategy needs rules. Technical Analysis (or “TA”) uses rules to look for price and volume patterns in charts to try and predict what’s going to happen next. It helps investors choose when to buy or sell. One example of TA is the Simple Moving Average (or “SMA”). The 50-day SMA, for instance, is the average price over the last 50 days, which changes or ‘moves’ each day. When an investment starts trading above its SMA, this is could be a bullish sign. Since TA can also protect the downside, it’s a good risk management tool for volatile investments like cryptocurrencies.”

Proof of Stake interest

A lot of people would love to invest in cryptocurrency mining, but at this point, you either go big or go home. Mining has become an industrialized practice reserved only for those with large financial backing, high tech equipment and access to low energy prices. Although there are several alternatives to traditional mining, Proof of Stake is the most relevant one for the subject at hand.

To put it simply, Proof of Stake allows users to “mine” coins without mining equipment. In this system, the amount of coins a user holds will determine how many coins he mines. Although most PoS cryptocurrencies will require you to leave your wallet running, some implementations of PoS like Waves and Lisk allow you to earn interest by leasing or delegating your stake.

Do note that you shouldn’t go out and buy every PoS coin out there. You should, however, check your holdings for these types of coins and, if you have them, mine them! In the worst case scenario, you’ll need to leave the wallet running which can be done with any laptop or even a Raspberry Pi device.

 

Author: Frisco d'Anconia

 

Posted by David Ogden Entrepreneur
David Ogden Cryptocurrency Entrepreneur

David https://markethive.com/david-ogden

SPECTRE Creators Seek VC Backing for Blockchain-Free Cryptocurrency

A veteran researcher behind two influential papers in the emerging field

of crypto-economics is gearing up to launch a new cryptocurrency. Revealed in an exclusive interview with CoinDesk, Yonatan Sompolinsky, author of the GHOST protocol and co-author of the SPECTRE protocol, intends to release the as-yet unnamed project in late 2018. Based on his body of work, the project aims to solve one of the industry's biggest challenges: the speed at which transactions are disseminated and recorded by distributed ledger systems.

Founders of the project include SPECTRE co-author Yoad Lewenberg, and researcher Ethan Hileman, who worked with the team behind bitcoin privacy project TumbleBit. However, the team is not only equipped with developers, but also business experts – including Guy Corem, the former CEO of Israeli-based bitcoin mining firm Spondoolies-Tech, which raised more than $12 million in venture funding before shuttering operations.

Together, the team has founded a new startup called DAGlabs, which is said to be raising $15 million as part of a Series A round. Yet, it's the vision for the project that is perhaps most notable, given how it intends to achieve its goal. Rather than using a blockchain system, the public cryptocurrency will be among the first to operate via a system called a direct acyclic graph (DAG) – technology that Sompolinsky framed as a way to finally create a viable payments rail with distributed ledger concepts.

Sompolinsky told CoinDesk:

"We want to change blockchain into blockDAG. Whether you buy coins or not, you should think about this technology as the next step, releasing the blockchain from the naivety of the chain structure. You will feel this is the natural step towards using a real system."

For all the innovation, however, also notable is what the new cryptocurrency will share with bitcoin, today the largest and most valuable blockchain system, but one that is seen as increasingly less relevant for payments. According to the DAGlabs team, the new cryptocurrency will use a proof-of-work mining algorithm in which anyone who purchases hardware can compete for its rewards. That said, Sompolinsky doesn't see bitcoin and other proof-of-work-based cryptocurrencies as competitors, so to speak. "I'm not competing with this entire plethora of new blockchains. We have a very boutique and niche and specific one and a well-defined one. We want to scale up layer one," he said.

Record of science

As told by Sompolinsky, the project is also a critique on the current state of blockchain development, which he views as having been held back by in-fighting. In particular, he cited his experience with arguments about capacity levels on bitcoin, in which developers have often tried to push solutions to scalability in a way that did not change or update the first layer of the system – the blockchain itself. Referring to last year's Satoshi Roundtable summit, an invite-only event in Cancun, Mexico, he recalled an experience where he was shocked by the state of the conversation.

"Cancun was an eye-opener for me. In Cancun, everyone was fighting about 1 MB to 2 MB … no one was talking about increasing on-chain scalability," he said. Sompolinsky framed the new cryptocurrency as a "vehicle" to enable researchers to take the next step in evaluating this line of exploration, one he argued will benefit from being tested under open market conditions. But given the slate of open-source projects utilizing the initial coin offering (ICO) model as a way to solicit market funding, often for untested concepts, he was also keen to differentiate his project as one based on years of accumulated research.

"There are not 800 projects that implement a concept like DAG. Very, very few, maybe less than five that I know of, try to scale up the layer one. There are not 800 projects that say we should abandon the concept of the chain in favor of a graph of blocks," he said. Among those that do are IOTA and bytecoin, the former being one of the few cryptocurrencies yet to garner a total market capitalization of more than $1 billion.

When complete, the final network should appeal to anyone who wants to use a cryptocurrency with "very fast confirmation and low fees," although that's not to say the concept has been perfected. According to Sompolinsky, there are still plenty of items up for debate. For example, he is still open-minded about how he will structure any issuance, stating he is most strongly considering the model used by Zcash Company – the creators of the zcash protocol – wherein accredited investors are given tokens in stages for their support.

How it works

Still, even those experienced in the field of cryptocurrency may find the concept odd. After all, after the hype around cryptocurrency faded, the so-called "underlying blockchain technology" was often touted as the real secret sauce. That notable researchers would stake a counter-thesis then, is of interest, though it's arguably been a development that has simply received less attention over the years.

Explored by Sompolinsky since his earliest work, the idea is that the process of ordering transactions into blocks, then selecting one to add to the chain, could be better optimized. In the SPECTRE concept, blocks are created at the rate of about 10 per second (as opposed to, say, ethereum where one block is created every 12 seconds). All of these blocks are referenced in a DAG, and multiple, interwoven threads of blocks are created. Then, the most valid transaction history is "voted" in by miners selecting the most inter-referential block graph.

And because this allows for such a high quantity of transactions to be performed on the network, the transaction history won't be permanently stored. Instead, transaction history will only be stored for a limited amount of time, and once it has been validated, will be removed. Other barriers, including backbone congestions and bandwidth, could lie ahead, though. The team intends to address these potential issues by building incentives into the protocol that encourage participating agents to behave correctly.

Still, if the concept on the whole sounds familiar, you've likely come across it when reading about ethereum, which incorporated some of these ideas in how it rewards so-called "uncle blocks" – those that are not selected for inclusion in the ethereum blockchain, but still include useful work. Although uncles aren't considered ultimately valid, they're still profitable to mine, and still get referenced in the blockchain ledger itself.

Indeed, what might be most notable about the SPECTRE project is that Sompolinsky's ideas have often proved to be of influence. For example, Casper, ethereum's hotly debated proof-of-stake protocol, derives its name from the GHOST protocol (a play on the "Casper the Friendly Ghost" cartoon series).

What's left

While the bones of the project are in place, there's still a few questions that need to be fleshed out before the cryptocurrency can be taken to market. Currently under development, the final protocol will be introduced in an upcoming white paper called SPECTRE2. The tech will then begin testing in autumn next year, and by winter, the new cryptocurrency will be launched. Ongoing updates will then continue apace.

For one, DAGlabs has been working on combining the SPECTRE cryptocurrency with MimbleWimble, the natively private cryptocurrency that has been the cause of much excitement in the community. Further down the line, the platform also wants to allow DAG-based smart contracts to be written into the platform.

But the final step that DAGlabs is pivoting towards is perhaps as ambitious as the cryptocurrency itself. Once the team has established a functioning cryptocurrency, they intend to allow the DAG infrastructure to facilitate something along the lines of "merged mining," which is when the underlying hardware can be used to support a number of cryptocurrencies simultaneously. Still, it's the manner in which Sompolinsky will launch the project that he ultimately wants to call attention to – calling the years of research and engagement with the open-source community, a "respectable" path to market.

He concluded:

"The easy path for me was to do an ICO; way easier than what I'm doing now. I'm going for the more respectable path of an equity."

Chuck Reynolds


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Bitcoin Is Paying Out Dividends Now — Just Not to Everyone

Bitcoin Is Paying Out Dividends Now

Bitcoin Is Paying Out Dividends Now — Just Not to Everyone

On top of stupendous capital gains, investors in bitcoin are also getting a dividend — if they’re lucky.

A split in the blockchain created a new offshoot in the form of bitcoin gold on Tuesday, with bitcoin holders receiving one unit for every bitcoin they own, according to the offshoot’s developers. The cryptocurrency fell from a record high after the so-called hard fork, just as stocks typically drop after going ex-dividend. Other major digital currencies including ethereum gained, as investors sold bitcoin and moved the cash to alternatives, saidGavin Yeung, chief executive officer at investment company Cryptomover.

“It’s very healthy for the ecosystem to be able to say, I am an investor, I collect my dividend, and then I can do what I want with my investment,” Yeung said on Tuesday.

There are, of course, differences. Unlike a stock payout, in order to get the additional bitcoin gold, investors have to be using a wallet or exchange that supports the new asset. Coinbase, one of the largest exchanges, has said it won’t.

Additionally, bitcoin gold and an earlier offshoot called bitcoin cash arose from conflicting visions within the decentralized community — as opposed to a conscious decision to boost investor returns. In this sense, such “forks” are more like stock spinoffs.

Bitcoin gold traded at $97 on the exchange Bitfinex as of 12:03 p.m. in Hong Kong. Bitcoin was down 0.5 percent to $5,568, after sliding as much as 5.9 percent on Tuesday, data compiled by Bloomberg show.

 

Author: Justina Lee

 

Posted By David Ogden Entrepreneur

David Ogden Cryptocurrency Entrepreneur

David https://markethive.com/david-ogden