Showing posts with label Eric Wall. Show all posts
Showing posts with label Eric Wall. Show all posts
Sunday, March 4, 2018
Saturday, February 24, 2018
Trading Tip `The Wall´ – Meet the TA Gods
Whether TA works or not is a topic discussed ad nauseam in cryptocurrency circles. As a cryptocurrency trader with a fascination for engineering, math and science, I backtested the entire spectrum of the most popular bitcoin TA indicators in early 2015 using the now defunct Tradewave-platform, in search of that magic formula that would allow me to make money on auto-pilot. I did not find it.
Also read: Drop Tokens That Suffer From Overtokenization
Meet the TA Gods
Currently, I’m working on recreating a 2018 version of that experiment, the results of which I’m looking forward to sharing with you in a column post soon. However, I can already reveal that the results are not looking promising. I’ve long been disillusioned with the prospects of earning a steady income using predictive algorithms, to the point where I’ve stopped believing in them completely.
So, while I color myself a TA skeptic, I still tend to marvel at the near-surgical precision of which the market tends to move in certain cases. Observing the above picture, I’m yet again amazed to see the bitcoin price just reaching the descending trend line just under $12,000 before continuing its downward trajectory. How can it be, that while the empirical evidence for TA disproves its relevance, these TA bulls-eye calls appear again and again?
Enter Crypto Twitter
#FF
Chart kings:@CryptoCred@CryptoHornHairs@ledgerstatus
Gem patrol: @CryptoGat@TheCryptoDog@cryptoboater@cryptonator1337@SilverBulletBTC@Pacoiin
All around:@VentureCoinist@ZeusZissou@CryptoBully@BitcoinBirch
Undervalued:@spiralcal@CryptoTrendy@whatbitcoindid pic.twitter.com/Kk4zPsA399— The Professor (@ProfesorCrypto) February 16, 2018
Look at the tweet above. That is just one of hundreds of such tweets I’ve seen in the past months; tweets listing various “TA Gods”, each with tens or hundreds of thousands of followers, who seemingly worship the chart analysis bestowed upon them by their holy prophets.
One such TA god is @angelobtc, who has undoubtedly earned that position as he’s the #1 trader by notional profit on Bitmex.
That’s $30 million in profit.
Make note: the top trader on Bitmex, which is the largest exchange by notional volume, is not some Goldman Sach’s trading desk or some hedge fund algo-trader. It’s a Twitter guru, fully immersed in crypto Twitter memeology, slang and banter. He’s even a decent OC meme-lord himself.
— Angelo฿TC (@AngeloBTC) January 5, 2018
So what does @angelobtc do then with his impressive, proven track-record of trading and his 93,800 follower base? Here are some examples:
Fibonacci lines (TA).
Same story, different year. Guess what comes next?
#Bitcoin pic.twitter.com/6kVNtfGFIO
— Angelo฿TC (@AngeloBTC) February 5, 2018
Price calls.
Buying $BTC in the $6k region and down if need be. Trade duration: weeks to months. Target: $12k+.
Noobs buy at $19k so they can sell to us at $6k. The market is a device for transferring money from the impatient to the patient. Always has been and always will be. pic.twitter.com/bKeZsK41yM
— Angelo฿TC (@AngeloBTC) February 5, 2018
Memes.
These are the people we are trading against. pic.twitter.com/BGZQc73ERh
— Angelo฿TC (@AngeloBTC) September 29, 2017
The Global Hivemind of Memes
Bitcoin traders are, demographically speaking, a pretty homogeneous group. Broadly speaking, we are 18-34 years old, male, and avid Internet users. As a group, we have since the evolution of Internet culture developed our own way of effectively spreading and sharing ideas on a global scale, and that is through viral memes. In a sense, that is how we, as a demographic, experience the world and the events in it together.
It is perhaps not that crazy to assume that this phenomenon has carried over to the bitcoin markets. I contend that at a micro scale there are certain “trading prophecies” that spread among cryptocurrency traders just like viral memes, through Twitter, Telegram and Discord trading chats. These prophecies then become real, through the belief and actions that their audience undertakes.
What are your thoughts on so-called “trading prophecies?” Let us know in the comment section below!
Images via Shutterstock, Twitter.
Disclaimer: Bitcoin price articles and markets updates are intended for informational purposes only and should not to be considered as trading advice. Neither Bitcoin.com nor the author is responsible for any losses or gains, as the ultimate decision to conduct a trade is made by the reader. Always remember that only those in possession of the private keys are in control of the “money.”
The post Trading Tip `The Wall´ – Meet the TA Gods appeared first on Bitcoin News.
via Eric Wall
Sunday, February 18, 2018
Trading Tip `The Wall´ – Drop Tokens That Suffer From Overtokenization
It’s said that 90% of all startups fail, and that we should expect nothing more from ICOs. But 10% success rate is still overly optimistic for ICOs, perhaps not for the reason you may think. You’re probably aware of examples of ICO “founders” who turned out to be a bunch of made up Linkedin-profiles. You’re probably also aware of the risks that comes with sending money to people on the Internet you never met, in an asset or token impossible to freeze.
Also read: Disappearing Premiums Signal Bearish Mid-Term Outlook
Drop The Tokens That Suffer From Overtokenization
You’re probably also aware of the industry-specific risks, apart from straight up scams, which include:
- ICOs violating securities laws
- ICOs using complicated legal structures in order to avoid violating securities laws and having it back-fire
- ICO fundraisers using Ethereum smart contracts and imploding (this actually happened to the Ethereum co-founder himself)
In this post, I’m going to discuss a much more daunting problem that very few seem to grasp; overtokenization.
Let’s be clear: ICOs as a concept is not at all a bad way to fund the development of a new cryptocurrency. However, the ICO space today is overwhelmed by projects that are not even cryptocurrencies. ICOs have moved from covering cryptocurrencies, to apps that use an existing cryptocurrency as its platform, to regular companies doing something cryptocurrency related, to regular companies doing nothing related to cryptocurrency at all. What many ICO investors seem to forget to ask is: why exactly do these projects need to have a “token”? Somewhere along the way, everything suddenly having a token became normal, and no one barely questions it anymore. This is going to cause a huge problem in the future, and I’m going to explain why.
There are very few cryptocurrency projects that legitimately necessitate a coin or a token from a technological perspective. The known examples that do are the following: actual cryptocurrencies (e.g. Bitcoin, Litecoin, Ethereum, Bitcoin Cash, Monero), and certain protocols involving some kind of game-theoretical token usage (i.e. staking).
One of the few projects from the latter category I can come to think of is Augur. Augur isn’t a cryptocurrency, but a product that uses a cryptocurrency as platform. It’s a decentralized prediction market (currently in beta-stage), consisting of as a set of smart contracts on the Ethereum blockchain. In Augur, its REP token (an ERC20) is integral to the process of resolving bets. It provides Augur with a way to financially reward and punish the actions of honest and dishonest actors, and creates incentives for a specific category of users (REP holders) to be proactive on the platform.
Augur Project
Augur perhaps isn’t a project without flaws, but what we know is that it isn’t practical to try to create Augur without a token. The token is–from the ground up–integral to the functions of the platform. The token itself is also defensible as an investment: as the popularity of the platform increases, the more revenue will there be for REP holders to earn on fees from resolving bets. I would argue that these ingredients are pretty unique to Augur (and perhaps also similar projects like Gnosis). In fact, there are an extremely limited number of cases of non-cryptocurrencies where a token is both technologically necessary and useful as an investment.
But the allure of launching a project like Augur is tantalizing; you don’t have to plan to create a whole cryptocurrency to launch an ICO, you just need a product that somehow utilizes a token that in some manner economically motivates people to hold it. If you figure out that, then you can launch an ICO too.
Because of the insane amounts of money investors poured into ICOs, every entrepreneur in the industry has quickly decided that whatever project they’re working on should probably involve some kind of token. Because not all projects are launching a new cryptocurrency, and they do not involve game-theory or staking that necessitates a token like Augur, most projects have settled with a model where a specific token is required to utilize its services.
Golem plans to build a decentralized market for computing power.
A Token-Critical Perspective
This is where the industry is running into a problem. Instead of an ecosystem of services being built around cryptocurrencies, you will now have to first purchase a specific token in order to utilize those services. Whether its storage space for rent, processing power for rent or something else, you won’t be able to pay for those things directly in your favorite cryptocurrency, you’ll have to use the specific token they’ve restricted their service to accepting, in order to raise money from you in their token sale.
This restriction severely diminishes the utility of the service they are creating. In the Golem example, its participants will be forced to accept payment in GNT rather than bitcoin for instance. It’s very unlikely that GNT is going to be as liquid as bitcoin, and therefore it is much more likely that the value of GNT will fluctuate spectacularly in comparison, which isn’t very convenient for its users. Furthermore, some sort of micro-economy will have to evolve around the GNT token, that relies on GNT tokens to purchase services later resold to the market. That opens up a whole new attack surface of the service, where the entire platform could essentially be hijacked in a coordinated act of market manipulation. This is why absurd constructs such as Bancor have appeared, in order to solve this ridiculous problem.
This doesn’t necessarily mean that Golem and the likes of it will be useless; however, there’s a very real chance that something else eventually comes along and builds a platform where computer resources can be rented in the currency of its users choosing. Such a competing platform, without the friction of being restricted to a specific token, has a very big edge on its ICO-launched competitor. In the end, while it may be true that an ICO could be the thing that gets a project off the ground that wouldn’t have otherwise, it may also be the thing that kills it.
My trading tip this week is to go through your portfolio and evaluate your investments from a token-critical perspective. Get rid of those tokens that add no benefit to the product or service they are providing, and in many cases are a down-right handicap.
What are your thoughts on market manipulation? Let us know in the comment section below!
Images via Shutterstock, Twitter.
Disclaimer: Bitcoin price articles and markets updates are intended for informational purposes only and should not to be considered as trading advice. Neither Bitcoin.com nor the author is responsible for any losses or gains, as the ultimate decision to conduct a trade is made by the reader. Always remember that only those in possession of the private keys are in control of the “money.”
The post Trading Tip `The Wall´ – Drop Tokens That Suffer From Overtokenization appeared first on Bitcoin News.
via Eric Wall
Saturday, February 10, 2018
Trading Tip `the Wall´ – Disappearing Premiums Signal Bearish Mid-Term Outlook
Up until now, bitcoin has largely been behaving as an uncorrelated asset. This got a lot of people excited, categorizing bitcoin as a future digital gold or a safe haven asset. The worst thing about this recent dip in price ($5,873, GDAX) was not the decrease in the price itself. Much more daunting for bitcoin, was that the price dip coincided with the dip of the US stock market.
Also read: Trading Tip `The Wall´ – I Was Wrong
Bitcoin and the Bear Market
This chart shows the Dow Jones Industrial Average overlaying the bitcoin price (red line). A large part of bitcoin’s value proposition to institutional investors is that bitcoin potentially carries low or negative beta. That’s finance speak for an asset having low or an inverse correlation with the market as a whole (e.g. the S&P 500).
Asset managers like assets with low or negative beta. Asset managers’ performance is constantly being measured against the stock market indices. If the assets they manage are correlated, it’s hard for them to outperform the market. That’s why it’s very important for bitcoin to not dip when the stock market does. But it did.
Why?
In December, I wrote the following:
“The perception of bitcoin as an uncorrelated asset may be the most important driver in why Wall Street wants to get in to bitcoin, but ironically, the very fact that Wall Street hasn’t gotten in yet may simultaneously be a key factor in why bitcoin still is an uncorrelated asset in the first place.”
Now let’s plot the beta (in purple) for the time period before and after bitcoin futures trading began on the CME & Cboe.
A beta of 1 means that the asset moves with the market. A beta between 0 and 1 means that the asset moves with the market, but dampened. A beta above 1 means that the asset moves with the market, but amplified. A beta of 0 means that the asset doesn’t move with the market. A negative beta means that the asset moves inversely to the market.
Looking at the graph, beta increased significantly in December, surpassing 2 in February. As a comparison, let’s look at the beta of gold, which rarely ever goes above +0.15.
Is it then safe to say that institutional investors are the reason why bitcoin dipped this week? As compelling as this theory sounds, analysis shows that this is most likely not true. The volumes of CME & Cboe are still too insignificant to move the price of bitcoin. Bitcoin is still an asset mostly held by retail investors.
I would argue that it is much too soon to make conclusions from the data at this point. Focusing on this previous week in particular, we can see that bitcoin had already been crashing for quite some time before the stock market correction occurred, and their dips coinciding could be entirely coincidental.
However, it is still a worrying development, and even if institutional investors probably are not responsible for this, there’s still been a change in demographics of the retail investors. Historically, bitcoin has been an asset mainly held by geeks interested in the technology, with little interest in the stock market. Currently, mainstream investors who speculate on the stock market might also speculate in crypto. When their stocks crash, they may sell the decentralized currency to offset their losses, or to buy the dip of the stocks they understand better and have a firmer belief in.
A second thing that gives a bearish outlook on bitcoin is that the premium of the Bitmex June futures XBTM18 disappeared completely this week. Ever since they were listed, they had been trading at a premium of several hundred dollars, indicating a bullish sentiment among traders. The futures contracts are a less liquid instruments on Bitmex primarily compelling for medium/long-term positions as they have no funding fees (as compared to their primary, perpetual instruments). The disappearance of that premium suggests that traders are no longer bullish on bitcoin in the medium term.
I am not bearish on the digital asset in the medium to long term, but I’d like to point out that while we are experiencing a bounce back to $9,000+, that doesn’t mean we’re out of the woods quite yet. Let’s look at a graph from the bear market of 2014:
In the weeks after the crash from $1,163, after which the longest bear market in bitcoin history would follow, we still experienced bounces. After dropping to $382, the price rebounded to a whopping $995 before continuing on downwards to $185. In today’s terms, that sort of intermittent bounce would translate into a $17k recovery. Naturally, you can’t compare 2014 and 2018, but this at least goes to show that you shouldn’t interpret post-crash volatility as anything more than just that; volatility.
What are your thoughts on market manipulation? Let us know in the comment section below!
Images via Shutterstock, Twitter.
Disclaimer: Bitcoin price articles and markets updates are intended for informational purposes only and should not to be considered as trading advice. Neither Bitcoin.com nor the author is responsible for any losses or gains, as the ultimate decision to conduct a trade is made by the reader. Always remember that only those in possession of the private keys are in control of the “money.”
The post Trading Tip `the Wall´ – Disappearing Premiums Signal Bearish Mid-Term Outlook appeared first on Bitcoin News.
via Eric Wall
Saturday, February 3, 2018
Trading Tip `The Wall´ – I Was Wrong
Last week, I made an analysis of the bitcoin price situation. My analysis noted that while the rumors of Wall Street price manipulation was most likely false, the fear was real. Despite that, the price did not break under $10,000. Because my inclination towards bitcoin is bullish (based on the the positive sentiment around the Lightning Network) my conclusion was that there was a chance that we had bottomed out and would resume a recovery towards $13,000-14,000 in the coming weeks. I was wrong.
Also read: Trading Tip `The Wall´ – Wall Street Price Manipulation? Go Long
I Was Wrong
As you’ve probably noticed, the price dropped as low as $7,540 (GDAX) yesterday. My long position from $11,012 on Bitmex got liquidated.
Long XBTUSD from $11012 on BitMEX.
Timestamp for future reference.
— Eric Wall (@ercwl) January 26, 2018
When I accepted the role as trading tip columnist on Bitcoin.com, I knew that there were going to be times when I would find myself in the situation of being wrong. It is not fun to be wrong, but that is a part of reality.
Here’s the story of how I was wrong
This is the graph I posted in my article on Jan 27. I was expecting a positive breakout from that consolidation period, and entered a long position.
I don’t just draw triangles on charts and expect to be able to predict the future. I paid close attention to this triangle because I noticed that a lot of traders were looking at this particular triangle. When many are observing the same pattern, it triggers a behavior as if the pattern itself really did carry significance.
24 hours later on Jan 28 things were looking good. Breakout.
Later that day, things started turning the other way. I began dreading a fakeout (a thing which happens so commonly that it even has a page on Investopedia).
On Jan 30, the breakout had fully retraced, and we even broke below the lower trend line. We also broke under $10,000. No matter if you cared about TA or not, things looked bearish to most people.
In retrospect, this is where I should have exited my position. Things clearly weren’t going as I had anticipated. But trading is not my full-time job. I work full-time as a cryptocurrency engineer, so this happened while I was at work.
The Tether News
Tether is the Achilles heel of the cryptocurrency market. It is hands-down the most infected story of the year. While I’ll save the my full commentary on the Tether-debacle for another time (spoiler: Ari Paul’s recent tweetstorm mirrors my own thoughts almost exactly), I think it is safe to say that there’s a widespread belief within the cryptocurrency community that Tether might have single-handedly inflated the entire cryptocurrency market during 2017. Anything tangentially negative news-related to Tether is bound to cause a market reaction.
This graph depicts the vertex of the triangle zoomed in.
When I read the news of the subpoena, I did not immediately jump to close my position. The news had caught me without warning, and selling the moment bad news hits the papers is how you end up selling the exact moment when everyone else is selling. My strategy is to buy the exact moment everyone else is selling.
This made the situation complex for several reasons.
- I was already underwater on a long position from $11,012.
- It is a bad time to sell at the publication of worrying headlines before getting the full story. A subpoena in and of itself is a warning sign, but does not inherently mean that there is any real issue. A later clarification may cause the price to recover instantaneously.
- Despite there being a news story in the mainstream media about Tether, the price only dipped to around $9,500. That is not a very significant crash given the circumstances, so not a great time to buy either.
I chose to not exit my position until more information was available. Shortly after Bloomberg published the story, they updated their article to include the crucial piece of information that Tether had been subpoenaed on Dec 6, not last week, which made the story less worrying. That night, Bitfinex’s social account on reddit offered a pretty good explanation on what had happened, connecting the subpoena to the recent Tether hack. It was looking like a recovery was in the cards for bitcoin, but volumes were still very weak. Things were ominous.
The further down we dip from from our December high at $19,891, the more does the 2017 run-up resemble 2013, which was followed by a long bear market. In many people’s minds, the stage is set for yet another bear market to begin.
India banning cryptocurrencies
Then the “India is banning cryptocurrency” story broke loose. India’s finance minister Arun Jaitley made some comments during his budget speech in the Parliament on Feb 1, which Quartz interpreted as “the end of the road for cryptocurrencies in India” and that “the government will do everything to discontinue the use of bitcoin and other virtual currencies in India”.
While this was a misrepresentation of the actual comments (which only mentioned a crackdown on illegitimate activities), this story ended the last hope of a smooth recovery for the bitcoin price. I got liquidated at $8,300.
Looking ahead
I was trading in December 2013 just as I am in December 2017, and I find very few similarities between the outlook for bitcoin in these different time periods. The cryptocurrency space today is orders of magnitudes more mature than 2013. What is making me even more bullish is that mainstream speculators still seem to live under some kind of illusion that bitcoin is built on “stone-age technology that has failed to adapt” and avoid investing in bitcoin for this reason. I remain positive that the positive momentum building up around the Lightning Network can eventually serve to recapture some of that capital.
As for my trading, I mentioned in last week’s post that I had been hoping to get in some long positions in at ~$8k if my position from $11,012 got liquidated. Nothing fundamental has changed since I wrote that, and I remain more confident than ever that we are going to see a recovery to the $13,000-14,000 range, although it may take a bit more time to get there now than before. I’ve opened some larger, low-leverage positions from $8,500 which I am planning to hold long term. If you are planning to do that as well, I recommend the Bitmex futures contracts rather than the perpetual swaps as the futures contracts are completely free from rolling fees, and thus more suitable for long-term positions.
I was wrong. I was forcibly liquidated on BitMEX out of this position.
I have opened a new, long-term long position from ~$8500 on the BitMEX June futures (XBTM18 @ $8899).
Currently writing an article to explain this move, stay tuned. https://t.co/VVIwa7kFJ1
— Eric Wall (@ercwl) February 3, 2018
What are your thoughts on market manipulation? Let us know in the comment section below!
Images via Shutterstock, Twitter.
Disclaimer: Bitcoin price articles and markets updates are intended for informational purposes only and should not to be considered as trading advice. Neither Bitcoin.com nor the author is responsible for any losses or gains, as the ultimate decision to conduct a trade is made by the reader. Always remember that only those in possession of the private keys are in control of the “money.”
The post Trading Tip `The Wall´ – I Was Wrong appeared first on Bitcoin News.
via Eric Wall
Saturday, January 27, 2018
Trading Tip `The Wall´ – Wall Street Price Manipulation? Go Long
Trading is arrogant, be it on Wall Street or across crypto exchanges. In order to trade rather than hodl, you must fundamentally believe you’re smarter, more disciplined or better informed than the other half of the market. Time will tell. But as long as you’re trading, we’ve established that you’re at least more arrogant than the other half of the market. Bitcoin is arrogant. In order to be a bitcoiner, you must fundamentally believe that a bunch of software engineers can create a better form of money than economists, governments and central banks.
Also read: Why Do We Fall, Bruce?
Wall Street Manipulation and Willy Bot
If you are a bitcoin trader (rather than just a hodler) you must be really smart. Or at least you must think you are really smart. A common trait I see in bitcoin traders is that they have theories for everything. They see through it all; the Mt.Gox “Willy bot” bubble, the Chinese wash trading, the Chinese government insider trading, the stop-hunting, Spoofy, Tether & Jamie Dimon trying to buy up cheap bitcoin. The latest conspiracy: Wall Street shorting futures and manipulating spot prices near settlement.
The price of $BTC over the last ten days, with the CBoE and CME futures settlement date/times highlighted. Make of this what you will. #cryptocurrency #bitcoin #futures #therearenoanswers pic.twitter.com/w0DWPmhQDb
— cryptoscopia (@cryptoscopia) January 26, 2018
I’m not saying that these theories aren’t sometimes correct. The Willy bot really did exist, and Chinese volumes dropped 90% after zero fee trading was banned. What’s important is that regardless if they’re correct or not, these theories become significant drivers in the bitcoin price. Many times, they create the price movement they are afraid of, like a Harry Potter boggart. This week, either Wall Street drove spot exchanges prices downwards in an act of manipulation, or it was the traders who thought Wall Street would do that did.
The CME and Cboe are traditional financial marketplaces where institutional traders (“Wall Street”) have been able trade bitcoin futures contracts since December. A futures contract is a contract to trade a certain thing for a certain price at a certain time. The Cboe and the CME futures contracts are cash-settled, so what is traded in practice is the price difference between what one entered the contract at vs. the “real” price at the time of settlement.
The first batch of Cboe bitcoin futures settled on Jan 17. The first batch of CME bitcoin futures settled on Jan 26. Futures contract entry prices are negotiated on the Cboe & CME exchanges themselves, but the “real” price at settlement is determined by the spot exchanges. For Cboe, it’s determined by a Gemini auction, and for CME, it’s a composite of Bitstamp, GDAX, Itbit and Kraken.
What the Market Believes
From the Gemini auction data page we can see that the volume for the particular auction (Jan 17) setting the price for the Cboe futures was ~6.72 million USD.
As a comparison, let’s look at the auction from the previous large dump (22 Dec):
On that day, the volume was only ~1.53 million USD. Even on the most active day of December, the volume was ~3.73 million at most. So why was there such a huge spike in interest on Jan 17?
Could the reason perhaps have been the 1,058 Cboe bitcoin futures contracts (>11 million USD) that were still open on Jan 17?
Personally, I don’t think so. We would have to look at the Cboe cumulative delta for that period to properly gauge how many of those were unhedged short positions, but even if we assume 100% were short positions, 11 million USD still doesn’t sound like enough at stake lot to pull of such a stunt.
The Gemini auction doesn’t exist in a vacuum. If you wanted to artificially push the price down, you would cause an arbitrage opportunity between Gemini and the rest of the world. But for the sake of argument, let’s assume you were able to push the price down on Gemini ~10%, we’re still only talking about 11 million USD worth of contracts open. The heist would have been around 1.1 million USD — or in Wall Street terms, “a penny”, and not a rational amount to engage in market manipulation.
But that aside, the market believes what the market believes. If the market believes bitcoin dumped because of the Cboe futures on Jan 17, the market will believe bitcoin will dump again because of the CME futures on Jan 26.
So, What is Your Trading Tip Exactly?
I believe we are about to break out from an extended period of consolidation. I’ve been hoping to get in some long positions from ~$8k, but it appears to me that we would have gotten there thanks to the CME futures FUD if $8k was really going to happen. As the market runs out of paranoia, I expect us to start a Lightning Network-positivity-fueled recovery to ~$13000-14000 in the coming weeks.
I’m opening a medium-sized long position (saving some of my trading balance in case we do get a chance at ~$8k). As usual, I timestamp my trades on Twitter for transparency so there can be no post-editing until this article is processed by Bitcoin.com.
Long XBTUSD from $11012 on BitMEX.
Timestamp for future reference.
— Eric Wall (@ercwl) January 26, 2018
As a final note, I find it a bit ironic that the category of people who are most determined that the market is rigged is the same category of people who are most actively trading it. I think of it as the sailor superstitions of the crypto seas.
What are your thoughts on market manipulation? Let us know in the comment section below!
Images via Shutterstock, Twitter.
Disclaimer: Bitcoin price articles and markets updates are intended for informational purposes only and should not to be considered as trading advice. Neither Bitcoin.com nor the author is responsible for any losses or gains, as the ultimate decision to conduct a trade is made by the reader. Always remember that only those in possession of the private keys are in control of the “money.”
The post Trading Tip `The Wall´ – Wall Street Price Manipulation? Go Long appeared first on Bitcoin News.
via Eric Wall
Saturday, January 20, 2018
Trading Tip `The Wall´ – Why Do We Fall, Bruce?
This week, the price of bitcoin reached a low-point of -53% from its December high. A few weeks ago, I wrote about the Death of the “Get in before Wall Street!”-meme and why it made sense to Short the Great Bitcoin Bull. My viewpoint remains unchanged in that I’m still confident that the CME bitcoin futures listing was a core ingredient causing the bull run up to $19,891, as well as the recent fall down to $9,017 (Gdax). In this post, we’ll take a look at the stats from the bloodbath’s aftermath.
Also read: Trade Like You’re John McAfee
The Great Fall and Futures
This diagram shows the CME bitcoin futures trading volumes for the first month since their listing. During this month, 27,390 contracts were traded, which accounted for positions totaling 136,950 BTC (5 BTC per contract).
Upon CME entering the market, it was speculated that Wall Street would take charge over the price discovery of bitcoin. The futures market (CME) and the spot exchanges (e.g. Gdax, Bitstamp, Bitfinex) are indeed interconnected through the actions of arbitrageurs and market makers, so there is no flaw in that thinking. But at 136,950 BTC per month, the CME volumes are currently too low to have any noticeable impact on the market on their own accord. As a comparison, this Wednesday alone 128,631 BTC was traded on Bitfinex.
There however a certain signal value to the CME market action which may influence traders other ways. The clearest example of such a thing I’ve seen was during the initial hours of the Cboe bitcoin futures launch on Dec 10, where Cboe completely dominated the price direction even on minuscule volumes. The CME and Cboe are potential avenues for institutional traders. As such, other traders might assume that CME and Cboe traders have access to better information; that they are “in the know”, so to speak.
If you wanted to capture what the signal was from the CME during the days leading up to our recent Jan 17 $9,017 low, you would have needed to gauge whether the CME bitcoin futures traders were mostly entering short or long positions. To some people, this task is confusing since every futures contract has both a short and a long side, so no matter how many contracts are traded, the net difference will always be zero. But that thinking fails to encompass the fact that a trade is the match between two different types of orders; a market and a limit order. The limit order is placed by a person (often a market maker) who enters a price where he’s willing to buy (long) or sell (short) at. At that point that’s just an order; it doesn’t cause a trade to happen yet. The trade happens on the market order; a person hitting the “buy now”/”sell now” buttons that consumes the closest limit order in the order book. If we then compare the net difference between the different (buy/sell) market orders placed in a certain interval, we can then gauge where the price pressure actually came from.
In the lower part of this image, we see the cumulative delta of the January CME bitcoin futures (big thanks to SpeculatorSeth for helping me pull this graph together). It tracks exactly what I described earlier; the difference between market order short/longs. As we can see in this graph (click here to expand image) there was an unusual increase in short positions around January 11.
At the same time, the price was just bouncing around in the 12800-14200 range. Since the cumulative delta went negative while the price was more or less flat, that means the CME traders were to an extent betting on the crash to happen while the rest of the market didn’t. Thus, the signal you would have gotten from CME on January 11 would have been to sell.
Did CME cause the crash?
Probably not. We’re still in the Gangnam Style Era of Crypto and mainstream investors are the ones moving the market, not the ones at the CME. And most mainstream traders aren’t basing their trades at the CME bitcoin futures cumulative delta. I contend we’re going down because of increased regulatory concerns coming from South Korea and China, and because we went up too much in over-anticipation of the futures launch, i.e. this is a correction, not a crash. The CME futures traders were just right in betting that this would happen.
What should you during a crash?
In a previous post I detailed The Art of Dip-Buying. An alternative to buying the dip is converting BTC into altcoins during crashes. Big apartments’ prices are less liquid than small apartments, therefore big apartments’ prices fall more relative to small apartments in the event of a real estate price collapse. Thus, it can make sense to trade your smaller apartment for a bigger one during a dip. Altcoins and bitcoins behave the same way. Altcoins are less liquid and collapse much more drastically than bitcoin. Between 15-17 Jan, the bitcoin price fell -37% (Gdax), but the price of Cardano fell -55% (Upbit) in the same time span. If you stayed in bitcoin from the moment of the dip, your fiat value would have moved up +25%, while a move over to Cardano would have moved you up +32%.
What are your thoughts about why the market dumped? Let us know in the comment section below!
Images via Shutterstock.
Disclaimer: Bitcoin price articles and markets updates are intended for informational purposes only and should not to be considered as trading advice. Neither Bitcoin.com nor the author is responsible for any losses or gains, as the ultimate decision to conduct a trade is made by the reader. Always remember that only those in possession of the private keys are in control of the “money.”
The post Trading Tip `The Wall´ – Why Do We Fall, Bruce? appeared first on Bitcoin News.
via Eric Wall
Sunday, January 14, 2018
Saturday, January 6, 2018
Trading Tip `The Wall´ – Did Ripple Almost Dethrone Bitcoin “Using This One Simple Trick”?
2017 was the year cryptocurrency speculation went mainstream, which is something many bitcoiners have been yearning to happen for years. But going mainstream means that the market is no longer dominated by cryptocurrency enthusiasts, and until Wall Street steps in, we’re simply going to have to accept that mainstream speculators with little knowledge of cryptocurrencies are in charge of the market.
Also read: Absurd Profits from Zclassic a.k.a. Bitcoin Private
A Wall Between Investor and the Unimaginably Stupid
If you’re a cryptocurrency old-timer, things that annoy you will become popular for reasons that seem unimaginably stupid. If you were a musician in 2012 and competing for the #1 spot on YouTube, it didn’t matter if you were the best singer in the world if your competition was “Oppa Gangnam Style”. In the same way, it won’t matter if your cryptocurrency is the most sophisticated and decentralized in the world, if the market doesn’t value those characteristics.
The “Gangnam Style” Era of Crypto
To explain what I mean, I’ve analyzed the percentage gains of each of the top 27 coins by market cap since 2017. One thing that is clear to me is that the cryptocurrency characteristic the market favored more than anything else in 2017 was not so much decentralization, technological soundness or real world usage, but rather the dollar digit bracket the coin belonged to; in this case, sub-cent unit prices.
Of course, the unit price of a coin is a totally senseless basis for making investment choices on. Any cryptocurrency–even Bitcoin–could have been a sub-cent item, if Satoshi chose the final cap to be 21 quadrillion instead of 21 million. In that case, the unit price of a bitcoin (price per each whole bitcoin) would be $0.00001697 right now instead of $16,790 but the total market cap would still have been $284 billion. Everything would be the same, except that everyone would have a million times more bitcoin–and the unit price would be cheaper.
Since bitcoins (as well as many other cryptocurrencies) are divisible down to 10^8 satoshis (smaller units), it doesn’t really matter what the supply is, as long as there’s enough “particles” of the currency to go around for the economic use cases imagined to function properly. The number itself is not important. But it does directly effect the unit prices, which apparently has an enormous impact of the investment choices of mainstream investors. As stupid as it may seem, I contend that apart from what’s outlined in this great summary, the perceived “cheapness” of Ripple’s XRP (100 billion supply) is one of the reasons why it overtook Bitcoin as the largest cryptocurrency in the world by implied market cap this week.
Ripple $XRP last night overtook Bitcoin $BTC as the largest cryptocurrency by fully diluted market cap. Further to my tweet a few weeks ago – I'd be very cautious in the space. #dashfortrash http://pic.twitter.com/qbIorRfMES
— Leon Warburton (@Leon_Warburton) January 4, 2018
The reason why we look at market caps when we compare coins is because that’s how we compare the values of a cryptocurrency as a whole rather than just looking at the unit prices, which we know, as illustrated before, to be completely arbitrary and therefore not a good measure of anything. To visualize this is in the clearest way possible, we can normalize the supply for different altcoins to see what the prices really would look like if they all had the same supply. This is how they would compare (as of 5 Jan 2017):
In these tables, I’m using the “fully diluted market cap” (max supply) as a basis for the normalization. The currencies for which the max supply is unknown such as Ethereum, I’ve used the Y2050 estimations given by Onchainfx(*). The calculation I’ve used for the normalization table is as follows:
Altcoin price x Altcoin max cap / 21M
And the bitcoin equivalent altcoin holding amounts:
Altcoin max cap / 21M
I recommend always doing this when trying to gauge the relative value of a coin to bitcoin for long-term investments. In my opinion, it’s better than looking at unit prices or market caps based on circulating supply, because it’s the only way to correctly assess the actual valuation you’re giving a coin when buying.
I think the easiest way to understand what I mean is by looking at Zcash as an example.
Zcash’s supply when all coins are mined will be the same as bitcoin, 21 million, but currently, there’s only ~3 million mined (circulating supply). As such, when you’re looking at sites like Coinmarketcap, it will tell you that Zcash has a market cap of just $1.7 billion. That’s just 0.6% of bitcoins market cap and places Zcash far down the list, at #27 where it looks small and leaves much room for growth.
But the price of Zcash is $589 which is actually 3.5% of bitcoin’s $16,790. If you’re buying with bitcoin, that means you have to pay 0.035 bitcoin to buy Zcash. Another thing you have to factor in when buying Zcash at $589 is that in order for Zcash to actually keep that price over time, Zcash must amass a market cap of $12bn, climbing to what’s currently the 12th spot on Coinmarketcap. And even if Zcash were to somehow do that, you would still only break even on your investment–because you bought it at a price ($589) that implied a valuation of $12bn. That’s the reason why the Onchainfx site is listing the coins the way they are–because it tells us what the implied valuation are for coins when bought at current prices.
Unfortunately, using the slightly deceitful metric “circulating supply” seems to be the norm when comparing valuations in the crypto-space. In a recent example, the Twitter-user @boxmining shared a tweet where he showed a similar supply-normalized valuation as mine but based off of circulating supply:
Removing Unit Bias. If everything had the same supply cap as Bitcoin, would you still buy it? http://pic.twitter.com/0xrDiytPzR
— boxmining (@boxmining) January 5, 2018
With this tweet he got the key message across – at the time, the implied valuation of XRP valued it above bitcoin. But if we look carefully, we’ll see Zcash at #28 on that list, with the deceitful price tag of $105, implying that the relative price of Zcash to Bitcoin is 0.6%, when as we know in reality, you have to pay 0.035 bitcoins (3.5% for a Zcash).
The point I want to make is that you can get far in your ambitions to become a more informed trader than most people in the market just by using common sense and a calculator. But being able to properly compare coin valuations doesn’t matter if nobody else is doing it — at least not in the short term. It can take a long time before the market fundamentals eventually force these prices to sort themselves out. And until they do, I recommend you do your diligence to make sure you’re on the right side of that correction.
(*) For Qtum, Onchainfx estimates the Y2050 supply to be 100 billion, which is erroneous. Speaking to one of the Qtum developers, David Jaenson, I confirmed this number to instead be 107822406.25.
What do you think about the cryptocurrency valuations? Let us know in the comment section below!
Images via Shutterstock
Disclaimer: Bitcoin price articles and markets updates are intended for informational purposes only and should not to be considered as trading advice. Neither Bitcoin.com nor the author is responsible for any losses or gains, as the ultimate decision to conduct a trade is made by the reader. Always remember that only those in possession of the private keys are in control of the “money.”
The post Trading Tip `The Wall´ – Did Ripple Almost Dethrone Bitcoin “Using This One Simple Trick”? appeared first on Bitcoin News.
via Eric Wall
Saturday, December 30, 2017
Trading Tip `The Wall´ – Absurd Profits from Zclassic a.k.a. Bitcoin Private
In just 3 months, the price of Zclassic (ZCL) has increased by +5,768%. In this post, I’ll give some background to what Zclassic is and try to explain what is going on with it.
Also read: The Art of Buying the Dip
A Quick History Lesson on Zclassic
Zcash (ZEC) is a privacy-centric cryptocurrency that launched Oct 28, 2016. It put cutting-edge cryptographic research in non-interactive zero-knowledge proofs (zk-SNARKs) into practice, allowing users to make transactions concealing both the sender and receiver of a transaction, as well as the amount being sent. The cryptography itself provides possibly the strongest privacy guarantees of any cryptocurrency, but part of the integrity of the protocol (specifically, preventing counterfeit coins from being issued) relies on a process known as trusted setup. Zcash launched with a founder’s reward, which for the first 4 years subtracts 20% of every block reward and distributes it to stakeholders of the Zcash Company to guarantee maintenance and development of the protocol. Zcash is an open-source project based on the Bitcoin codebase.
Since Zcash is an open-source project, there’s nothing to stop anyone from simply copying the codebase and removing the 20% founder’s fee if they wanted. That is exactly what happened, and that fork now goes by the name of Zclassic, which launched only a week after Zcash, reusing the same parameters from the trusted setup. Up until August 24 this year, Zclassic devs have been merging code updates from Zcash and issuing new releases in parallel. Since then, development on the Zclassic branch appears to have stagnated. Currently, I’m not even able to find a working block explorer for Zclassic. On Dec 14, the developer of Zclassic, Rhett Creighton proposed a relaunch and rebranding of Zclassic into “Bitcoin Private”, as a means of “revitalizing” the coin.
I would like to propose revitalizing @ZclassicCoin by migrating it to become a Bitcoin Hardfork, "Bitcoin Private" (or possibly other name).
New coinbase inputs would be airdropped onto the blockchain as a hardfork. What do you think? Should we add "Bitcoin Private" to the mix? http://pic.twitter.com/xOAKjCzzFk
— Rhett Creighton (@HeyRhett) December 14, 2017
This announcement caused the price to surge +2,000% in only a matter of days.
Why is this happening?
Bitcoin hard forks have become somewhat of a trend in recent months, with the first successful one being Bitcoin Cash. At the time, it was joked within the community that soon Bitcoin hard forks would cover the entire Coinmarketcap-spectrum.
@CoinMKTCap soon #bitcoin #BitcoinFork #BitcoinCash #bitcoincore #CryptoCurrencies http://pic.twitter.com/sjJ3ANiLM3
— ClubCrypto (@ClubCryptoorg) August 2, 2017
The joke has turned prophetic in the sense that 3 of the top 13 cryptocurrency positions by market capitalization are now held by Bitcoin or Bitcoin hard forks (Bitcoin, Bitcoin Cash & Bitcoin Gold). One could argue that Bitcoin Diamond (BCD) should make the 11th spot if Coinmarketcap had info on the total supply (which should be around ~167M), as 10 BCD are supposedly credited for every 1 BTC as their website claims.
What does it mean for an altcoin to become a Bitcoin hard fork?
The Zlassic and Bitcoin UTXO sets will merge, creating a total of 1.8M + 16.7M = 18.5M Bitcoin Private coins upon launch. Inflation schedule will be revised so 21M cap is still kept intact.
What “Bitcoin Private” essentially will be is a coin that borrows the name and UTXO set from Bitcoin (and Zclassic) and technology from Zcash. I contend that the rebranding from Zclassic to Bitcoin Private is a stroke of genius from Rhett Creighton’s side as it is going to make traders value Zclassic in relative terms to other Bitcoin hard forks such as Bitcoin Gold and Bitcoin Diamond. It is the cryptocurrency-equivalent of putting the word “blockchain” in your company name and seeing your stock soar 394%.
The great thing for Bitcoin Private is that Bitcoin Gold and Bitcoin Diamond are both ridiculous projects. I’ve written a piece on Bitcoin Gold previously which you can read here.
Bitcoin Gold: $269
Bitcoin Diamond: $31.6 ($316 when adjusted to equal supply)
Bitcoin Diamond’s valuation is even more absurd, since it is traded at a valuation which would place it at the ~11th spot among cryptocurrencies worldwide right now even though background research suggests that the project may be entirely fraudulent. That didn’t prevent the valuation from reaching that high before any source code for it even existed. My theory as to why Bitcoin Diamond is trading at such a high valuation is that there’s always going to be a handful of traders that either are trading by the greater fool theory or are entirely oblivious to fundamentals when valuating Bitcoin hard forks (i.e. not understanding that the tenfold increase in supply means $31.6 per coin is actually equivalent to $316). The price of these forks is simply determined by the size of the group of irrational buyers and the free float of the coin, which for both Bitcoin Gold and Bitcoin Diamond is deceivingly small.
Meanwhile, the free float of Zclassic (ZLC) is even smaller than that of Bitcoin Gold or Bitcoin Diamond. Merely 1.8M ZLC has been mined since Nov 2016. As Zclassic essentially becomes “Bitcoin Private futures” they’ll be exposed to the same group of irrational buyers, and prices beyond $400 per ZLC all of a sudden doesn’t seem that unthinkable (currently trading at $80). What’s funny is that buying Bitcoin Private doesn’t even have to be such an irrational idea. Fungibility is one of the most sought-after additions to Bitcoin, and zk-SNARKs do provide a solution to that problem. The relaunch will increase the coin’s network effect tremendously, forcing wallet support as well as listings on a multitude of exchanges. The only thing that is ridiculous about Bitcoin Private is the notion that an altcoin can fork into becoming a “Bitcoin hard fork” just by merging words.
What do you think the next coin adding the Bitcoin UTXO set and rebranding will be? Let us know in the comment section below!
Images via Shutterstock
Disclaimer: Bitcoin price articles and markets updates are intended for informational purposes only and should not to be considered as trading advice. Neither Bitcoin.com nor the author is responsible for any losses or gains, as the ultimate decision to conduct a trade is made by the reader. Always remember that only those in possession of the private keys are in control of the “money.”
The post Trading Tip `The Wall´ – Absurd Profits from Zclassic a.k.a. Bitcoin Private appeared first on Bitcoin News.
via Eric Wall
Saturday, December 23, 2017
Trading Column `The Writing on the Wall´ – The Art of Buying the Dip
While I’m writing this article, the bitcoin price is crashing, but by the time you read this, it’s entirely possible that it already recovered to some extent. If you didn’t buy the dip, this article is for you.
The Why
GDAX BTCUSD trading volume 18-22 Dec 2017: 236,880 BTC
CME Bitcoin Futures trading volume 18-22 Dec 2017: 6236 = 31,180 BTC
Both the CBOE and the CME launched bitcoin futures during the past two weeks, which have been trading at unsurprisingly low initial volumes. My theory for this particular dip, as I’ve detailed in several previous posts, is that owing to the futures launch, there is no longer any investable allure of “getting in before Wall Street” anymore. However, I’m still bullish on bitcoin long-term. As for the CBOE and CME futures, there’s still plenty of time to get in before the accessibility of these instruments improves. As such, this dip presents an excellent opportunity to engage oneself in what has all but turned into a mantra in the bitcoin trading class of 2017; buy the dip.
Bitcoin has "crashed" 30% SIX TIMES in 2017. Each "crash" has been followed by an increase of: 76%, 237%, 183%, 165%, 152%. Bitcoin takes 7 steps forward, 2 steps back, 7 steps forward, 2 steps back. Every 2 steps back is heralded as the end of #bitcoin. Relax! http://pic.twitter.com/bV5ZFeucTp
— Robert Reid (@robertreidmd) December 22, 2017
The How
One thing I struggled with as a novice trader buying my first dips was the fact that I didn’t always have fiat on exchanges to buy the dip with. Many times, I was already in BTC, and if I were to wire more fiat to the exchanges, the dip would oftentimes already have disappeared before the transfer completed. That meant that to buy the dip, I would also have to somehow succeed at selling the top. That was until I learned that you could buy the dip with the BTC you already have, using leverage on derivatives exchanges or exchanges that provide margin trading. For this article, I’ll write from the perspective of BitMEX trading, as this is the exchange which I am currently conducting my dip-buying activities on.
Here are the things you’ll need to be a successful BitMEX dip-buyer:
- A BitMEX account funded with a portion of your BTC
- Basic knowledge of the BitMEX platform
- A plan
- Good nerves
- Discipline
A BitMEX account funded with a portion of your BTC
One of the best things with high-leverage exchanges is that you can enter very large positions using only a small portion of your stash. This means you’ll be exposed to a much smaller custodial risk compared to when you’re trading on spot exchanges. Personally, I keep 90% of my BTC in cold storage and 10% on BitMEX solely for dip-buying purposes.
Basic knowledge of the BitMEX platform
The best way to get started with BitMEX is to use the BitMEX testnet. This allows you to trade with some fake bitcoin to get a feeling of how to use the interface and how the different order types work.
Before you start trading with real, large amounts I recommend that you read the info pages carefully and make sure you can explain what the following means: automatic liquidation, auto-deleveraging, difference between entry price and mark price, the BitMEX swap funding model and what the meaning of “inverse” is in “XBTUSD inverse perpetual swap”.
A plan, good nerves, discipline
Everyone who is not trading is a good trader. It’s very easy to look at the charts and imagine when you would have bought and when you would have sold. It’s much harder when it’s real. The best way to handle that is to have a plan that you simply follow. You should have an idea of the price you want to buy in at and the price you want to close your position at; both a price you’ll take profit at, and a price you’ll cut your losses at.
As you hone your dip-buying abilities, you’ll notice that your performance correlates with your ability to not get caught up in the heat of the moment while executing your strategy.
The When
Some people believe that the fastest price movement in bitcoin is when it crashes. There’s even a saying: “Bitcoin takes the stairs up and the elevator down”. But there is one movement that is faster than the crash, and that is the bounce. In moments of true desperation, the price can fall thousands of dollars over the course of minutes. But on the bounce the order book is cleared out, so the price can jump back the same amount in a matter of seconds. That is why when you buy the dip, you do it on the way down, not on the way up.
This means that you have to make a guess at where you think the bottom is. Here’s a selection of tools bitcoin traders commonly use to guess bottoms:
- Technical analysis (TA) indicators such as RSI and MACD
- TA patterns such as inverse H&S, double/triple bottoms
- Fibonacci lines
- Trend lines
- Previous support levels
A few years ago, I backtested every TA indicator I could think of without finding very convincing results. I use a different strategy which is completely unscientific, but seems to work well for me. Here’s what I do:
Seeing as hodling is a perfectly fine strategy for bitcoin speculation, there is really no need to buy the dip unless the dip is too good to pass up. Therefore, I only buy dips if I think the price drop is really exaggerated. So I imagine a price point which would feel really brutal, wiping out several weeks or months of gains, and then some.
The second thing I do is watch the price drop in real time. During a crash, there’s going to be a point when there’ll be a red candle on the 5-minute chart that just keeps growing and growing. On BitMEX, you’ll see red numbers in the order book showing up; these are other traders’ automatic liquidations being triggered. I’ll also take a look into chat rooms and trading subreddits and make sure that everyone is talking about the crash. Lastly, I’ll monitor the notifications on my phone and wait for my brother to ask me if bitcoin is dying and if he should sell. At the point of maximum pain and desperation – that’s when I buy the dip.
Sizing: I usually use 10x leverage on BitMEX, which gives me headroom for another 10% price decrease after I’ve bought before I get automatically liquidated myself. I do not enter with my whole trading balance at once. I usually enter with 20-25% initially and keep increasing as we go down, depending on how intense the desperation feels.
Warning: The last few weeks the BitMEX trading engine hasn’t been able to cope with the trading volumes and will sometimes not accept orders during critical moments.
Do you agree buying the dip is a succesful trading strategy? Let us know in the comments below.
Images via Shutterstock
Disclaimer: Bitcoin price articles and markets updates are intended for informational purposes only and should not to be considered as trading advice. Neither Bitcoin.com nor the author is responsible for any losses or gains, as the ultimate decision to conduct a trade is made by the reader. Always remember that only those in possession of the private keys are in control of the “money.”
The post Trading Column `The Writing on the Wall´ – The Art of Buying the Dip appeared first on Bitcoin News.
via Eric Wall