Aug 122018
 

This is a guest post by Mike McCormick

Investors venturing into cryptocurrencies are currently facing a significantly volatile market. The crypto trading market, which includes Bitcoin among other coins, almost crumbled on June 22 when most coin prices dropped by up to 10% after two exchanges in Japan were hacked within 11 days.

Losses in billions of dollars are not quite uncommon in the cryptocurrency market cap. In December of 2017, Bitcoin hit a high of $20,000 only to drop to $8,500 by mid-March 2018. Cryptocurrencies have seen significant losses mainly due to hacker activities and other security concerns. Investors seeking to dip their feet in Bitcoin and other cryptocurrencies including Ethereum, Ripple, Litecoin, Monero, should have a good understanding of the volatile nature of the crypto market and how to manage this volatility.

If you trade in crypto coins, expect volatility, in fact lots of it. For instance, while a 5% movement in a single day in other traditional equities such as stocks is quite a big deal, a 20% movement in the cryptocurrency market in a day is practically normal. That’s the nature of cryptocurrency trading. You can check the exact price of different coins at different times or days in a good online cryptocurrency converter to understand the volatile nature of this market. Keep in mind that blockchain technology is still at an experimental stage so the possibility of a digital asset rising or dropping value considerably should not come as a surprise.

Understanding Cryptocurrency Volatility

Volatility is one of the most common measures of investment risk. It is basically a dispersion of both upside and downside return of an investment. Without going into more complicated mathematical equations involving daily standard deviations and square roots, let’s just say that the higher the volatility, the higher the potential to make gains or losses in a trade. Most cryptocurrencies including Bitcoin have a volatility of 100%, some as high as 200% or more. The risk of high volatility can be beneficial in determining the success or failure of your cryptocurrency trades.

When you’re analyzing the expected direction of conventional assets such as ETFs and stocks, you can always rely on technical analysis and past behavior to base your decision on. However, technical analysis functions are somehow limited when it comes to cryptocurrencies. Fluctuating prices of Bitcoin this year so far have proven that the cryptocurrency market does not behave in a predictable logical manner. So how does an investor manage market volatility when dealing in Bitcoin and other cryptocurrencies?

Here are a few tips and insights to guide help you manage volatility:

Do Your Due Diligence Before Investing

While analyzing cryptocurrencies, you won’t find as much fundamental key selling points in websites, whitepapers, and other publications. The direction and momentum of the market are influenced by FUD and FOMO sentiments. FUD refers to the spread of Fear, Uncertainty, and Doubt (FUD) mostly through the media while FOMO is basically Fear of Missing Out on a lucrative deal. These are fear-based factors that should not be your friend in cryptocurrency trading. Given the significant influence of FOMO and FUD sentiments, market analysis in cryptocurrency trading is only meant to give you a basic idea of the direction and momentum of different coins so you don’t dive into the market blindly like a headless chicken.

It is therefore important to conduct your due diligence beyond the current hype on cryptocurrencies to make sound investment decisions. With due diligence, you’ll know if a coin has viable functionalities, usage, and demand to justify its survival on the market. You’ll also understand the reasons for its current volatility and whether or not it has long-term prospects.

Make Good Use of Stop Loss Orders

A stop-loss order is a setting found in some trading exchanges or platforms such as Coinbase. The setting tells the exchange to sell a pre-set maximum amount of Bitcoin from your account when the price reaches a specific level. You only need to specify the price level and amount of Bitcoin to sell from your account then activate the setting. The downside of stop-loss orders is that you will miss out on profits when the price rises again. However, it protects you from significant losses when prices fluctuate drastically.

Holding For Long-Term Benefits

If you are in the cryptocurrency market for the long haul, the daily price movements should not be a cause for concern or alarm. You’ll be able to easily check the upward or downward movement and make the right decisions along the way. For example, you could see a gradual upward movement in the past three months despite the prices looking shaky every day. You’ll be able to comfortably judge the trend according to a long-term analysis, unlike the trader who is constantly worried by fluctuating daily movements.

Use the Available Tools              

There are many traders who base their decisions on gut feelings and later wonder why things didn’t go their way despite their best efforts to judge the market. You can easily get the guesswork out of your trading activities by taking advantage of the available tools. The tools help you to make data-based decisions and even measure the performance of each decision you make. Use tools to set the limit of orders to minimize losses or even get a notification on your mobile phone when a given cryptocurrency goes higher or lower than your pre-set price threshold.

Conclusion

Volatility is inescapable in cryptocurrency markets. It is the nature of the beast. You can capitalize on volatility to make successful trades if you stay on top of the game. Avoid greed, the number one cause for failed cryptocurrency failures. The market is extremely fast paced where the price of a coin can go as high as 5 to 10 times in a few hours then drop considerably. It’s quite easy to get caught in a high-chase and end up making impulsive decisions in search of a high payout. Don’t forget that a quick reversal trend that could lead to outsized losses is possible as well. The important thing in managing volatility is to understand your risk appetite and manage it by treading the waters with caution.

Mike McCormick is the founder of CoinChiefs. He studies Business and Economic Reporting at New York University. He has a very good experience in crypto mining and loves to analyze anything crypto-related which makes him sit up and pay attention.

Photo Credit: CreditDebitPro

Jan 242015
 

 

Wood Wallet Bitsquare

Bitsquare, the decentralized Bitcoin exchange platform (fully peer-to-peer Bitcoin exchange handling BTC/USD), has announced that it will raise money through a crowdfunding model, wishing to raise 120 BTC. This is being done, aptly, through the decentralized crowdfunding application called Lighthouse, created by Mike Hearn. It fits well with Bitsquare’s motto of decentralization. Lighthouse uses an assurance contract built into the Bitcoin blockchain, which means Bitsquare will need to reach 120 BTC by the deadline, February 9th 2014. If it fails to reach this goal, Bitsquare will not get any money (all or none model).

To donate to Bitsquare for this crowdfunding round, check this page out for more details. If you don’t want to be bothered and just want to make a regular donation (not part of the crowdfunding effort), check this page out.

Personally, I am not so sure an assurance contract is the right way for them to raise money, since they could use any amount of money, even if it doesn’t reach 120 BTC, but that’s just me. Clearly, the talented team behind Bitsquare sees the benefits.

Bitsquare is also trying to be transparent with their development goals along with this funding round, with the delivery of their v0.2 version software slated for mid-April.

Wood Wallets for >1BTC Donations

Wood wallets are being shipped to all donations that are more than 1 BTC in value. Obviously, it goes without saying that the primary purpose of your donation should be to support the development of the first real decentralized Bitcoin exchange, as opposed to getting a wood wallet for $250. However, it’s a nice touch in any case. Do also be aware that if you end up choosing this option, you will have to give your email address and then the shipping address to the Bitsquare team. Otherwise, donations in general don’t require personal identification information. The wood wallets are certainly beautiful though.

Using Lighthouse

Lighthouse has been an incredible project that uses the Bitcoin blockchain for crowdfunding anything. There are no new coins, no new languages and nothing funky – just plain old Bitcoin contracts to the rescue. It is decentralized and without a central pivot holding the projects. Everything is laid out as rules – for example, you can withdraw a ‘pledge’ whenever you want before a funding goal is reached, without needing to get permission from the project owner or any central administrative system. There is a lot of potential for Lighthouse going forward.

Bitsquare and Lighthouse both tackle important issues of decentralization, and it is only fitting that Bitsquare ends up using Lighthouse for their crowdfunding.

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Jan 052015
 

Decentralized Bitcoin Exchanges

With the ongoing Bitstamp saga, where hackers seem to have taken off with a sizable portion of the exchange/consumer funds, the debate is back to the question of how safe centralized exchanges are. After all, you’re trusting your Bitcoins to a third-party that is now in full control of your Bitcoin (and just issues you an IOU). Single points of failure are scary, irrespective of how noble the intentions and how competent the people running the system. It’s likely that Bitstamp customers will not see a loss of funds. However, this brings us back to the question of what the best ways to trade Bitcoin are, without entrusting your private keys to a third-party.

Unfortunately, centralized exchanges are very efficient and easy (relatively) to implement, so the alternatives will always seem to lack something. However, some of you might prefer these alternate routes.

LocalBitcoins: This is perhaps the best and easiest way to get around the problem of central Bitcoin exchanges. Local Bitcoins has grown by leaps and bounds and there are thousands of listings especially in major cities where you can buy and sell Bitcoins. The trades are completed relatively quickly and the persons interact with each other in-person while handling cash and Bitcoin, so the risk is minimal at best. This options depends on your geography of course. If you’re in San Francisco or New York, it’s relatively easy to find people willing to trade here. If you’re in different smaller town in a developing country, it might be much harder.

Bitshares (BitBTC): There are several ideas floating in the cryptocurrency space dealing with making a fiat equivalent of a crypto, but Bitshares seems to be the most promising and has taken the lead in creating a system without counterparty risk. To be sure, Bitshares isn’t a true currency exchange (in that there is no real transfer of Bitcoin or fiat between parties) but instead more akin to a CFD (Contract For Difference) which tracks the price of the underlying (Bitcoin and USD or EUR) through a mixture of market incentives and price feeds. It is still possible to speculate on the currency pair BitBTC/BitUSD which tracks the price of BTC/USD. The main disadvantage is that there is low liquidity in the system right now, but should be improved as more people enter the system. Of course, there is also a high amount of systemic risk inherent to such a new idea, although there isn’t any counterparty risk since all ‘BitAssets’ like BitBTC and BitUSD are fully collateralized up to 150% through Bitshares (BTS), the native currency of the system. One additional advantage of the Bitshares system is that it is possible to short BitBTC, which should track the equivalent of shorting BTC.

Trading Events: Trading events are actually a fun way to meet more Bitcoin enthusiasts, swap stories and trade in-person. There is no centralized exchange, and the transfers happen peer-to-peer. One person hands over cash, the other person transfers Bitcoins directly to the trader’s wallet. No counterparty risk. One example is the New York Bitcoin Center in New York City, right next to the New York Stock Exchange that holds trading events quite often. Of course, the limitation is geography – where you live might not have these types of events.

Decentralized Exchanges: There are several ideas of decentralized Bitcoin exchanges, and some of them seem promising. It is hard to say how successful they will be though. BitSquare is one of the projects that has a working wallet and is currently testing things on the Bitcoin test network. The system is decentralized and if you want to learn more, you should read their whitepaper. Open Bazaar is another project that is coming along nicely, and although it is a marketplace for things, paid for in Bitcoin, there is no reason why it cannot be used to buy fiat currency instead of iPads. The built-in reputation system and dispute handling should be valuable.

Photo Credit: Flickr

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