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COMMODITIES CORNER

Trading Cryptocurrencies Two Sides of the Coin

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n 2017 the talk of the town was cryptocurrencies and Bitcoin. Unless you’ve spent the last year on a deserted island, it’s hard not to hear about crytpocurrencies also known as cryptos. These terms found their way into our daily lexicon. This article is not intended to endorse cryptocurrencies, but to discuss what is occurring in the industry. Bitcoin was the first and most successful (to date) cryptocurrency. Some investors may be familiar with a few cryptos such as Ethereum, Ripple or Litecoin. However, would you be surprised to know there are over 1,000 cryptocurrencies? In September 2017, the list of cryptos trading just barely reached 1,000. As of this writing there are a little over 1,500 cryptos. Roughly 1/3 of the currently trading cryptos have been issued since September 2017. First, a little history on cryptos. Bitcoin was created by a person or group in 2008 under the name Satoshi Nakamoto and utilizes blockchain technology. Nakamoto (2008) discussed a peer-to-peer payment system circumventing the use of a financial intermediary by utilizing cryptography technology to verify the transactions. Bitcoin began in 2009. Cryptos are a decentralized currency, meaning no country controls it. Cryptos do not have a legal tender status in most, if not all countries. It utilizes peer-to-peer transactions because the transactions occur between two parties. Currently

n BY MARK SHORE, MBA

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MicroCap Review Magazine

there are an estimated 16.9 million in circulation and a known maximum of 21 million to be circulated approximately the year 2140. It has an estimated market cap of 41.9% ($276.13 billion) of the cryptocurrency market’s $442.3 billion. The second largest market cap is Ethereum with about 18.5%. Followed by Bitcoin Cash at 4.7%. The top 10 cryptos equate to roughly 83% of the market cap. February 20th, Venezuela launched a sovereign backed crypto called petro, backed by oil. However, Dubai released the first sovereign backed crypto last October. Cambodia, Iran and Turkey are each discussing possible digital currencies. Russia and the UK have both talked about releasing their own digital currency. The U.S. regulators appear to be moving towards a regulatory environment. The SEC and the CFTC have set up departments within their agencies for crypto and fintech related issues. The SEC mentioned ICOs having the characteristics of securities, thus regulation is probably not far behind. ICOs are initial coin offerings. Many of the cryptos are issued by startup tech firms. Some crypto traders will say analyzing cryptos is similar to analyzing start up tech firms. Currently there are hundreds of cryptocurrency exchanges globally. Not all exchanges are created equal. An investor should research an exchange before deciding which one to use. As the excitement for cryptos expanded in 2017, it was reported in January 2018, the major crypto exchanges were adding more than 100,000 users per day. Hedge funds focusing on crypto trading increased from 37 at the beginning of 2017 to 55 funds in August to 110 in October to 226 in February 2018. As found in Chart 1, the market moved above $1,000 for the first time in November

2013. However, it gradually drifted back into a $200 to $300 trading range for the next several years. In 2017 the market breaks above $1,000. By December 2017 the arrival of Bitcoin futures arrived as the market briefly peaks above $19,000. Since December the market consolidated below $7,000 and is now in a trading range of roughly $9,000 to $11,000. The market peaked and consolidated over the past year as it found support and resistance around the 50 day, 100 day and 200 day moving averages as noted in Chart 2. Traders appear to utilize moving averages for Bitcoin, similar to their employment for stocks, futures and currencies. Other traditional technical trading methods such as candlestick charts are also used by crypto traders December 2017 was a race for the first Bitcoin futures contract. December 10th Cboe futures exchange began trading Bitcoin futures (XBT). The anticipation of the contract caused heavy traffic to Cboe’s website to crash on the first day of trading as visitors constantly checked for price updates. But their trading platform was fine. As noted by the Cboe: “On the first day of trading at Cboe in 1973 911 options traded. First day of VIX futures in 2004 saw 461 contracts traded. 3 hours into the first bitcoin futures session and volume is just over 1000 contracts.”

below Is a TImelIne for The bITCoIn DerIvaTIves markeTs10 1) Sept 2015 the CFTC defined cryptocurrencies as a commodity under the Commodity Exchanges Act.11 2) November 2016 the CME Group began CME CF Bitcoin Reference Rate for a once a day Bitcoin to USD price (based on four spot Bitcoin exchanges: Bitstamp, GDAX, itBit and Kraken) and CME CF Bitcoin Real Time Index. www.stocknewsnow.com

MicroCap Review Spring 2018  

MicroCap Review, The Official Magazine for the MicroCap Stock Market, is pleased to bring to you the Spring 2018 edition of the MicroCap Rev...

MicroCap Review Spring 2018  

MicroCap Review, The Official Magazine for the MicroCap Stock Market, is pleased to bring to you the Spring 2018 edition of the MicroCap Rev...