Introduction to Bitcoin (Sept 2016)
Speech by Andreas Antonopoulos
(Transcribed by Ray B. | Twitter: @nioctiB)
…And his newest book just came out 8 days ago called “The Internet of Money,” which is a
masterpiece to read. Please help me welcome, Andreas Antonopoulos.
(Andreas walks on stage)
Good morning everyone. Let’s start with a quick poll here. How many of you have used a digital
currency like bitcoin at least once.
(Audience hands raise)
And how many of you own bitcoin at this moment or any other digital currency?
(Audience hands raise)
Okay. We can fix that!
If you’d like later on today, come find me. I would be delighted to demonstrate to you how to set
up a bitcoin wallet on your smartphone, and I will give you your first fraction of a bitcoin, not a
whole bitcoin, and show you how a transaction works. Because bitcoin, and the digital currency
revolution it has started, is best demonstrated and experienced than explained. It’s actually very
difficult to explain bitcoin, I’ve spent the last 5 years learning how to explain bitcoin. That is my
full time job. Unfortunately, the developers keep making new stuff which I then have to explain
all over again. For a moment, forget everything you think you know about bitcoin. Forget
everything you’ve heard about blockchain and let’s start from basics.
In 2011, I heard about bitcoin for the first time and my reaction was exactly the same as the
reaction of everybody else who heard about bitcoin the first time, including it’s founder, and that
reaction was ‘ha’ nerd money. That’s probably just for gambling. 6 months later, I heard about
bitcoin again and this time I read the white paper that launch this system. My background in
computer science and distributed systems allowed me to see behind the illusion of what I
thought bitcoin was and it blew my mind. In my life I have now had six occasions in which I have
become absolutely obsessed with a system of technology to the point of forgetting to eat,
forgetting to sleep and consuming as much knowledge as I possibly can. My first computer
when I was 10 years old, my first programming language experience, my first modem, my first
access to the web, the first time I used the web browser, the first time I downloaded and
installed the linux operation system and then bitcoin.
When I discovered it, I spent four months consuming as much as I could except food. I lost 26
pounds on the highly inadvisable diet of obsession. I have not emerged from that because I
keep finding new layers of depth to understand this and the reason it’s so fascinating is because
it isn’t what it appears to be at first glance. Bitcoin isn’t money. The blockchain isn’t a system of
currency. It is a platform of trust. It’s not a company, it’s not a product, it’s not a service you sign
up for. It’s not a currency. Currency is just the first application. It is the concept of
decentralization applied to the human communication of value. [Because] What is money?
[inaudible] told us it’s an illusion. It’s imaginary. The reason we don’t grasp that is because it’s so
deeply embedded in our civilization. Money is one of the oldest technologies that humanity has.
It proceeds writing. How do we know that? The very first samples of writing we have are
They are tallies and ledgers of debts owed and money preexisted that writing. You might even
speculate that money had an oral tradition until it needed to invent and written tradition so
writing was created for it. In the history of money that now spans tens of thousands of years,
there have been maybe five major changes. From pure barter exchange, to the introduction of
the first abstraction of value. Shells, feathers, beads, nuts, stones and then precious metals,
and then paper money, and then plastic money and now network money. Bitcoin introduces a
platform on which you can run currency as an application on a network without any central
points of control. A system completely decentralized like the internet itself. It is not money for the
internet, but the internet of money. What is money? Money is a language. Money is a linguistic
extraction. Money is a language that we use to communicate value to each other. Money simply
allows us to express value and that value may have economic consequences, but it also has
other consequences. We use money to express and create social bonds, and relationships, and
associations and to create organization. Bitcoin is the first system of money that is not controlled
by any entity, that is completely decentralized. And what that does is introduces the very same
things that the internet brought to communication. If money is speech, if money is a language
and you disconnect it from all other media, and you make it pure speech, pure content, an
internet content-type, a protocol designation. Money over IP. It completely separates it from all
of these previous notions of nations, sovereign issuers, institutions that control, and so we go
from institution-based money to network-based money. And of course, everyone will welcome
this with open arms. Not a chance!
What do you think they said the first time someone was presented with a gold depository
certificate instead of a gold coin? They said, “Ha, that’s not money. Go away!”
What do you think in happened 1950 the first time someone showed up at a motel and
presented their Diner’s Club membership card and said, “I’ll pay with this piece of paper.”
“That’s not money. Go away!” And now we’re on the verge of a new transformation of money.
We’re on the verge of creating the first completely global, completely borderless, completely
decentralized and completely open form of money. One where you can build applications
because this money is programable, and you don’t need to ask anyone’s permission to launch
an application anymore than you need to ask permission to launch an application on the
internet, and the only requirement to have a successful application on the internet of money is
two interested participants. That is your market segment and you have an application, and a
million applications will flourish.
When you push innovation to the edges of the network, when you remove the requirement for
permission, what happens? Exponential explosion in innovation. The applications that could not
be built on the old systems of money because they required permission, because they required
a significantly large market segment, because they require adoption by many in order to be
available at all. Now, none of those requirements exist. Anyone in the world can download an
application, or use even a feature phone with text messaging, and immediately acquire the
same powers that institutions of banking have today. And when I say anyone, that’s only
scratching the surface. Because Ironically enough not only does bitcoin and blockchain currency
not recognize borders, it also does not recognize people. It doesn’t matter if you’re a person or a
refrigerator or a self-driving car. Throughout the history of money ownership of currency
required personhood. Either as an individual or as an association of individuals in a corporation.
Bitcoin can be owned by machines. Bitcoin can be owned by software agents. Machines can
pay each other. And that is not just about economic activity. It’s the basis for market-base
security systems. It’s the bases for creative bonds of authentication between devices. It’s the
bases of new applications that have never been done before. Bitcoin and blockchain technology
unifies the systems of money.
Today we have systems of money for small payments, systems of money for large payments.
We have systems of money for payments between individuals, we have systems of money for
payments between companies, we have systems of money for payments between
governments. Does that remind you of something? That’s how the communication use to be
before the internet. We had systems of communication for pictures, systems of communication
for letters, systems of communication for short distance and long distance, and the internet
came and unified all of those. What the internet of money does, is it creates a single network
which can do a micro transaction to a giga transaction, in seconds anywhere in the world for any
participant without permission. But if you just look at the application of money, you’re missing
Because you can take the language, the building blocks of this platform and use them to
construct other languages that communicate value. Tokens. Reward points. Brand loyalty coins.
Today there are over 1,000 digital currencies using the design pattern, the recipe of bitcoin.
Most of them are junk, some of them are not and over the next decade we are going to see tens
of thousands and then hundreds of thousands of coins. Some will have economic use, some will
simply be expressions of loyalty, affiliation, they will represent items in the physical world. The
title for a house. The controlling key for a car that can be transferred from one owner to another,
and five seconds later that owner can step into the car and drive away, because the car can
validate the new standard of ownership. We cannot yet imagine what applications we’re going to
build around this.
But one of the interesting things we’re beginning to observe is that money arises out of the
social construct of homo sapiens spontaneously. It even arises in primates. You can teach
monkeys money. You can teach dolphins money. You can teach grays, parrots, money and they
will learn to exchange abstract tokens for food and then use them to build social relationships.
They’ll also invent strong-arm robbery.
Beat up the other monkey, take away it’s pebbles, eat the bananas. And we see that same thing
happen in children. Toddlers invent money in kindergarten. Blocks and rubber-bands and
pokeman cards and other little tokens. Abstractions of value that they exchange to straighten
social bonds to express loyalty and friendship. To learn about sharing. Children will be building
currencies. Only this time these currencies will be global, unforgeable and scalable on day one.
A few years from now, Maria will be launching Maria Coin in her kindergarten, to compete
against Joey Coin and it won’t really matter to anyone, until of course Justin Bieber launches the
Justin Bieber Coin and it happens to surpass the market capitalization of 30 nations on this
planet and we are all writing horrified opinion editorials about how the world is coming to hell.
What’s happening with this technology is astonishingly deep and for certainly some of the
companies in this room, it’s a bit scary. Banking has never been the most innovative sector in
the world. Because there is a very careful balance between innovation and the conservative
fiduciary duty that exist in banking, that must exist, when you control other people’s money, and
yet with bitcoin, you don’t control other people’s money. In bitcoin, I control my money. I have
complete and total authority over my bitcoin. It cannot be ceased, it cannot be frozen, it cannot
be censored, my transactions cannot be intercepted and they cannot be stopped. And I can do
so with almost complete anonymity and so can anyone 5 minutes after they download an
application and money has changed forever, and banking has changed forever.
The idea that you can proceed in the industry of money, in the industries of commerce, and
maintain the same conservative attitude that has existed now for centuries, ever since
merchants in Venice and Amsterdam started issuing depository certificates and providing
banking services. That is gone. You cannot operate closed systems that have borders and
require permission to join at a rate of innovation that is controlled by the most conservative
tendencies within your organization because now you are competing with a technology that
enables exponential growth, exponential innovation at the edges without permission by anyone
in the world and it’s not about anyone in this room. Why? We represent the privilege elite. I can
go onto a brokerage account, open it up online and be trading on the Tokyo stock market within
12 hours in Yen. That is the privilege that I have. 1.5 billion people have that privilege. 6 billion
people can operate mainly in one currency and perhaps have some basic banking services, 4
billion people are significantly under banked and an astonishing 2.5 billion people are
completely unbank. They will leap-frog. They will never have a relationship with a bank. Every
single child born today will never have a bank account. They will have a bank app. A bank app
that doesn’t give them account, a bank app that makes them a banker. An international banker
in an app. They will not be permitted to open bank account until they’re 16 years old. By that
time I hope they will have at least 6 or more years of experience with digital currencies and I
would like to watch them walk into a bank branch to have someone explain to them what 3 to 5
business days means.
It is highly likely that children born today will never get a driving license because they’ll have
self-driving cars, but they will also never use paper money. Because by the time they get to an
age where they really start using money there is no paper money. It will seem as anachronistic
as a fax machine or horse and buggy seems to us. Exponential innovation on a global basis
giving access to the other 6 billion. They have enormous need and this system offers them a
solution. It’s not ready yet. It’s nascent. It’s complex. It’s impossible to use for most people. In
1989, I sent my first email. In order to do so I had to compile a vision of the Unix mail program,
using a C compiler and Unix command line skills. I had to set it up on the command line, type
out my email, and that email was transmitted across the great internet in an astonishing 3 days.
Exactly 20 years later, my mother replicated that experience with a swipe [of her finger]. Bitcoin
today, and all the currencies that are built on that recipe are just at the same level that the
internet was in 1991. Only now, we have the internet and so the rate of exponential growth has
already started. The innovation is growing at an astonishing rate. I spend every single day, full
time, trying to keep up with bitcoin. Just one currency, and it’s almost impossible.
Do not underestimate this. Do not listen to the people who tell you that bitcoin is just for
pornographers, terrorist, drug dealers and gamblers. Remember that they said the exact same
thing about the internet. And when you give it to 2 or 3 billion people they’re not interested in
those things, they’re interested in sharing cat videos.
And now we have an internet of a billion cat videos. When you take digital currency mainstream
and give it to the 4 billion people who have been isolated from international finance and
commerce, and you give them the opportunity to control their money against despotic
governments and corrupt banks that are stealing from them. You give them the opportunity to
control their future. You give them the opportunity to transact with everyone in the world. To own
title on their own property in a fully transferable digital token that is recognized everywhere.
Control over finance that cannot be seized, frozen or censored. They will buy food, healthcare,
sanitation, education, shelter because that’s what we do, and they will to be denied this
technology. Do not underestimate where this is going. The internet of money was launched on
January 3rd, 2009. It’s coming. It’s coming faster than you can imagine. It’s deeper than you can
fathom. It’s more sophisticated than you can immediately understand. It takes years of study
just to see all of the implications, and it is a gift to the entire world, a technology that represents
the 6th greatest innovation in the technology of money, the most ancient technology of our
civilization. Thank you.
Shall we do some questions? We’ve got plenty of time for questions.
[Kristian] (Audience question #1)
What determines the buying power of the currency? How does it stabilize and what required to
stabilize it? So, if I would buy some bitcoins who could manipulate the value of that?
Ah, everyone. The buying power of bitcoin is determined in exactly the same way that the
buying power of the Euro, the British Sterling, the Japanese Yen, or the US Dollar is determined,
through market forces of supply and demand, in international liquid markets that operate around
the clock. One of the fundamental differences is that bitcoin trading never ceases. [Bitcoin] has
been going continuously for 7 years. The network never stops. Every 10 minutes, bitcoin’s heart
beats and transactions are processed. The exchanges never close, there is no closing price for
bitcoin. It is a rolling average and in that trading, a market capitalization of approximate 12
billion dollars is now traded internationally. What is 12 billions dollars for a global currency? It’s a
guppy, swimming in shark infested waters and every trader, every whale goes in there and just
kicks that price around. So right now, the experience of living on bitcoin, which I have been
doing full time for more than 3 years, is a rollercoaster. It’s an absolute rollercoaster. I’ve seen
shifts of 20 or 30 percent in a day, and yet, if you look at the longterm trend, volume goes up,
transactions for up, and volatility keeps dropping, and the beauty of it is, I can’t sell that to an
American. I can’t sell that to a Brit. I don’t need to sell it to an Argentinean. I don’t need to sell it
to an Brazilian. I don’t need to sell it to a Venezuelan.
I want to a conference and an Argentinean told me, “I’m not worried about volatility. Our
currency has volatility like this. [Andreas’ finger-points downward incrementally]
Bitcoin has volatility like this. [Andreas’ finger-points upward incrementally]
I’d rather be going in that direction.”
And you don’t need to tell them why. Their government threw people out of airplanes, not more
than 35 years ago, for disagreeing. They already know why the separation of state and money
is a good idea. And so, volatility is relative.
(Audience question #2)
Great speech. Obviously, it sounded a little bit like one side of the coin. So, we also read [about]
all these big hacks and Bitfinex, I think they stole [from Bitfinex] 40% of the money. I think also
this autonomous organization have been hacked and all these things. Can you just reflect a little
bit on the dark side of those aspects that might not win our full trust into this evolution.
The steering wheel was not invented until 30 years after the automobile was introduced. Why?
Because the first automobiles had two leather straps that you pulled left or right, to move [turn]
the car, to steer the car. They used horse reins to steer cars. That’s called skeuomorphic design.
It means keeping a shadow of the former past in your new system, failing to see the new
dimension and replicating the past.
Here is a currency that is not centralized, where your money is your money. Your keys, your
money. Not your keys, not your money. So, what is the first thing we do with this new system?
We build centralized institutional of custodial control. That take other people’s money and hold it
for them. Well guess what? The entire history of banking, the entire system of regulation and
oversight is based on the simple centuries old understanding that when somebody else holds
your money, chances are, they’re going to run away with it. And the entire system of regulation
is designed to prevent that, and yet it still happens all the time. In hedge funds, in banks, in
national currencies all the time. And so of course, if you replicate the custodial accounts,
exchanges that take other people’s bitcoin and concentrates it, it happens again. Even worst,
because there are no oversights and regulations in most of these spaces. The answer is really
simple. Stop centralizing the decentralize currency. Stop trying to replicate the banking past, in
the future of money. The important thing to realize is that security in bitcoin is an emergent
property that exist because of the decentralization of control and power. If I want to hack a
million customer’s bitcoin and their [each] holding their keys, I have to hack a million customers.
If they all give their keys to one person or one organization, then we’ve got a honey pot. A honey
pot that attracts the attention of every hacker on the planet, and notice what’s happened. Over 7
years and with a market capitalization of 12 billion dollars, bitcoin is the largest cryptographic
deployment in the world. The largest public-key infrastructure in the world. The largest security
honey pot in the world, and it is not secure because it doesn’t get attacked. It is secure, because
it generates amenity by being attacked all the time. 24 hours a day, by the most sophisticated
attackers this planet has. And if you in that environment set up a centralized custodial exchange
using PHP and MySQL, and you park a 150 million dollar honey pot in there, you’re inviting the
Bitcoin banks get hacked. Bitcoin exchanges get hacked. Bitcoin has not been hacked, and
cannot be hacked because there is no point of control that you can apply pressure on. It’s
Alright, maybe one more question?
(Audience question #3)
Where the does [the] supply of bitcoin come from and how do you [assure] the market doesn’t
The supply of bitcoin is determined algorithmically based on a geometrically declining supply
function, meaning that, in the beginning, every 10 minutes, 50 new bitcoin are created. So
every block, the heart beats 10 minutes [Andreas snapping his fingers, incrementally] created
50 new bitcoin. This bitcoin is used as a reward in a game theory-based security model that
insures that every transaction is independently validated by completely anonymous actors who
have to stake electricity as an guarantee of the security work they’ve done and if they succeed
in doing the security work of validation transactions correctly, they earn as a reward, based on a
probabilistic return – that reward, 50 bitcoin every 10 minutes. That’s how currency is introduced
into the economy.
Every 4 years, it gets cut in half. 50 to 25 in November of 2012. And in this year  in July,
this pass July, we had our second halving event, which was celebrated with birthday parties all
over the world, and bitcoin’s reward went from 25 to 12.5 bitcoin. As a system, it’s design to
have a monetary policy that is purposefully deflationary and simulates the issuance of precious
metals. It gets harder and harder and harder to mind gold at greater and greater and greater
cost, and bitcoin is the same. The idea being that less and less is issued over time. If you follow
that geometric curve, at some point you reach the end. In the year 2141, bitcoin is no longer
issued. 21 million [bitcoin] coins is the asymptotic cap. It will never reach 21 million coins. That
is part of the protocol, it is an unchangeable part of the protocol and it is a rule enforced by
every system that participates in the bitcoin network. It is meant to be sound money, but it’s not
the only monetary policy that exist. There are several other [digital] currencies that implement
different monetary policies. The idea is really for bitcoin to serve as a very, very solid reserve
currency, for many other things.
(Audience question #4 and final)
What advice do you have to give to companies here who are from non-financial institutions
about how they should take tactical steps to think about experimenting with the blockchain, in
terms of storing value.
I think, understanding that it’s [blockchain] not just currency. Understand it’s a platform for trust.
Understanding that it can be used as a historical record of truth that can register information.
That it can be used to create all kinds of tokens that can be exchanged between your
customers, your suppliers, your manufacturers. That it can also be used simply as a currency
for any cross-boarder transactions, import-export activities, remittences-based flows, paying
associates and affiliates. All of the things that today are expensive, slow and difficult, become
cheap, fast and easy when you use one of these digital currencies, but it’s still early. For now,
learning about it.
Here is the one important thing you must understand. You will hear a lot about Blockchain. And
most of what you hear about blockchain is not the internet of money. It is the intranet of money.
The intranet is where you run Frontpage and Outlook and antiquated software in a closed little
enclave of your corporate backwaters with stale content and boring apps, and in the end, it’s full
of viruses anyway because you can’t keep it secure. Blockchain that is not open, that is not
public, that is not borderless, that is not open for innovation, is not what we’re talking about here
and that’s a really important distinction. It may be useful if you want to run a clearinghouse
between 3 banks, maybe, but it’s not the internet of money.
Thank you. By the way.
Everybody who asked a question gets a free copy of my book [The Internet of Money]. Come
and see me in the back there.
Thank you so much.
(Andreas walks off stage)
Insist on doing everything through “channels.” Never permit short-cuts to be taken in order to expedite decisions.
Make “speeches.” Talk as frequently as possible and at great length. Illustrate your “points” by long anecdotes and accounts of personal experiences.
When possible, refer all matters to committees, for “further study and consideration.” Attempt to make the committee as large as possible — never less than five.
Bring up irrelevant issues as frequently as possible.
Haggle over precise wordings of communications, minutes, resolutions.
Refer back to matters decided upon at the last meeting and attempt to re-open the question of the advisability of that decision.
Advocate “caution.” Be “reasonable” and urge your fellow-conferees to be “reasonable” and avoid haste which might result in embarrassments or difficulties later on.
In making work assignments, always sign out the unimportant jobs first. See that important jobs are assigned to inefficient workers.
Insist on perfect work in relatively unimportant products; send back for refinishing those which have the least flaw.
To lower morale and with it, production, be pleasant to inefficient workers; give them undeserved promotions.
Hold conferences when there is more critical work to be done.
Multiply the procedures and clearances involved in issuing instructions, pay checks, and so on. See that three people have to approve everything where one would do.
Contrive as many interruptions to your work as you can.
Do your work poorly and blame it on bad tools, machinery, or equipment. Complain that these things are preventing you from doing your job right.
Never pass on your skill and experience to a new or less skillful worker.
Bitcoin & Altcoins Trading: A Complete Guide of How To Ride this Cryptocurrency Rocket to the Moon! Tutorial of Trading Strategy Insights, Fundamental Analysis, Technical Analysis Frameworks & Tools.
Have no prior experience, but want to learn the ropes of trading markets?
Bought some bitcoins and not sure what to do with it?
You’ve come to the right place!
Here’s a complete guide to trading cryptographic currencies such as Bitcoin & Altcoins, tailored to suit both beginners and advanced traders, whether you’re familiar with or new to cryptocurrencies.
This tutorial includes topics ranging from the basics of Bitcoin as a technology and trading instrument, a technical analysis framework for approaching trading, basic and advanced technical analysis tools, fundamental analysis of cryptocurrencies including altcoins, and tips for developing an effective and personal trading strategy. The full outline of the contents is as follows:
Bitcoin as a Technology, Currency, and Trading Instrument: What is Bitcoin?
Introduction to Trading: How it Applies to Bitcoin and Cryptocurrencies
Bitcoin & Altcoin Markets: Introduction to Cryptocurrency Trading
Technical Analysis Framework: Mass Market Psychology & Emotional Cycle
Technical Analysis Tools: Basics
Technical Analysis Tools: Advanced
Fundamental Analysis: Cryptocurrency Characteristics
Fundamental Analysis: Picking the Next Profitable Altcoin
Developing a Profitable & Effective Trading Strategy
I hope this post and other material on my blog and twitter teaches you how to approach trading markets such as Bitcoin and Altcoins, provides you with valuable, practical, and effective tutorials and insights that is easily understood and applied, and enables you to develop a profitable trading strategy that is tailored to your personal requirements and risk appetite.
Thank you for your support! If you like my work and would like to see more, consider contributing a coffee in Bitcoins to me at: 1Hbodfhu7Nx1RJZmpudVfiiDTpG2o24mMi
Bitcoin as a Technology, Currency, and Trading Instrument: What is Bitcoin?
Before we get into trading, let’s go through the basics of what Bitcoin actually is, as a technology, as an alternative to FIAT currencies, its implications, and what makes it a potentially revolutionary technology.
How are digital currencies created? Just like physical currencies, digital currencies like Bitcoin don’t just pop into existence; they have to be made. In physical currencies, paper bills are printed and coins are minted by government agencies, then distributed into the banking system. In the same way, digital currencies must be created and distributed to users. For a digital currency like Bitcoin, the currency is created by a software application. This software runs on each computer connected to the Bitcoin network. All of the computers connected to the network work together, sharing the complex calculations necessary to create each Bitcoin, and a certain number of bitcoins are created each day. This process is called mining, and is not free, as it costs computer power and electricity. To compensate computer owners for their work, bitcoins are paid to the software users connected to the network.
How are balances kept and transactions processed? Just like at your bank, your account balance and transactions are stored on a server. At your bank, the bank owns the server. But, as a digital currency, Bitcoin’s account data resides on a peer-to-peer (computer-to-computer) network that consists of all the computers logged into the network. This allows for additional security as there is no single server that hackers can attack, and each transaction is verified by all the computers on the network. Just like logging into your bank account with your browser, you can see your Bitcoin balance and spend it using a Bitcoin Wallet App. The wallet gives you all the info you need, just like using your browser for banking transactions. The Wallet App is available in several versions: Online, MAC, Windows, Android, and IOS.
Chris Dunn goes into great detail about the basics of Bitcoin and the blockchain technology and trading, while keeping it non-technical and simple to understand. I’ll be quoting him a lot for the first portion of this post. From his book, he explains the technology behind Bitcoin, what determines its money supply, and how that differs from our current monetary systems where governments print money and the banks distribute it:
“Bitcoin is not governed by political whims, instead it is governed by the laws of mathematics. Its source code uses advanced cryptography to secure the network and regulate the process of new Bitcoins created. The source code is completely open source, which means anyone who understands coding language can review it. Nothing is hidden.
When you purchase Bitcoin, your money is locked on the public ledger and can be accessed anytime with your private keys. For this reason, there is no limit to how many Bitcoins you can send or receive, and there is no third party that can restrict your Bitcoin transactions. Financial institutions cannot counterfeit or arbitrarily create more Bitcoins because the core protocol of the blockchain times the flow in which new coins are created.”
He goes further to discuss decentralization and how Bitcoin puts the power back into YOUR hands.
“Usually all our money or data is stored on centralized servers, which requires trust in a third party. Traditionally, when your money is in your bank account, your bank’s servers are a single point of failure to be attacked, which makes your data extremely vulnerable.
In a decentralized network, information can be broken into pieces and encrypted. This creates multiple points that need to be attacked in order to access information to take down the network.
Bitcoin truly is a revolutionary technology that is changing the rules of society. Now is the time to take a couple of steps ahead of the herd and place yourself on the cutting edge of this transformation. I promise it will pay off. With that many advantages Bitcoin offers, the market is growing exponentially. The growth creates massive opportunity for traders.
Opportunities like this don’t come around often, and I hope you are beginning to see the very potential Bitcoin has created.”
He then goes on to discuss the viability of Bitcoin “mining” today, and explains how it compares with trading:
“And while you may have heard about the opportunity to profit from mining, for small scale operations it is actually cheaper to buy Bitcoins than it is to mine them. Only major industrial operations can make money from mining.
By far the easiest and most profitable way to make money in this industry is by trading Bitcoin with an effective strategy. This requires no setup expense whatsoever — all you need is a strategy that works. And we have a proven strategy which we’re willing to share with anyone who’s serious about learning it.”
Introduction to Trading: How it Applies to Bitcoin and Cryptocurrencies
Buying Bitcoin opens up the doors to trading – bitcoin itself is a tradable asset against the USD and other currencies. As a result, being involved in Bitcoin naturally introduces one to trading markets, because from the offset, the price volatility creates the need for users to make a bitcoin purchase at a favourable target price. Therefore it is crucial that you learn the basics of trading and arm yourself with the necessary skills to maintain or even grow the value of your investments.
If you’re looking for a “stock” to buy in 2016, #Bitcoin is one of e best choices. Only 3-6 mths timeframe, w immense potential profit. $BTC
He also has a ton of training material and useful resources about trading strategies and market calls, and I highly recommend you check out his work on his website, youtube and twitter accounts!
I’ll be using some his material for this portion of my post, because honestly, I can’t think of a better way to say it than the way he did. So here goes; I compiled what I think is the most important and applicable concepts that you ought to know for trading Bitcoin and cryptocurrencies, which can also be applied to trading any other market.
“Trading is about making emotionless decisions to buy or sell an asset based on probabilities. Just like a casino knows the odds are in their favour, professional traders use strategy and risk management to tip the scales in their favour.
Trading is a zero sum game. Every trade has two investors taking opposite positions on the price — one on buys, the other sells. Because of this, someone is bound to lose.
When two people agree on a price, a trade is executed and the market valuation is set. Usually buyers set orders lower than people who want to sell. This creates 2 sides of an order book between buyers and sellers. When there are more buyers than sellers the prices goes up, and when there’s more sellers than buyers the price goes down.
The constant exchange of prices forces the market into periods of equilibrium followed by bursts of volatility.
Many people think the only way you can make money trading Bitcoin is to buy low and sell high. But that’s only half the equation! You can long, or you can short. When you long, you’re betting that the future price of Bitcoin will be higher than your original position. So you’re BUYING Bitcoin. When you short, you’re betting that the future price will be lower than your position. So you’re SELLING first with the goal of buying back at a lower price in the future.
Find the trend early. At any given time, the market is only doing one of three things: trending, channeling, or breaking out. Markets don’t go straight up and down. A trending market is when a market is stair-stepping up or down. The easiest type of trade for most people to take is a “trend trade”.
There are 8 basic components to a trade: 1) Order book 2) Reading the market 3) Candlesticks 4) Reading charts 5) Margin trading 6) Long and Short trades 7) Margin call 8) Stop order
Reading the Markets. Price charts are very simply the visual representation of the actions of all market participants. In other words, there’s no magic behind the bars moving up or down. Rather, the driving force behind price moving up and down is the buying and selling actions from all traders. Sometimes, market prices show signs of a general trend. A bull market happens when prices progressively increase, and a bear market shows a steady decline in value. The movement in price is generally referred to as price action. Looking at the swings in price and interpreting it for patterns is called technical analysis.
New traders should learn the ropes first before trying to grow their accounts with leverage. Also, you shouldn’t trade with money you can’t afford to lose.”
Bitcoin & Altcoin Markets: Introduction to Cryptocurrency Trading
Here’s a little history lesson about Bitcoin’s price since inception. Bitcoin has been through several price bubbles, characterized by exuberant buying into a parabolic price structure, and eventually correcting back down quickly and crashing over 80% from the peak over a short period of time.
Over the last 8 years since Bitcoin was created, it has gone through about 3 notable bubbles, first when it climbed from under $0.01 in early 2010 to $0.80 in November 2010 and then to $32 in July 2011 before the bubble burst, sending price on a downtrend for 2 years and hit a low of $2 at one point. Our second bubble came in April 2013 and coincided with the Cyprus financial collapse, where we saw prices break above the previous high of $32 to about $260, before crashing down to about $50. And the third bubble came later the same year, where prices peaked at $1200 in November 2013.
Since the beginning of 2014, Bitcoin price went on a year-long downtrend, making lows of about $160, over 80% decline since the $1200 peak. This low came in early 2015, and prices consolidated and stabilized within the $200-300 range for a large part of 2015. The 1.5 year downtrend was finally broken somewhere mid-2015, followed by a break above $300 in October 2015. Since then, we have been trading between $300 and $500, and more recently within a wedge ranging between $382 and $420. Read about my analysis of price action during the periods since September 2015 in these previous posts:
“Just like any world-changing market or technology, Bitcoin has gone through several crash and boom cycles in its history. It’s the normal process of “price discovery”, or finding the fair market value of a new asset.”
Will there be a 4th Bitcoin Bubble, bringing prices about $1200? And could it happen in 2016? In order to tackle this question, let’s first take a look at some fundamentals of Bitcoin and its underlying technology:
In 2016, you have probably heard a lot more of the term “Blockchain” than “Bitcoin” itself. The Bitcoin blockchain refers to an electronic ledger that records all transactions that take place on the Bitcoin network, that is fully open-source and transparent. There are more applications for blockchains than just money, and the fact that the blockchain can bring about revolutionary improvements to our current processes and systems is only now starting to be understood by companies and individuals at the forefront of technology and embracing change.
Bitcoin and its underlying blockchain technology is becoming more widely accepted, and is currently being tested by various corporate institutions including a group of big banks and a consortium called R3, and even accounting firm Price Waterhouse Coopers (PWC). Not to forget about the exponentially increasing number of merchants, including big names like Overstock and Microsoft, that are now accepting Bitcoin as an alternative form of payment to credit cards and cash.
Bitcoin is often referred to as Digital Gold, making it not a far-fetched proposition to compare it to physical gold. These two markets tend to work in similar fashion, from the point of view that Bitcoin may be seen as an alternative “safe haven” asset or commodity in times of economic crises, much like gold, as was demonstrated in April 2013 when Bitcoin rose to over $200 over a short period of time during the Cyprus financial crisis. In fact, proponents of Bitcoin would argue that Bitcoin is a better form of money than compared to physical Gold, especially in the 21st century, in terms of fungibility, transportability, and divisibility. Here’s how Bitcoin looks compared to Gold:
Third thing to consider is that Bitcoin turns 8 year old in 2016. Based on the Bitcoin algorithm that determines its fixed money supply and schedule of distribution, the amount of coins that is added into the network halves approximately every 4 years, or more accurately, every 210,000 blocks with each block estimated to take 10 minutes. The next supply halving will happen in July 2016 (source: http://bitcoinclock.com/).
The liquidity of the Bitcoin market is only a small fraction of real world money markets such as Forex, Gold, Oil, other commodities, and Indices like the S&P 500 Index (SPX).
There are over 1000 different altcoins, and the liquidity of these markets can range from peanuts, even some with 0 trading volume over 24h, to highly liquid cryptocurrencies like Ethereum, and more recently Factom, Dash, Monero, MaidSafe, and several others that have also been trading at significant daily volumes of 1000 BTC and above.
However, the number of coins that fall into this category only make up a small proportion of the total population of altcoins in existence.
The altcoin market is made up largely of illiquid cryptocurrencies tradable against BTC, and sometimes other units of currencies such as the USD, LTC, or XMR. With that said, there are also several top tier alternative cryptocurrencies that are sufficiently liquid, enough to trade it without too much worry, as I have shared above. There are also less liquid coins which usually have less than 25 BTC or even 10 BTC trading volume per day, but also have potential for greater gains even though you will be limited to investing 1-2 BTCs due to the liquidity of the coin, and you’ll have to keep a much closer watch on them. Keep in mind that the lower liquidity a market has, the higher the risk associated with it.
With that in mind, and if you’re ready to dip your toes into this exciting world of cryptocurrency trading, here are some general guidelines to trading altcoins, especially applicable if you’re new to all of this:
Trade altcoin markets that have significant volume. With altcoins, trading volume is a must. As a rule of thumb, don’t trade an altcoin market that has a 24 hour volume under 10 BTC, or up to 50 BTC if you’re more risk adverse. A market with little trading volume is easily manipulated by insiders, pumpers, and bigger traders. Stick to the liquid coins and you’ll have an extra layer of protection.
Trade altcoins that have community support.
Trade altcoins that offer innovation over existing coins.
The altcoin market is one of the most inefficient markets out there, so there are many profit opportunities that you can take advantage of, but this also requires a large amount of time and effort to research and spot such opportunities.
Forget all that you currently know about trading. Only two things can happen in a trade, either the price goes up, or it goes down. Simple as that, and everything else is just a matter of perspective. You will need to first decondition yourself from any prior understanding of trading, and undo any bad habits you have accumulated. The following chapters, especially about the technical analysis framework that I’m about to teach you is designed to decondition your mind to see price action and charts for what they simply are; a representation of human behaviour, while price is simply put; the perceived value of a stock by its market participants. Keep these very important points in mind as you read the remainder of the post.
With the right state of mind to maintain your discipline, a keen interest to learn the ropes, and the willingness to work hard and put in 100% effort, anyone, even you, will be able to become a profitable trader after learning and applying the skills taught in my blog and especially this post.
Altcoin Markets & Trading: Strategy Insights
Here’s a quick summary of how to approach trading cryptocurrencies like Bitcoin and other altcoins like Ethereum (ETH), Dash (DASH), Monero (XMR), MaidSafe (MAID) or Factom (FCT), and many others. Even for beginners, this should give you a good idea of what goes through my mind as I plan and execute my trades, and how technical analysis can be effectively applied to trading. And at the end of the post, I’ll discuss about developing a trading strategy that is both effective and tailored to your own style.
I personally stick mostly to high market cap coins and those with higher liqudity, because risk is much lower with such coins. For example, I think that Ethereum will never drop back to ATL at least not for the next 6 months, although when the pump is actually over, it should drop about 70-80% or more. That said, I also use a small portion of my funds to dabble in higher risk trades with low liqudity coins, provided they meets certain requirements.
In terms of how long I hold each trade, only because of the current market condition and environment being a hotbed for pumps, I’ve been buying some coins and holding them for anywhere up to 2-3 months. While some trades can last a short few minutes to a day or two. Generally, I feel comfortable holding about 3-5 altcoins at once, although it is common for me to now have about 10 different altcoins at one time. Personally, having more than 5 becomes rather difficult to handle so I always try not to spread myself too thin and manage too many different trades at once.
As an example, in December 2015, I bought Dash and held for a few weeks. I also bought ETH in late January 2016 when it broke above 0.005 and rode it for about three waves, selling after each wave and buying back later or another breakout and bullish confirmation, so I held for less than a week each time. I went into MaidSafe (MAID) in late January 2016 or so, and held it for about a month all the way to the new All-Time-High (ATH) of around 26-28k, which also took about a month. In late Jan and early Feb, I bought Monero (XMR) at about 110-120k, and held for a month before selling at about 300k in early March. March was also an action packed month, and some of my bigger profits came from VanillaCash (XVC), New Economy Movement (XEM), and SiaCoin (SC). To be fair, I also have some trades currently underwater that I have bought and held for a long time, some as long as three months, including Lumens/Stellar (STR/XLM), Peercoin (PPC), DarkNet (DNET),
@CryptoChrisG gotta use those fib extensions for future price targets when it’s at an all time high
To give you a better idea of how to know when to exit your trade, or set targets and take profit, I’ll discuss my MaidSafe trade in greater detail. When MAID pumped hard past 17k (previously ATH), the large volume indicated that there was good momentum behind the pump, but I also knew that it had to top out somewhere because parabolic moves generally don’t end well. So I did a Fibonacci Extension from previous ATH (17k) to the bottom (4k-ish), which gave me two exit targets: 50% Fibonacci Extension was at 25k and the 61.2% Extension was at 31k. I then placed some sell orders at 25-26k and 30-32k.
As buyers chomped at my sell orders, I managed to unload about 1/3 of my total holdings with my 25-26k orders, while I remained open to both possibilities; that this was either the top, or it’ll continue to break ATH and head towards my next target of 31k. At this point, I watched the price action of MAID closely, looking out for a big fat red candle with large volume which is commonly referred to as an “exit candle” and indicates the end of a pump. True enough, I soon saw the big volume red candle, and made a quick decision to sell everything so pulled all my higher sells and sold off some at 24k. Prices then went below a critical support, which was my confirmation signal for a trend reversal and the beginning of a downtrend, so I just waited for it to bounce back to 24k-ish before I dumped the rest of my coins.
All this took only about an hour or so, from when it peaked at 26k, to the point when it broke below 24k. MaidSafe eventually went on to make a new ATH of 29k, and is currently consolidating in a healthy range, with potential for another move up. This was the exact same method I used when trading Monero (XMR) to determine a target of 300k satoshi; my point being that it is definitely replicable, and even you can, with enough training be able to identify such signs and know how to act on them accordingly.
Refer to my tweet and charts below regarding the big volume red candle and critical support I mentioned above.
I’m 1/3 out at 25-26k, dropped a bit more at 24k, and dumping the rest when this retraces to 24ish. Buying bk later. pic.twitter.com/bVowKDKB3I
Some trades I hold for hours, some for days, some for weeks and even months. Keep in mind I’m only holding so long (weeks to months) because of current market condition (being that BTC is just starting its bull run). In a downtrend, you will want to be largely in USD/FIAT, because although opportunities to profit from buying an altcoin will also be available, it will happen at a much lower frequency than today.
When asked about how to know which altcoin to buy, when to sell it, or the classic “how to become a better trader”, this is my usual reply: It’s a combination of a complex and inter-related web of factors, including understanding the market crash cycle structure, learning about the different phases of the emotional cycle, analyzing price action, understanding price structures that represent various phases of a crash cycle, such as accumulation, distribution, pump, dump, and how they look like.
To keep things simple, you should look at 2 things only, price action (candlesticks or others), and volume. And of course, context is always important, e.g. what coin, what is the situation of the development and new projects, of the environment etc. I will discuss these technical and fundamental analysis frameworks and tools in this and the following chapters.
For now, here’s a generalized idea of how the Altcoin markets as a whole has been performing since mid 2015 to now. Since that time, several altcoin markets have moved up a couple of legs; some breaking ATHs, some breaking multi-month and multi-year downtrends and major resistances, mostly getting ready to continue on this recent bullish uptrend, fueled by a fresh influx of funds currently flowing across different altcoins in waves. With the Bitcoin halving just around the corner, it is safe to say we have at least another 3 to 5 months of bull market action in the Bitcoin and Altcoin markets that we can capitalize on.
From my personal analysis, altcoin markets in general bottomed out in tandem and have progressively moved up since September 2015. You can see how various altcoin markets bottomed out around September to December 2015, and began to form an uptrend in early 2016, and we’re currently at the foot of a major bull market waiting to erupt. This can be represented as one whole market or Cryptocurrency Index, if you will, as in my two charts below.
As I discussed in the introduction chapter of Altcoins Markets & Trading, perspective is everything, and I highlighted the importance of concepts such as market structure, crash cycles, market psychology, fractals, and the environmental conditions, as a framework for analysing charts and price action. IMO, this is the single governing framework behind TA, and we’ll discuss this in greater detail in this chapter.
To understand trading, you first need to understand the anatomy of a Market Cycle and the Crash Cycle, so that you can identify a pump before it happens, and know when the party has ended, so that you can potentially profit from it. Another important concept is Market Structure, and being able to identify the price action and patterns that are unique to each of the various phases of trading, including accumulation, distribution, markup, markdown, breakout, consolidation, retracements, corrections, etc.
Another concept to understand is the driving force behind price movements. “Whales” is a term used to represent individuals or groups with large amounts of funds used for trading, and sometimes also take on the role of a “Market Maker (MM)”. Whales play a big part in any trading ecosystem, and are also present in the Bitcoin market and even in Altcoin markets. They contribute to a large portion of the trading activity, decide how high or low prices go, and also decide when the market will move and in what direction.
Armed with the knowledge of how whales conduct themselves in the market, and the technical analysis framework they use to manipulate the markets, you can profit by identifying smart money and analyzing their intentions. Therefore, it is imperative that you know how whales operate in the market, and you can learn a good deal from our dear friend Wolong in his eBook about “The Game of Deception” that is trading, and trade with an understanding of the market crash cycle, as illustrated by the “Psychology of a Market CycleWall Street Cheat Sheet” below.
How do I know if a pump is over or if it is still not done? Here’s my two satoshis worth:
You can never predict for certain exactly where it’ll top. In fact, you should never try to predict it baselessly, but rather you should let the price action tell you the answer. If you refer to the “Psychology of a Market Cycle” chart as above, this is IMO one of the most important frameworks for trading, and you can find this market structure or fractal everywhere. When pumps end, it’ll always look like euphoria to complacency stage. The key here, is to look out for high volume price action. If the dip between euphoria and complacency stages has a bigger volume bar, than compared to the euphoria top volume bar, then you might want look for an exit. Of course this is just a general guideline that only considers one aspect of a trend reversal, when in reality many more factors contribute to it. That said, this is still one of the key ways to determine that a bullish market has exhausted.
Technical Analysis Framework: Mass Market Psychology & Emotional Cycle
Trading is very simple; the price goes up and it goes down, that’s it. But when you go to 9 different math experts, they can all tell you the answer of 1+1=2. Whereas when you go to 9 different trading “experts”, nobody can tell you the same answer as to whether price is going up or down. Why do you think that is? Every trader has their own strategy and trading rules, resulting in very different analyses of the same chart. To take an example from The Matrix, “it’s not the spoon that bends, it’s you that bends.” Why do I say that perception is everything? Charts are simply a representation of human behaviour, and price is the perceived value of a stock by the market participants. Always take this at face value and put all your perceptions and emotions aside, so that you can plan and execute your trades objectively, instead of allowing emotions and the comments of other people to affect your trade.
Trading is a zero-sum game, that is, for one to win, someone else has to lose. It’s also worth knowing that all markets are manipulated, and like Wolong said, this is all but a game of deception. Market makers are present in every market, which also makes “whale watching” and “following the smart money” a viable strategy for trading any kind of market. Why is Mass Market Psychology and all of this relevant? Because there’s only one thing common among all markets — people.
The Pareto Principle, also commonly known as the 80/20 rule, applies to many aspects of trading. For example, 80% of traders end up losing money, 80% of the wealth is held by 20% of the participants, and 80% of profits should come from just 20% of your trades. In a similar fashion, I agree that trading psychology + money management are the 20% which is responsible for 80% of trading success. This principle can also be applied to your trading strategy, where you should aim to eliminate 80% of your trading losses by avoiding emotional or impulse trading, day-trading during important news-release times and chasing entries. Read more about the Pareto Principle and how it applies to trading here. The lesson of the story? There is value in scarcity. More specifically, information is only valuable when it is scarce; as more people know about a piece of information, the value of the information decreases.
Here are a couple of other insightful videos about Mass Market Psychology in Trading, by popular names like Mark Douglas, and Chris Dunn.
“You can think of it as bull trends take the stairs up, and bear trends take the elevator down. One’s slow and steady, the other is quick and violent. These predictable moves in the market are mostly created by human emotion. Fear is stronger than greed. People get greedier and greedier as the price moves up, but are quick to panic at any sign of danger. Because of this, markets tend to give back their gains in a fraction of the time it took for the bull market to play out. There is no single “right way” to identify the trend, but the two most important factors are price action and volume. Price action is another word for analyzing the movement of price on a chart. Volume refers to the amount of Bitcoins traded during that price bar. For a trend to be considered healthy, there needs to be steady price action with increasing or maintained volume.
The key to being on the right side of the trade is to understand what the mass majority of people are thinking, and anticipate their next move. That’s where the money is made in trading. As Warren Buffett says, “Be scared when people are greedy, and greedy when people are scared.”
Sell when everyone else is Buying. Traders like to wait to buy into a market once the trend is already cut and dry. The only problem is this is normally when the trend is near its peak. The best time to sell Bitcoin or Altcoin is when the price has a parabolic spike upwards. Once a trend starts to get stronger and stronger, hype sets in and price reaches an inflection point where the amount of buying is unsustainable. Just like we see with exaggerated panics, over exuberant bullish trends also end with a strong reversal.”
With this information about mass psychology behind the market participants that you are competing with, you should now have a better understanding of the framework used to approach trading, be more well-versed in the structure of a pump & dump, and understand why and how price action is fueled by human behavior and their decisions.
Technical Analysis Tools: Basics
While understanding market structure, crash cycles, and mass market psychology helps greatly on a macro-level by providing an overarching framework with which to approach trading, the technical analysis tools such as Support and Resistance, are critical on a micro-level, in the planning and execution phases of trading, for example to determine entry and exit prices.
I previously went through this topic in greater detail in these blog posts, so please refer to them if you’re interested to learn more about technical analysis basics:
Surprisingly after learning trading for 5 years, the most common tool I use is the most basic of all tools, the line and rectangle tools. I mostly look at support/resistance and volume to analyze charts and price action.
So firstly, lets touch briefly on Support & Resistance. Although S/R lines are one of the most basic of tools, it is imperative that you learn it well. S/R is a crucial tool that you can use to determine your entry and exits, and mastering it can help you to significantly optimize your buying and selling prices, and seriously increase your profit margins.
Here’s an example of how I apply the fundamentals of Support and Resistance to trading altcoins, with my VanillaCash (XVC) chart below. Notice how I mark out horizontal zones which were either previous tops or bottoms, or had multiple rejections when price moved near it. The purpose of having these S/R zones in places is so that you know where price action is most likely to get rejected, and you’ll be able to plan your entry and exits accordingly.
Thirdly, Chart Patterns are the bread and butter of any trader, and you must train your eyes and mind to spot these patterns, understand what they mean, and know how to act accordingly. Instead of thinking about patterns as a way of determining whether price goes up or down, think of chart patterns as regions of consolidation, whereby breaking outside of the pattern can lead to a sustained breakout with volume. Always let price action tell you what to do, rather than predict where the price is going ahead of time. If your position goes underwater, make sure to follow your trading rules and cut your losses when they go beyond your threshold, as laid out by the parameters of your trading rules and strategy. Here’s an exhaustive list of chart patterns all in one place:
I’d like to highlight just one particular chart pattern that’s pervasive throughout the cryptocurrency markets, has a high probability setup, and is highly effective. I’m not entirely sure what it’s called, but it is similar to Bulkowski’s Busted Tripe Tops chart pattern. What I’ve noticed over the last couple of months is that 4 times seems to be a magic number for breakouts. Notice how in the following charts, price action remains within a certain zone as boxed up in the photos below, and it challenges resistance at least 4 times before breaking out strongly. How you can trade this, is to buy towards the end of the rectangle, once relatively higher volume starts to kick in after a period of relatively low and stable volume.
More recently, Digibyte DGB has also formed this area of consolidation, and is looking very similar to XEM before it broke above 200, as shown in the 2nd box as above. Will history repeat itself again?
For more information about the basics of technical analysis and tools, make sure to check out these posts:
For this post, I will instead focus on the Wyckoff Market Analysis tool.
Wyckoff focuses exclusively on price action. Earnings and other fundamental information were simply too esoteric and imprecise to be used effectively. Moreover, this information was usually already factored into the price by the time it became available to the average speculator. Before looking at the details, there are two rules to keep in mind. These rules come directly from the book, Charting the Stock Market: The Wyckoff Method, by Jack K. Hutson, David H. Weiss and Craig F. Schroeder.
Rule One: Don’t expect the market to behave exactly the same way twice. The market is an artist, not a computer. It has a repertoire of basic behavior patterns that it subtly modifies, combines and springs unexpectedly on its audience. A trading market is an entity with a mind of its own.
Rule Two: Today’s market behavior is significant only when it’s compared to what the market did yesterday, last week, last month, even last year. There are no predetermined, never-fail levels where the market always changes. Everything the market does today must be compared to what it did before.
Instead of steadfast rules, Wyckoff advocated broad guidelines when analyzing the stock market. Nothing in the stock market is definitive. After all, stock prices are driven by human emotions. We cannot expect the exact same patterns to repeat over time. There will, however, be similar patterns or behaviors that astute chartists can profit from. Chartists should keep the following guidelines in mind and then apply their own judgments to develop a trading strategy.
Wyckoff Price Cycle
According to Wyckoff, the market can be understood and anticipated through detailed analysis of supply and demand, which can be ascertained from studying price action, volume and time. As a broker, he was in a position to observe the activities of highly successful individuals and groups who dominated specific issues, and was able to decipher, through the use of what he called vertical (bar) and figure (point-and-figure) charts, the future intentions of those large interests. An idealized schematic of how he conceptualized the large interests’ preparation for and execution of bull and bear markets is depicted in the figure above. The time to enter long orders is towards the end of the preparation for a price markup or bull market (accumulation of large lines of stock), while the time to initiate short positions is at the end of the preparation for price markdown.
Wyckoff Market Cycle
Before making a trading or investment decision, chartists need to know where the market is within its trend. Overbought markets are at risk of a pullback and positions taken with overbought conditions risk a significant drawdown. Similarly, the chances of a bounce are high when the market is oversold, even if the bigger trend is down. Selling short when market conditions are oversold can also result in a significant drawdown and adversely affect the risk-reward ratio.
Wyckoff: Accumulation, Breakout, and Markup
Wyckoff notes that an uptrend starts with an accumulation phase and then enters a markup phase as prices move steadily higher. There are five possible buy points during the entire uptrend. First, aggressive players can buy on the spring or selling climax. This area offers the highest reward potential, but the risk of failure is above average because the downtrend has not yet reversed. The second buy point comes with the breakout above resistance, provided it is confirmed by expanding volume. Chartists missing the breakout buy point are sometimes given a second chance with a throwback to broken resistance, which turns into support.
Once the markup stage is fully under way, chartists must then rely on corrections, which can form as consolidations or pullbacks. Wyckoff referred to a flat consolidation within an uptrend as a re-accumulation phase. A break above consolidation resistance signals a continuation of the markup phase. In contrast to a consolidation, a pullback is a corrective decline that retraces a portion of the prior move. Chartists should look for support levels using trend lines, prior resistance breaks or prior consolidations. Alternatively, Wyckoff also looked for support or reversal signs when the correction retraced 50% of the last up leg.
Wyckoff: Distribution, Breakdown and Markdown
A downtrend starts with a distribution phase and then enters a markdown phase as prices move steadily lower. Note that Wyckoff did not shy away from shorting the market. He looked for opportunities to make money on the way up and on the way down. As with the accumulation and markup phase, there are five potential selling points during this extended downtrend. First, a lower peak within a distribution pattern offers a chance to short the market before the actual support break and trend change. Such aggressive tactics offer the highest reward potential, but also risk failure because the downtrend has not officially started. The breakdown point is the second level to short the market, provided the support break is validated with expanding volume. After a breakdown and oversold conditions, there is sometimes a throwback to broken support, which turns into resistance. This offers players a second chance to partake in the support break.
Once the markdown phase begins in earnest, chartist should wait for flat consolidations or oversold bounces. Wyckoff referred to flat consolidations as re-distribution periods. A break below consolidation support signals a continuation of the markdown phase. In contrast to a consolidation, an oversold bounce is a corrective advance that retraces a portion of the prior decline. Chartists can look for resistance areas using trend lines, prior support levels or prior consolidations. Wyckoff also looked for resistance or reversal signs when the correction retraced 50% of the last down leg.
Fundamental Analysis: Cryptocurrency Characteristics
In my most popular blog post about How to Pick & Trade the Next Profitable Altcoin: An Insight into What Goes Through my Mind, I go into great detail about the fundamentals of cryptocurrencies, other fundamental factors that affect an altcoin’s price, popularity and success, as well as some technical analysis and trading tips to help you mould an effective trading strategy. The cryptocurrency space has changed tremendously in the 2 years since that post, so I’d like to make an update of the post, explore the fundamentals of cryptocurrencies and the various types of altcoins by grouping them according to their technical specifications and functions.
When it comes to the fundamentals of cryptocurrencies, there are 4 overarching factors that contribute to the technical specifications, characteristics, and technological potential of a cryptocoin.
Smart contracts / DApps
Theme of problem altcoin is trying to solve
Privacy / Anonymity
There are more than 10 different algorithms used in the 1000s of cryptocurrencies out there, but I’ll only focus on a select few.
X11 / X13 / Multi-algos
SHA-256 was developed by the NSA in 2001, and is the algorithm used to develop the first decentralized cryptographic currency, Bitcoin, as well as many others since. The SHA-256 algorithm is highly secure, and is used globally by huge financial corporations, and even for the launch codes for nuclear missiles. The downside of using this algorithm is the large amount of computing power that is “wasted” in mining Bitcoin. On the other hand, this enormous and growing computing power backing the Bitcoin network is also what keeps it secure from 51% attacks.
Scrypt, as most of you should know, is the algorithm used in Litecoin. Scrypt is quicker and more simple when compared to SHA-256, making it much easier to run on a CPU and tends to use up less energy than SHA-256; as a result, it’s favored by most individual miners. Read up on the difference between SHA-2156 and Scrypt in this article on CoinPursuit.
X11 is a chained proof-of-work algorithm that uses 11 different rounds of hashes to secure cryptocurrencies and their transactions, namely blake, bmw, groestl, jh, keccak, skein, luffa, cubehash, shavite, simd, and echo. This makes it ASIC-resistant, and more secure to 51%-attacks. It has the advantage of a multi-hash system, meaning that in order for the algorithm to fail, all eleven of its hashes would have to fail at the same time, resulting in higher security of the network. Taking into account the very minute probability that even one hash would be broken, the chance of the X11 system failing becomes almost zero. Read more about the comparison of X11 with SHA-256 and Scrypt. X11 was first used in DASH (formerly DarkCoin).
Blake-256 is a lightweight algorithm used in Blakecoin, and mining it produces a hashrate just under 3x faster on the GPU than compared to SHA-256. Energy efficiency is a primary advantage; mining Blake-256 uses roughly 3% less electricity than SHA-256D and roughly 14% less electricity than mining Scrypt. Blake-256 is also capable of generating considerably more hashes per second than most, if not all, other hashing algorithms. Read more about Blake-256 and Blakecoin here.
Ethash is the algorithm used when Ethereum launched on 30 July 2015 with Proof-of-Work (PoW) mining. However, Ethereum has a mining period of only 16 months before it changes to a full Proof-of-Stake (PoS) network. I have shared some PoW vs PoS resources below for your reference.
Lastly, zk-SNARK (short for “zero-knowledge Succinct Non-interactive ARgument of Knowledge”) is the algorithm used in ZeroCash (ZCash) which is slated to launch in Q3 2016. zk-SNARK enables true decentralized anonymity when sending money. The algorithm allows for zero-knowledge proofs, i.e. you can prove a non-fact (you can prove something, without knowing what it is). For example, say I have the key, the network will run an agreed-upon arbitrary script to check the key is real, without any human learning the info about the key. This removes the middleman from the transaction entirely, while maintaining the integrity of the transaction such that there is no way either party can be cheated.
The way it works in ZCash is I can prove I have the coins, without revealing my own address, the amount of coins or receiving address to the blockchain. What I mean by that is the network is able to prove something is true without giving away any extra information. Say you have a key for a game; it’s a long string of characters, and someone wants to buy it off of you. You create a script that proves the key is valid, the script then is given to the network, and the network gives an address to each counterparty. You send the key, the other party sends a payment, and the network now acts as the middleman. The script then goes to the site of the game and asks if the key is legit. The site says yes, so the proof is returned true without anyone learning what the key is. The network then releases the payment to the seller, and the key to the buyer. If it returns false then the transaction is reversed, and at no point does either party get the address of the other person. It’s a bit more complicated that that when it comes to ZCash, but that should give you the basic idea. A similar thing could be implemented on any blockchain using smart contracts, but only within the smart contracts – not the cryptocurrency itself. That’s why zerocash is special and has to be made from the ground up.
As far as I understand, the only real issues with ZCash is the centralized “launch” , and that if there ever is an error with the mining, distribution or transactions, we will never really know…
Shoutout to @Cryptopathic who helped me with this TL;DR on ZeroCash and zk-SNARK, follow him if you haven’t already for awesome altcoin calls.
Proof-of-Work (PoW) vs Proof-of-Stake (PoS)
I have explained this before in my old blog post, so I will not go into this in detail here. However, here are some resources for you to read up on if you’re interested to understand the technical details of PoW vs PoS mining.
Smart contracts and DApps (Decentralized Apps) have become a hot topic of discussion in cryptocurrencies especially in 2015 and 2016, ever since Ethereum popularized the idea. The possibility of smart contracts and DApps is also present in other alternative cryptocurrencies such as Expanse (EXP), and LISK which recently just competed its ICO and is slated to launch on 11 April 2016.
According to Wikipedia, smart contracts are computer protocols that facilitate, verify, or enforce the negotiation or performance of a contract, or that make a contractual clause unnecessary. Smart contracts usually also have a user interface and often emulate the logic of contractual clauses. In short, as Ong from e27 puts it, a smart contract is a computer programme that automatically executes a contract between two parties.
What is the difference between decentralized applications, dapps and smart contracts? According to Max Kordek of LISK, decentralized applications consist of the whole package of frontend (what you see of an application) and backend (the logic in the background). A smart contract on the other hand, consists only of the backend, and often only a small part of it. That means if you want to create a decentralized application on a smart contract system (i.e. not on Lisk the dapp platform), you have to combine several smart contracts and rely on 3rd party systems for the frontend.
Wikipedia defines a smart contract as the simplest form of decentralized automation. It is a mechanism involving digital assets and two or more parties, where some or all of the parties put assets in and assets are automatically redistributed among those parties according to a formula based on certain data that is not known at the time the contract is initiated. A decentralized application is similar to a smart contract, but different in two key ways. First of all, a decentralized application has an unbounded number of participants on all sides of the market. Second, a decentralized application need not be necessarily financial. BitTorrent qualifies as a decentralized application, as do Popcorn Time, Tor, Maidsafe and Crypti (note that Maidsafe and Crypti are also platforms for other decentralized applications).
New alternative cryptocurrencies that attempt to develop a working smart contract / DApp platform will garner strong support from the community. Keep a close watch for coins that fall into this category (as well as new launches), as they can potentially be highly profitable trades, provided you analyze, plan, and execute your trade well.
Instead of grouping coins by algorithm, we can also group them according to their “function” and “type of problem/solution”. Here’s a non-exhaustive list that you can use as a guide.
Smart contracts – Ethereum
Dapps – Applications on the blockchain – ETH, EXP, LISK, VIA
Decentralized storage – MAID, STORJ, SC
Data time stamping – FCT
100% Proof-of-Stake networks – Plenty, e.g. NXT XEM
PoW x PoS combination networks – PPC pioneer, Blackcoin also pioneered and popularized the turbo PoW distribution period into full PoS model.
Anonymous networks – XMR, DASH
To stand out from the rest of the alternative cryptocurrencies, there should be practical real-world use attached to the coin. However, many coins lack this, while some have inherently flawed business models when you consider that most people would prefer to use BTC compared to an obscure Altcoin. Examples of coins that have some real-world value include XRP which is used as a transaction medium for financial entities, while GEO provides real world purpose to mining.
4. Privacy / Anonymity
Anonymity in cryptocurrencies is one of [if not] the most popular topics of discussion among the community. Although privacy and anonymity can be considered as a problem that altcoins are trying to solve, it deserves a whole section on its own due to the complexity of the topic.
Furthermore, there’s no correct method to implement anonymity into a system, be it on a protocol level, or a transaction level. As far as I know, Monero currently has the best working solution for anonymity, while DASH can be argued to be second; however, this will change when ZCash launches. I shall not go into detail about this, but instead give you a brief list of the various kinds of anonymity features used by different altcoins. If you’re interested, I have linked a few resources about this topic below.
Cryptonote & Cryptonight – Ring signatures – Monero XMR
Fundamental Analysis: Picking the Next Profitable Altcoin
Fundamental analysis provides you with a framework for understanding how a cryptocurrency fares against other alternatives, but will not be able to tell you if it is a good buy or not. Prices are constantly moving up or down. Make no mistake; no matter how great the fundamentals of a cryptocurrency is, you will still need to fall back on charts and technical analysis to determine your trade entries.
As a general rule of thumb, news is just a distraction and is usually already priced into the chart. However, this is not entirely true in cryptocurrency trading because most cryptocurrency markets are inefficient and information travels slower, compared to global money markets.
In the fundamental analysis of a cryptocurrency, there are 7 critical factors to consider:
Liquidity (and whales)
Branding & Marketing
When researching about the technical specifications of a cryptocurrency (not to be confused with technical analysis), there is more to consider than just the algorithm. Technical specifications of cryptocurrencies were discussed in the previous chapter, namely about algorithm, but also includes several other critical specifications such as:
Maximum coin supply
At this point, you might be wondering, so how are all these factors related to trading Bitcoin and altcoins? As a guideline, you should stick to only trading altcoins that have “strong” fundamentals, especially if you’re new to the game. One way is to score your target altcoin on the 10 factors above, on a score of 1 to 10 and add them up, and see how that fares against other similar coins using the same method of scoring.
alt.report has detailed qualitative reports on some altcoins whereby they score coins based on 6 factors, not unlike the factors mentioned above, that you can reference for your fundamental analysis. Coingecko.com also has a more macro-level quantitative scoring method where they consider well over 50 factors.
With that in mind, here are some tools you can use to conduct fundamental analysis when researching on how to pick the next profitable altcoin:
Bitcointalk.org – for new coin launches, technical specifications of a coin, roadmap and future plans, developer activity and competency, community support and sentiment.
Twitter – a great tool for understanding sentiment of market participants, following market leaders, and a means of communicating with the community.
Tools – Charts, Coinmarketcap, TradingView/Coinigy/Cryptrader, apps like Blockfolio for tracking multiple cryptocurrency prices.
Altcoins: Poloniex & Bittrex are the two leading exchanges, while Yobit.net has many newly launched coins or those with small market capitalizations and liquidity. Poloniex also allows for margin trading for 11 altcoins, giving you a good chance to short altcoins like ETH, XMR and FCT when they’re on a downtrend.
Bitcoin: Bitfinex for up to 3x margin trading, and OKCoin for up to 20x leveraged futures trading. BitMEX is a Bitcoin derivative exchange, with futures trading on Bitcoin (up to 100x leverage) and Ethereum (25x leverage).
Global money markets: 1Broker and SimpleFX give you access to trade global markets including Forex, Indices, Commodities, and Stocks, while maintaining your balance in Bitcoin.
Another important consideration for cryptocurrency trading is to understand how environmental conditions affect a market. For example, late 2013 and early 2014 was a hotbed for altcoin pumps, as Bitcoin was leading the charge in the bull market then. Thereafter, BTC went into a 1.5 year decline which led to the downtrend extending into altcoin markets as well. Similarly, we’re currently in an environment similar to that of 2013, and as this BTC bull market plays out, we should continue to see a sustained pump across altcoin markets at least for another 3 months leading up to the BTC halving. In this light, take note of how major media outlets portray a particular cryptocurrency, and consider how it will affect the market, so that you can analyze on a broad scale how healthy a market is.
End: XMR (DASH)
-> Accumulate AMP under 10k
-> DNET under 2k
-> QORA under 11
Developing a Profitable & Effective Trading Strategy This last chapter will be about applying the framework, TA and FA to develop a personal trading strategy. I’ll share 8 strategy tips for you to keep in mind when you develop your trading strategy. Some of you may be asking, what should one focus on while trading, and while learning to trade? Trading can be broken down into three major activities; learning, planning, and executing. After going through this tutorial, I hope I contributed to your learning process, and that you are sufficiently armed with the necessary knowledge to plan your effective trading strategy, and execute it accordingly.
In terms of trade execution, there are three methods of approach; accumulating, buying breakouts, and scalping. Accumulation generally has the longest holding period, while scalping has the shortest. In addition, accumulation will have a higher risk due to direction uncertainty at the point of buying, when compared to buying breakouts, even though the former will give you a better price.
A common strategy used to approach trading is to “trigger fundamentally, and enter/exit technically“. In other words, you should make a decision to trade a market based on a fundamental trigger, but rely on TA to determine your entry/exit. On the other hand, you can also approach it from the reverse way. First, look through charts to find potentially “good looking” charts that are in, or about to begin and uptrend. Thereafter, use FA to validate and justify making the trade, while eliminating potential trades that have poor fundamentals. To get a better idea, here are two short articles by Investopedia and FuturesIndexTrader.
Next, when it comes to planning your strategy, there are two key factors to consider:
Risk Management – Never risk more than you can afford to lose, and never go all-in on a single trade.
Money Management – Set a % limit of your BTC portfolio that you can afford on each trade. As a rule of thumb, most traders risk up to 2% of their portfolio on any single trade. However, this may be too conservative for trading cryptocurrencies, so you may want to adjust it according to your own risk appetite.
In terms of execution, an important concept is to use multiple time-frames, or a top-down analysis, to analyze charts and price action. When trading, you always want to look at at least 2 different time frames; a larger one to get a better picture of the macro trend, and a smaller time frame to determine your entries and exits. Never be so focused on the short term trend that you forget about the long term or higher time-frame trend. E.g. Bitcoin might look like a good short on a small time frame. but if you zoom out to the daily or even the 3d candles, you’ll see a totally different picture; mega bull. The idea of fractals is also related to this, where we have a “wave within a wave within a wave”
Timing is key. The trick is to know when to get in and out of the markets at the right time. Get out too early and you’ll cut your profits short, get out too late and you’ll lose money. This is why it’s important to have the right timing. Furthermore, I’d very much rather buy some coin 5 minutes before it pumps, at a worse price, than buy it at a very good price, but having to wait weeks or months before it starts to move, not to mention the increased uncertainty of the move and risk associated with “buying the bottom”. Afterall, markets are 99% watching/planning and 1% executing, so practice patience when trading, and wait for the “right time” to enter a trade and you will be rewarded handsomely. Here’s a short article about trade timing and how to decide entry/exit points.
Focus on not losing. To win at trading, as paradoxical as it seems, happens only after you’re able to come to the realization that it’s really not about focusing on making a winning trade. Instead, what really matters is NOT losing, or at least to minimize losses, and that’s your first step to winning.
Lastly, it is essential that you plan your exit before you even enter a trade. If you don’t, you will be consumed by emotions before you can devise a logical and evolving strategy as the trade is “live”.
With that, I have come to the end of my lengthy, but hopefully informative post about trading Bitcoin and Altcoins. I hope what I shared will be useful for you, and that you’ll familiarize yourself with the concepts and tools, and eventually be able to apply them and make a profit trading anything from Bitcoin to altcoins, and even other money markets like forex, commodities, indices and penny stocks.
Thank you for taking the time to read to the end of this lengthy post! It was a pleasure to share my experience and knowledge about Bitcoin and Altcoins trading, and I trust that I have sufficiently armed you with all the necessary tools and foundation to get you started on your cryptocurrency trading journey. All the best!
I’m the lucky guy, who made 1-st sells LSK coin on Poloniex. And it was really good experience for me.
I sold 332 LSK for 6.66 BTC. This is about 1 LSK @ $13.2 coin. ICO coins was about 1 LSK @ $0.1. Now 1 LSK @ $0.3. As you can see, the profit is huge.
In that post I want to tell you the story of my success. I believe you can get something useful for yourself.
I was ICO investor with 2 BTC and received 11000 LSK for trading.
Before official launch of LISK coin I learned to start manual Lisk Node in Ubuntu environment by this tutorial. There is no official Windows client yet. And this is the most important thing that I did.
… for ninja start. It was nightly here. I drunk RedBull and began my mission.
At 23:01 files appeared on https://downloads.lisk.io/ and for my luck lisk web client was DDOSed (btw, it’s not my fault ;)) ). In 5 minutes I started Lisk node on Ubuntu, entered my ICO wallet and begin waiting for Poloniex.
At 23:15 Poloniex opened BTC/LSK market and I generated deposit address and sent 1300 LSK as quick as I can.
After that I was waiting 303 confirmations. Confirmations on Polo increasing periodically, 30-50 confirmations per time. I saw insane Buy orders while waiting. Top order was 0.00011573 LSK @ 447 BTC.
When confirmation number was 290+ I began pushing “Sell” button and receiving:
My adrenaline rolls over. This went on for about 15 minutes. I saw thousands “not enough” messages. Suddenly….
At one moment message was sold … sold … sold … sold … sold …. It was amazing feeling for me. Something like this:
I bought more cheaper LSK and now I’m holding as a hell!
So, my secret power was:
Learning before official ICO start
Lucky DDoS of login.lisk.io
F5 button and quick mouse moves
I hope this history was interesting and useful.
I can post more lifehacks for crypto trading and trading API usage.
For example, I made simple PumpMonitor using Poloniex API.
I must admit I did not expect Ethereum to end up in the current state. I originally predicted that the DAO owners will force decisions on Vitalik Buterin and they have. Both his mental and physical health are declining as he is the person held responsible for other people’s choices, mafia-style. But I have not expected the other side, which created ETC, to appear. But all in all, you need two sides to divide a community. Let’s sum up the current state of affairs:
Coinbase accpted ETH and made themselves vulnerable to an attack which drain their capital. Current state of affairs is yet to be discovered.
The Ethereum Hard Fork enabled a replay attack on both ETC and ETH chains, although it was very easy to prevent such attack by only a few lines of code. Raises questions about competence of the Ethereum Foundation.
ETH and ETC are a competing system with an instant doubling of supply. Only two outcomes are possible, either one chain dies, or the market capitalization averages between the two.
Don’t even make me start about Tual. Here, read! https://twitter.com/stephantual/status/749246144669184000 He says that the ecosystem is not mature, although the only immature thing is his ability to write simple mathematical operators (higher than, lower than, equal) in his experiential software. He would rather damage the whole ecosystem than take blame for what was only his fault.