CryptocurrenciesHuge Investment Opportunities! True Or False?


  • Cryptocurrencies are digital currencies that run on a distributed ledger, thereby solving the double spending problem common in previous digital currencies.  The pacesetter of this movement is Bitcoin, which was developed by an anonymous programmer who goes by the name Satoshi Nakamoto.

     

    • Most Popular Cryptocurrencies

    The success of Bitcoin has led to the arrival of other cryptocurrencies, like Ethereum, Ripple, Litecoin, Dash, Monero, Iota, Stratis, and Neo etc. These different currencies have a common feature, given that they all leverage off the idea of decentralization and distributed ledgers. Despite this similarity, most of them have different use cases, and methodology of deploying the idea of decentralization.

    - Bitcoins’ major use case is that, it is the first generation blockchain based cryptocurrencyused as an exchange of value.

    - Ethereum is also blockchain based cryptocurrency, but instead of putting a list of transactions into a ledger, it runs an entire computers’ state on a blockchain. It is therefore summarized as a virtual machine on a blockchain that allows for programming what they call smart contracts.

     - Monero is a cryptocurrency that allows users to carry out anonymous transactions that cannot be traceable, unlike Bitcoin.

     - Stratis is a cryptocurrencyblockchain solution for companies, organizations, and enterprise. They offer a service they termed blockchain as a service. This allows companies to have their own private blockchains without bothering about the technicalities and cost implications of setting up one.

     - Iota uses a technology they termed Tangle which is different from the blockchain technology, in that it does not make use of miners, hence no transaction fees. Their focus is on the internet of things (IOT).

     - Neo was formally known as Antshares, and they are popularly called the Chinese Ethereum. Their technology leverages over some of the flaws of Ethereum, in the case of having a programming language that is generally acceptable in the programmer community. They also have to tokens, Neo and Gas serving different functions.

     

    • Difference with classic Fiat currencies

    Classical fiat currencies and cryptocurrencies have value, because a group of people come together to agree that they be assigned such values.

    Cryptocurrencies are digital in nature, and have several advantaged over traditional fiat currencies like the U.S Dollar, Euro, Great British Pound, or Japanese Yen. These differences include:

    - They are decentralized: What this means is that no single entity, organization, or government controls their supply, or regulate them.

     - They are immutable: This means that whatever form of data or transaction that is carried out on the networks cannot be changed, hence tamper proof.

    - They are deflationary in nature: Unlike traditional currencies that are subject to inflation, cryptocurrencies have a fixed amount that will be in circulation.

    - No middle men hence making you your own bank: Most cryptocurrencies make use of public and private key cryptography. What this implies is that your public key is likened to your account number, while your private key is likened to the password to your bank vault. You lose your private key; you lose access to your entire money, if it is not backed up.

    - Trust Issues: With traditional currencies, you have to trust the banks to ensure that your money is safe. When carrying out transaction across borders friction usually exists between banks, thereby leading to a delay in transactions.

    - Low Transaction Fees: Sending money across international boundaries with traditional currencies, which equally attract huge transaction fees. Micro payment is even possible in some cryptocurrencies, and some of them are even pushing for no transaction fees.

     

    • Trading on Cryptocurrency

    The principles of traditional CFD, FOREX, and equities trading apply to cryptocurrencies. They are very volatile, therefore proper risk and money management strategies must be adhered to when trading these new forms of currencies on brokers and exchanges.

    Trading Similarities between Cryptocurrencies and Traditional Fiat currencies

     

    TECHINCAL ANALYSIS

    Technical tools such as trend and oscillator indicators; price action with Japanese Candle sticks; are very effective for timing trend reversal and continuations. Another very common and effective pattern on most cryptocurrency charts is regular and hidden divergence setups.

    The following charts illustrate some of the technical tool.

     

    BTCUSD MONTHLY CHART: PRICE ACTION USING A VARIANT OF THE INSIDE BAR PATTERN.

    For the above candlestick setup, enter long trades at the formation of bullish setup represented by blue arrows, and go short at the formation of the bearish setup signified by yellow arrows.

     

    -  FALSE BREAKS

    From the setup shown above, instant sell or buy orders can be placed at the formation based on the direction of the arrow. It can also serve as a critical level of support or resistance, thereby deploying a breakout strategy.

     

    -  BTCUSD WEEKLY CHART: DIVERGENCE SETUPS USING A CUSTOM RSI-OSCILALTOR

    The chart above illustrates real divergence setups on the BTCUSD chart which can be taken advantage of. Hidden divergence setup signal a continuation of existing trends, while regular divergence, signals a change in the trend. For proper confirmation of the setup, it is important that the trader exercise patience to wait for the golden or dead cross of the oscillator before initiating a trade.

    I prefer working with MetaTrader brokers that offer cryptocurrencies. This way I can carry out my analysis on their platform, and place my trades on some other broker, or exchange.

     

    FUNDAMENTAL ANALYSIS

    Keeping tabs on important announcements in the cryptocurrency space, such as the launching of an ICO; an exchange got hacked or banned; a hard fork on a cryptocurrency, are the major market movers. Checking out the capitalization of different cryptocurrencies on coinmarketcap, as well as following the individual coins on their slack and twitter and other social media pages will help to keep tracks of the latest happening in the crypto space.

Interviews

  • the Analyst's answer

    Jean Grossett - Financial analyst

    Like most new technologies and innovations, the early adopters of cryptocurrencies are men of the underworld and fraudsters. This is not to say that they do not come with their advantages, but care must be taken when transacting with them.

    With much power come more responsibilities, making users their own banks means that they are saddle with the responsibility of securing their investments.

    A hacker gaining access to an unsecure network can cart away with all the cryptos the user possess in a couple of minutes. An example is cryptocurrency exchange called Mt.Gox that was hacked, losing all its investors and traders funds.

  • the Manager's answer

    Robert Danvil - Investment Manager

    Tips: before you go on buying into cryptocurrencies, or participating in popular Initial coin offerings (ICOs), an investor/trader must carry out his due diligence. S/he must understand what cryptocurrencies really are from the blockchain technology point of view, to what solution a startup brings to the table.

    An investor/trader must understand the different ways of securing/safeguarding your cryptocurrencies using different storages. Storages come as web based/app based storages which are considered hot storage. Little amount of your crypto holdings is advised to be stored here, particular those used for day to day transactions. Another form of storage is the cold storage which can be on a hardware wallet or even as simple as having your private key stored on a paper, safely stored somewhere.  An example of the hardware wallet is the Ledger Nano wallet.

    Never invest your entire crypto on an exchange, as most of the exchanges out there are not regulated. The choice of cold storage is the best way to preserve your investment, or even operate a buy and hold approach to the crypto markets.

    The world of cryptocurrencies is very broad and so many are coming out probably on a weekly bases now.

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