Known from:
ntv-logo sky-logo comedy-central-logo
stevewalters

One of the constants in the technology space is that there’s always something new being unveiled. And over the past few years nearly all the buzz has been about blockchain technology and the potential uses for this technology that didn’t even exist 10 years ago.

Well, actually, in theory, it did.

All the way back in 1991 the technology for blockchains was outlined by Stuart Haber and W. Scott Stornetta. They were looking to create a system that could store indelible timestamps, but never got beyond the theoretical construct.

It wasn’t until 2009 that the first real-world use case for blockchain technology hit the world. That was bitcoin, and since its release on the world blockchain has quickly become the biggest and most talked about area of technology.

Bitcoin is a decentralized digital currency that runs on a public ledger, which is built on blockchain technology. In the bitcoin whitepaper released in October 2008, bitcoin was referred to as, ‘a new electronic cash system that’s fully peer-to-peer, with no trusted third party.’

If you can understand how blockchain was used to create bitcoin, you can begin to see all the other potential real-world implementations of the blockchain that become possible.

The bitcoin Blockchain

As mentioned above, the bitcoin blockchain is a public ledger that is tamper-proof and records every transaction that has ever occurred. This is said to make bitcoin transactions safer and more secure than the current monetary and financial systems.

The blockchain that underlies bitcoin is also decentralized. That means there is no single entity that controls the blockchain or the bitcoin currency. Instead the blockchain is maintained by the group of individuals and entities known as miners.

Miners run high-powered computers that work to solve complex cryptographic problems that verify the blocks and transactions on the blockchain. They are rewarded for their efforts with newly minted or mined bitcoin. Their activity also ensures the network remains secure from tampering.

After a miner validates a block and receives their reward the block is added to the chain of previous blocks. Thus the term “blockchain” was coined to describe this creation.

How the blockchain remains tamper-proof

The blockchain has been praised because it is tamper-proof. That’s because each block added to the chain has its own cryptographic reference, or hash, that refers to the previous block. The hash is created as a part of solving the cryptographic problem to validate the block. The hash is encrypted and unique, and if a block is tampered with it also changes the hash. In order to maintain a valid blockchain it would then require the person tampering with the block to re-mine every other prior block to create the proper hashes. With current computer processing power that is impossible.

Where Is the Blockchain stored?

In the case of bitcoin, the blockchain is stored on any computer running a network node and can also be viewed by anyone who wishes to do so. If you are running a network node you get a copy of every block as it is added to the blockchain. As of November 18, 2018 the 90-day average number of full nodes is just under 10,000.

The number of nodes has continued growing, and the larger the network becomes, the harder it is to tamper with the blockchain.

Advantages of Blockchain Technology

Even though it seems very complex, the potential of the blockchain as an indelible and decentralized record-keeping system is nearly limitless. Blockchain technology presents fewer errors, lower fees, better security, greater privacy and a tamper-proof record of transactions.

Here are the known advantages of blockchain technology for businesses:

  • Accuracy
  • Cost
  • Decentralization
  • Efficiency
  • Privacy
  • Security
  • Transparency

 

In Conclusion

The blockchain seems complex, and while it is if you need to understand the programming, it really isn’t much more than a public database of transactions, all linked together and secured by encrypted mathematical problems. This concept, which only emerged in 2009, could very well change the way businesses, governments and every single person on the planet operates financially.

We continue to come up with new implementations for blockchain technology, and improvements are now being developed that will make the technology more secure, more private, less expensive and much faster. The coming years will almost certainly see blockchain technology being used to increase security, efficiency, accuracy and privacy in business and government dealings.

As bitcoin heads into its second decade of existence the only question is what won’t be impacted by blockchain technology.

Because cryptocurrencies are typically referred to as coins or tokens it is perhaps unsurprising that we’ve settled upon the term wallet as an analogy for a place to store the digital assets. But since cryptocurrencies are digital, what exactly is a cryptocurrency wallet, and how are they used to store the various coins and tokens used to represent digital blockchain assets?

In short, a cryptocurrency wallet is a software application that is used to store the private keys that convey ownership of the digital assets known as cryptocurrencies.

The private key in cryptocurrencies is paired with the public key and is what allows for verification that a wallet address holds the cryptocurrencies when they are being transferred to a different address. The public key is what is shared to have coins sent to your wallet, while the private key is used to prove you have the coins when you’re trying to transfer them.

Types of cryptocurrency wallets

Cryptocurrency wallets are available in several versions, with differing functions and features, and a variety of user interfaces. Some store just one type of cryptocurrency, while others can hold dozens or hundreds of different cryptocurrencies.

The wallets come via several different platforms. There are basic web-based wallets, such as those you use when you purchase Bitcoin or other cryptocurrencies from an exchange. One such popular web-based wallet is MyEtherWallet. Its popularity stems from the fact that it can be used to store any of the hundreds of Ethereum ERC-20 compatible tokens. Another plus point is that it is free to use. This open-source client-side interface allows for easy interaction with the Ethereum blockchain.

There are also desktop cryptocurrency wallets that are installed on a PC, and mobile cryptocurrency wallets for use on smartphones and other mobile devices. Exodus and Jaxx are popular desktop wallets.

One of the most secure cryptocurrency wallets is the hardware wallet. These are small devices that were created specifically to store and secure cryptocurrencies. The most popular hardware wallets are the Ledger Nano S and the Trezor. Both can hold hundreds of different cryptocurrencies, and as long as they aren’t connected to the internet are considered 100% secure.

A final type of cryptocurrency wallet is the paper wallet. Where the other cryptocurrency wallets store the public/private keys of the cryptocurrency within the software application, often in an encrypted state, a paper wallet has the private key (and possibly a QR code) printed on a piece of paper. Because they can be generated offline, and are never connected to the internet, they are considered the most secure type of wallet. Of course, since they are paper, they are subject to other risks such as theft or accidental destruction.

They might be called wallets, but cryptocurrency wallets do much more than just hold your currency, cards, and receipts. They are a connection to the blockchain, allowing users to send and receive, keep track of, and secure their coins. Some wallets even have features that allow you to swap one cryptocurrency for another. In that way they are a blockchain interface, not just a storage medium.

Time decay in options is called ‘Theta’ decay. That is purely due to the appetite of options traders to use Greek terminology wherever and whenever possible. Theta decay and Time decay mean the same thing and are a measure of how the passage of time influences the price of an option.

Exercise

Any option that you are studying the price of will have that price determined by a range of factors which are all likely to be influencing the price at the same time. Taking a hypothetical situation where all other variables are constant illustrates the role of time on option prices and some of the ‘quirks’ that come about when considering Theta.

Holding an option contract gives you the ability (but not the obligation) to ‘exercise’ the option for the underlier. If for example, the underlier of the option is equity then the holder can exercise the option and will have their holding converted from options to the equivalent equity.

Expiration

If you are holding what are known ‘European Options’, then you can only exercise (from option to underlier) on Expiration date. ‘US Options’ on the other hand have slightly different T&Cs and you can exercise those at any time prior to, and including, the Expiration date. In either case you are holding a ‘wasting’ asset as the contract only applies up to the previously agreed deadline.

Price of the ‘same’ Option with different Expiry dates
Below is the price chart for UK Large Cap retailer Marks and Spencer. The current price of this CFD is 308.20

Options relating to the MKS LN CFD underlier with Expiry date 21stDec 2018 are priced as below:

Call Options with Strike Price 340 but Expiry date 1 month later (18th Jan 2019) cost more to buy 6.25

Longer dated Call options with the same Strike price but Expiry date of June 2019 cost 12.75 to buy.

Interactive Brokers Paper Demo account: Options Monitor for MKS CFD 20181126

The MKS LN CFD Call Option being analyzed has the same characteristics apart from Expiration date, and Theta decay is what explains why longer dated options have higher prices. Put another way, if you buy the MKS LN CFD Call 340 with the underlier trading at 308 then you have only 25 days for the December option to come into the money but over six months for the June option to do so.

MKS LN is a perennial subject of takeover rumor and gossip and the June option gives you six months exposure to news events. Remember, even unfounded rumors cause prices to spike.

Rate of decay

Theta decay tends to accelerate as options get closer to Expiry date. The daily rate of change would be less for an option that is 11 months from expiry than one that is only days away. That is because historical daily price volatility forms part of the calculation of option prices. Using historical closing price data it becomes clear what probability can be applied to what degree of a daily price move.

Of course, Historical Volatility is a methodology that studies past prices rather than predicts future ones; however, if you’re holding an option that is a long way out of the money and there are only a few days until expiry and its historical probability shows it has low daily price volatility there is a greater need for each daily movement to be in the right direction. This requirement for a combination of successive events to be in your favor is what causes Theta decay to accelerate. A six months until expiry price can move towards being in the money, fall away, move again and take a fairly circuitous route to finally being profitable.

2018 has been a tough year for anyone holding bitcoin, especially for those who only began investing late in 2017. So far there has been no indication that bitcoin is going to recover. In fact, after spending over two months trading in a tight range of $6,300 to $6,500 the world’s most valuable cryptocurrency by market cap dropped further and is now trading below the $5,500 level for the first time since October 2017.

Does that mean bitcoin won’t ever recover? Hardly. To keep perspective over the future of bitcoin price we need to look into the past of bitcoin price.

Bitcoin Price History

Despite the lack of volatility in bitcoin over the past few months we have to remember that bitcoin has always been a volatile asset. Of course the drop from nearly $20,000 to $5,500 in under a year isn’t much fun, but it also isn’t the first time we’ve seen such a large move from bitcoin.

Every time bitcoin has fallen so drastically it’s also recovered and moved to new all-time highs. And there’s no reason to think that this time will be different.

Of course a drop from $19,296 to $5,358 is huge, but it isn’t the largest fall for bitcoin percentage wise. From July 2011 to December 2011 bitcoin fell from $31 to $2; a drop of more than 90%.

Over the course of the following year the price increased from $2 to $13, or more than 600%, however, that was tiny compared to the 13,300% increase as bitcoin surged in the coming months to hit $266 by April 2013. And just two months later the price was back at $70.

There have been other dips that saw bitcoin losing 50% or more of its value in several months, yet each time it has come back stronger than ever. And that gives us little to be concerned about over this current pullback.

When will Bitcoin start moving higher again?

It’s easy to forget the history of bitcoin when you’re living through one of its massive dips. But just a little bit of perspective goes a long way. Bitcoin very recently celebrated its 10th birthday and in those 10 years it went from a value of basically $0 to the current value of $5,500. That’s incredibly bullish in my eyes, no matter what the shorter-term picture looks like.

Consider too that bitcoin’s ecosystem is just now beginning to find a solid footing. Scaling and high transaction fees have been issues, but the Lightening Network promises to solve those problems, leading to great merchant adoption, and greater mainstream adoption. Both of these can only increase the price of Bitcoin.

The combination of technical advances, mainstream adoption, and more interest from institutional investors will pave the way for the next rally in bitcoin. Even if it doesn’t occur in 2019, the coming rally is likely to make $19,000 look like pocket change, if it’s anything like past rallies.

Bear markets can seem to drag on forever, but once we emerge into a new bull market those who kept faith are likely to be rewarded very generously.

In the Forex market, support and resistance lines are formed when the price repeatedly returns to a certain level before reversing. When the price goes down and then reverses back up after hitting this level, the line produced is called “support.” When the price goes up and then reverses after hitting this level, it is called “resistance.” Traders often use these lines as entry and exit points in trades.

Support and resistance example

Here is an example of support and resistance on a chart.

Looking at this chart, we can see that since late August/early September of 2018, the price of AUD/USD has been unable to break through a horizontal line at 0.72745. It first fell below this line in late August. It then moved slightly above it in mid-September before reversing. In early November, it once again tried to move above this line and failed. For this reason, we can say that 0.72745 is a line of resistance.

We can also see that the price has attempted twice to break down below 0.70412. The first attempt was in late September and early October. The second was in late October. In both cases, the price rallied after hitting this line. For this reason, we can say that 0.70412 is acting as a line of support.

Points to remember about support and resistance

First, it is important to recognize that support and resistance levels are not exact. The price may go slightly above resistance or slightly below support before reversing. If that happens, most traders will not consider the line to have been broken. So it could be argued that it is more accurate to speak of “areas” rather than “lines” of support and resistance.

Here are a few other points to remember when using lines of support and resistance:

  1. Support becomes resistance (and vice-versa). When a line of support is broken, it often becomes a line of resistance in the future. When a line of resistance is broken, it often becomes a line of support in the future
  2. The more often a line is hit without being broken, the stronger it usually is.
  3. When a line breaks, the strength of the follow-through is usually proportional to the strength of the line. For example, if a line of resistance has been hit six times and then breaks on the seventh try, we should expect to see a much stronger follow-through move up then if the resistance had only been hit twice before being broken

 

How to trade using support and resistance

There are several strategies traders can use to take advantage of support and resistance lines. Here are a few of them.

  1. Go long near support, exit near resistance. If a trader believes the current lines will hold, buying just above support and selling just below resistance can be an effective strategy
  2. Go short near resistance, exit near support. This is the opposite of the previous strategy. A trader can sell just before the price reaches resistance and then buy the currency back just before it falls to support. This can be a reasonable strategy if the trader believes current lines will hold
  3. Wait for a break, then follow the momentum. If a trader believes one of the current lines will not hold, he can buy just after resistance breaks or go short just after support breaks. If the line that is broken has been tested multiple times and not failed, the follow-through after it is broken may be very strong. This may lead to a profitable trade
  4. Place a stop just below support or just above resistance. If a trader is going long, placing a stop just below support may be an effective means of limiting losses in case support breaks. If a trader is going short, placing a stop just above resistance can achieve a similar aim

 

Recognizing lines of support and resistance is one of the most used tools of successful traders. It allows traders to recognize at what levels the price is likely to reverse, and to approximate how strong the resulting move will be if the price does not reverse at these levels.

Bitcoin was born in January 2009, and it changed the financial world forever as it ushered in the new era of cryptocurrencies. It’s been a tumultuous time for the infant cryptocurrency industry as governments, regulators, tax authorities and enforcers worldwide debate how to deal with cryptocurrencies. Among all this the primary question many users ask is, ‘is bitcoin legal in my country?’

The answer depends on what country you’re talking about, and what you’re using bitcoin for. There’s no set answer, since confusion reigns even within individual countries.

Bitcoin is a computer generated digital currency, and as such it has no ties to any one government or central bank. It was created as a peer-to-peer alternative to government issued fiat currencies and it offers users a convenient and inexpensive way to transfer value while also remaining private.

With growing acceptance from merchants, the ability to convert bitcoin into fiat currency, the growth of exchanges and trading, and the burgeoning number of investments in other blockchain based platforms it certainly looks as if Bitcoin and its kin have been accepted.

Yet there is no global regulation of bitcoin, and even local governments have conflicting views on the new payment method.

Let’s have a closer country-by-country look to determine if bitcoin is legal in your country.

Countries where bitcoin is legal

Most countries have yet to fully rule on the legality of bitcoin, but we can say that it is not an acceptable substitute to any country’s legal tender currency. Some countries have accepted bitcoin’s usage by enacting regulations, others have outright demonized the digital currency, and most are taking a wait-and-see approach. Here are the countries where bitcoin usage and ownership are considered legal:
Japan – Japan is at the forefront of bitcoin acceptance. It was the first, and so far, the only, country to declare bitcoin legal tender in 2017. It is also ahead of other countries in regard to regulations, with laws being passed in 2017 to license cryptocurrency exchanges, while also putting them under Know-Your-Customer and Anti-Money Laundering regulations.

United States – In the United States there has been a generally positive attitude from government entities regarding bitcoin. While some do work to stop its use in illegal transactions, others have begun to draft regulations regarding taxation and investing, including the introduction of a bitcoin derivative on the Chicago Mercantile Exchange and the Chicago Board Options Exchange. The IRS has deemed bitcoin a property for taxation purposes, the U.S. Treasury has said it is a money services business rather than a currency, and the Securities and Exchange Commission is drafting regulations to define bitcoin trading.

On the commercial front there are a growing number of U.S. businesses that accept bitcoin in payment.
Canada – Canada has a friendly stance towards bitcoin, while also working to ensure it isn’t being used for illegal purposes. Canada’s Revenue Agency has determined bitcoin to be a commodity, which makes bitcoin transactions in Canada a barter transaction subject to business income laws and regulations. Taxation is determined by the intent of the bitcoin buyer and seller.

Like the U.S., Canada largely considers bitcoin exchanges to be money service businesses. That makes them subject to KYC and AML regulations and requires them to register with Canada’s Financial Transactions and Reports Analysis Centre (FINTRAC). On a negative note, some Canadian banks have banned the use of their credit and debit cards in Bitcoin transactions.

Australia – Australia has also taken a friendly stance towards bitcoin and considers it to be like any other foreign currency. Entities in Australia are permitted to transact with Bitcoin, as well as trading, buying and mining it.

The European Union – So far, the European Union hasn’t issued a formal decision regarding bitcoin and other cryptocurrencies. In the absence of a central decision individual countries have been developing their own stance regarding bitcoin. In many cases that has led to a lack of regulation and tax-exempt status for bitcoin across much of the European Union.

United Kingdom – The U.K. is pro-bitcoin and has been supportive of the digital currency in its regulatory and taxation approaches.

Countries where bitcoin is unwelcome

There are countries that haven’t embraced bitcoin with open arms due to worries over the decentralized nature of bitcoin, its links to illicit activities, its volatility, or its perceived threat to the current fiat currencies. In some countries it has been outright declared illegal and banned, while in others it has seen access to banking and financial services severed.

Bangladesh – This South Asian country is one of the few that has openly declared against cryptocurrencies. The Bangladesh government made it clear as early as 2015 that it is a “punishable offense” to use bitcoin and other cryptocurrencies in Bangladesh.

China – Because of its link to bitcoin mining, and the large number of altcoin projects in China, it has seen sometimes intense media scrutiny regarding its policies towards bitcoin. While the Chinese government has openly stated that they have no plans to ban bitcoin, they have also banned ICOs in 2017, and have cracked down on cryptocurrency exchanges by suspending trading of digital assets against the Yuan. It has also been removing the tax breaks and cheap electricity that made bitcoin mining so attractive and profitable in China.

Russia – Russia has also had a sometimes contradictory relationship with bitcoin and cryptocurrencies. At various points it was going to be regulated, then banned, then allowed, but not for transactions, and finally in early 2018 the Russian government released regulations making bitcoin exchanges officially legal in Russia. There are still rumors that the Russian Finance Ministry is drafting legislation to make it illegal to use bitcoin as a substitute to the Russian Ruble.

Vietnam – The central bank and government of Vietnam have stated that bitcoin is not a legitimate payment method, but they have not released any formal regulations regarding its use as an investment. That said, the Vietnamese government seized control of the country’s largest cryptocurrency exchange in May 2017 and banned the import of cryptocurrency mining equipment in August 2018.
Egypt – There hasn’t been a government ban on bitcoin in Egypt, but in January 2018 the highest religious leader in Egypt stated that cryptocurrency trading is forbidden under Islamic religious law.

South America (Bolivia, Columbia and Ecuador)

The Central Bank of Bolivia has banned the use of bitcoin and in Columbia it cannot be used for purchases or investment. Ecuador has also banned the use of bitcoin by a vote in their national assembly.

Africa (Namibia, Nigeria and Zimbabwe)

In Namibia it has been made expressly clear that bitcoin transactions are illegal, and users will face penalties. Nigeria has prohibited banks from dealing with cryptocurrencies, but the government has also said they are working on their official stance towards bitcoin as a method of payment and as an investment. Zimbabwe has banned its banks from processing transactions linked to bitcoin, but in May it also lifted a ban on cryptocurrency exchanges. The new finance minister has been outspoken in his desire to see Zimbabwe embrace cryptocurrencies.

The Bottom Line

Even though bitcoin is over 10 years old most countries haven’t yet determined how to deal with the fledgling digital currency. Progress is being made however, and in the free and open countries bitcoin has been accepted. Governments that typically exert greater control over their citizens have been hesitant or unwilling to embrace bitcoin, which isn’t surprising given their lack of control over the digital currency.

While bitcoin usage and investment remain a grey area in much of the world, its acceptance is slowly increasing, and most of the world’s citizens will find that bitcoin is legal in their country, especially as an investment.

How would you feel about an asset that has wildly volatile price swings, no regulation or protections, and a seemingly endless number of scams?

That’s the impression that new traders get when they first check out the cryptocurrency markets. The risk levels look off the charts, but cryptocurrency trading doesn’t have to be as risky as it appears at first glance.

If you take some time to educate yourself about the markets and various cryptocurrencies you can substantially reduce the risk in your cryptocurrency trades.

To get your education started and help you avoid some of the risks associated with trading cryptocurrencies here are the top risks you need to be aware of in the markets.

Market Risk #1: Asset Volatility

Here we are at the end of 2018 and the bear market that gripped cryptocurrencies throughout most of 2018 is well known. From January through November the MVIS CryptoCompare Index lost roughly 80% of its value. That makes the 2018 cryptocurrency bear market worse than the dot-com bust of 2000 when technology indices lost 78%.
Bitcoin peaked just above $20,000 in December 2017 and went on to drop below $6,000 by mid-November 2018. The rest of the market looks similar too, with most altcoins dropping substantially throughout 2018 and showing little movement at all during September and October.

But we can’t only look at 2018. Bitcoin and cryptocurrency markets have seen similar crashes before.

  • In 2011 the first Mt. Gox hack caused a 95% drop in bitcoin.
  • In 2013 banking issues in Cyprus caused a 52% move lower.
  • And 2014 had a second My Gox hack leading to a 63% bitcoin loss.

 

This makes 2018 the fourth loss of more than 50% in cryptocurrencies. Volatility is the bread and butter of these markets, and it’s also why some traders have become bitcoin and altcoin millionaires in such a short period of time.

Volatility can cause massive losses but can also cause massive gains. Ultimately you have to be prepared for the risk in cryptocurrency markets and avoid investing more than you can stand to lose.

Market Risk #2: Regulatory Issues

With little progress made on the regulatory front in 2018, this could be one of the largest risks in cryptocurrency trading in 2019. That’s because we simply don’t know what regulations and laws could be enacted, having a major impact on our trades.

The cryptocurrency asset class is just so new that governments and financial regulators haven’t yet decided how to classify and deal with them. Tax status, trading rules and even the legality could change on a dime, creating potential risks for you just by holding cryptocurrency.

Market Risk #3: Longevity

Not many traders think of it, but the growing number of altcoins can present trading risks. There’s probably more, but right now Coinmarketcap.com lists 2082 altcoins. And it’s an impossible task to complete due diligence on all of them to know which ones might have the potential to remain for the long term.

So far there are very few real world examples of mainstream blockchain adoption. Prices of coins are being driven solely by speculation. And experts in blockchain technology agree that nearly all the projects currently in existence will die off in the coming years.

Even after the bear market of 2018 there are 14 coins with market capitalizations greater than $1 billion. And that means nothing for the longevity of any of them. It’s simply far too early in the game to have any confidence that any single cryptocurrency will last more than a few years at best.

Market Risk #4: No Consumer Protection

So far there are absolutely no consumer protections for cryptocurrencies. No FDIC to protect your holdings, and no Better Business Bureau to complain to when an exchange treats you poorly. Speaking of exchanges, they are hacked frequently, and the return of your funds is completely up to the largesse of the exchange. With that said, there’s nothing to stop exchanges from manipulating prices to take your funds either. And that brings us to the next risk…

Market Risk #5: Market Manipulation

It’s been alleged many times, but it’s never been proven. Even without proof it’s widely believed that cryptocurrency markets are rife with collusion, market manipulation and insider trading. Experts have even hypothesized that the massive rally at the conclusion of 2017 was primarily due to the efforts of a small group of people with huge cryptocurrency holdings working together.

It’s well known that there are so called “pump and dump” groups, and seeing an altcoin shoot up one day and crash the next is commonplace. It’s also common to see accumulation of coins ahead of positive news, and dark pools are used to keep exchanges unaware of trade volume.

The lack of regulation makes these activities impossible to prevent, yet they do add risk to the markets, especially for new traders unaware of the morally questionable tactics sometimes being used.

Market Risk #6: Market Exits

Even the most devout cryptocurrency enthusiasts may want to cash in their altcoins for fiat at some point. Surprisingly, this too can create risk. It’s improving but moving cryptocurrencies back into fiat can be a difficult proposition. Several factors contribute to this problem:

  1. Most exchanges require KYC and AML verification before allowing withdrawals. This process can take valuable time.
  2. Many exchanges that allow fiat withdrawals only support a handful of the largest coins.
  3. Most exchanges only allow USD withdrawals. There are some that support EUR, GBP and JPY withdrawals, but the choice is frustratingly limited.
  4. Exchanges may have tight limits on fiat withdrawals.
  5. Exchanges have been accused of withholding or freezing funds for vague reasons.

 

As I said it is getting better, but it wouldn’t be unusual to see a trade that went like this:

Monero -> Bitcoin -> USD -> GBP

Not only does this introduce added costs, it also adds uncertainty about the true value of your crypto holdings and your ability to use them when they’re needed.

Market Risk #7: Scams

We all know that scams are widespread in the cryptocurrency industry and newcomers are most susceptible to getting pulled in and ripped off.

One common type of scam is the fake ICO. An ICO is the equivalent of a stock market IPO. Unfortunately too many people fail to do research into ICOs they hear about. Scammers quickly learned this, and they were quick to jump in and offer fake ICOs or set up phishing sites that looked like a known ICO. Once they get their hands on the cash – poof! – they’re gone.

Another common scam is on the social media platform Twitter. Scammers set up accounts that look official and promise to pay out a certain amount of coins in the future for a small deposit today.

Finally there are the Ponzi schemes that are branded as blockchain projects. The most famous include Bitconnect, Plexcoin and OneCoin. Remember that even in cryptocurrencies if it sounds too good to be true it often is too good to be true.

Market Risk #8: Human Error

You simply can’t avoid human error in pretty much anything you do, but with cryptocurrencies mistakes are easier to make and the risks are very real. Those with no trading experience are going to find the exchange interfaces very confusing, and the chance of making a mistake there for newcomers is nearly guaranteed. Placing an incorrect order is the smallest risk too. You could send your coins to the wrong address, or even lock yourself out of your account or wallet entirely.

In Conclusion

Risks are a part of any investing strategy. That’s why risk/reward ratios are so common around investments. When it comes to cryptocurrency trading, you’ll find both the risks and rewards at an extremely high level. If you don’t have the mental fortitude to watch an asset you own move by 10% or more in a single day, then cryptocurrency trading might not be for you. But if you can manage the risk that comes with cryptocurrency trading you could find it is a very rewarding activity.

Bitcoin Volatility.png from https://www.buybitcoinworldwide.com/volatility-index/

Cryptocurrencies are notoriously volatile, although more recently that volatility has dried up and bitcoin is now less volatile than the Nasdaq.

That lack of volatility makes it less likely that you would be able to make 2-3% daily in trading cryptocurrencies.

Even if the volatility were to return it is extremely unlikely, virtually impossible, for you to make 2-3% every single day when trading cryptocurrencies. The odds simply aren’t in your favor to get consistent daily returns like this day in and day out.

There are always going to be unexpected events that can cause you to have a bad day, or even a string of bad days. And since prices rarely continue going straight up, it’s almost guaranteed that you’ll make some bad trades all on your own.

If you still think making 2-3% daily seems realistic, consider this; starting with $10,000 and compounding by 3% per day you’d end a 31-day month with roughly $25,000. Maybe that still sounds realistic? What about the $147,000 you’d have after 3 months? And if you still think it sounds realistic consider that a 3% daily return for 365 days, 1 year, would net you a grand total of just shy of $485 million.

Bitconnect promised 40% monthly returns, which is far less than a 2-3% daily return, and it was soon discovered to be a scam. There are other scams, usually Ponzi schemes, that have offered similar returns.

I know cryptocurrencies have delivered some crazy returns for people over the years, but not consistent returns over the longer term. Like any other asset class there are periods of good returns and periods of poor returns. If anyone tells you they can deliver 2% every day you should run in the opposite direction, because it simply isn’t realistic.

Once there were several cryptocurrencies other than bitcoin it was inevitable that exchanges would pop up for those cryptocurrencies. Traditional exchanges are subject to many rules and regulations, and began as an open outcry system, but with digital currencies the exchanges have evolved digitally as well.

In the most general sense there are three different types of cryptocurrency exchanges, and they each work in somewhat different ways.

  1. Centralized Cryptocurrency Exchange

    A centralized cryptocurrency exchange works much like the traditional forex exchange. It acts as an intermediary, matching buyers with sellers and charging fees for doing so. In some cases the exchange is the counter-party. These exchanges will operate with fiat currencies, allowing for the exchange of cryptocurrency for USD, EUR, GBP, JPY and others. Centralized exchanges have higher fees and are more vulnerable to hacking. Some of the best known centralized cryptocurrency exchanges are Coinbase, Kraken and the largest crypto-exchange Binance.

  2. Decentralized Cryptocurrency Exchange

    Unsurprising given the decentralized nature of the blockchain, there have been an increasing number of decentralized exchanges (DEXs) sprouting up. These are based on blockchain protocols and do away with the broker/client relationship. Instead they use smart contract technology to match buyers and sellers directly with one another, dispensing with third-party intermediaries. These DEXs do not accept fiat currencies and work strictly with cryptocurrencies. They also have lower fees and are more secure. Some of the most well-known decentralized exchanges and protocols include the Kyber Network, the Bancor Protocol, 0x and EtherDelta.

  3. Peer-to-Peer (P2P) Exchanges

    These exchanges also match individuals directly, but they do so in a bulletin board fashion. Sellers can post the coins they have for sale, and buyers look for matches. Initially these P2P exchanges were meant for local exchange, and the two parties would meet physically to make the exchange. Since then they have added escrow settlement and over a hundred different payment methods, including many that are electronic so that they can be used globally. Because sellers are assuming the risk in the sale the prices on P2P exchanges are often much higher than market prices. The best known and oldest P2P exchange is LocalBitcoins. Others include Paxful and Bitsquare.

 

What to Expect when Using a Cryptocurrency Exchange

If you’re just getting started, you will almost certainly choose a centralized exchange. This will allow you to buy cryptocurrency using your credit card or a bank account. Once you purchase some Bitcoin or Ethereum you’re free to use it for trading, either on the decentralized exchanges or on a centralized exchange. When you want to cash out to fiat currency, you’ll have to transfer any coins you have back to the centralized exchange (possibly converting them to BTC or ETH prior), where you can sell them for a fiat currency like the USD.

Note that most exchanges, especially centralized exchanges, have limits on how much you can buy and sell during a given time frame (daily, weekly, monthly). You’ll also want to keep fees in mind and understand that all of the centralized exchanges will require personal ID documents from you before they allow you to withdraw, and in some cases before they’ll allow you to make any exchanges.

Profile


One of the constants in the technology space is that there’s always something new being unveiled. And over the past few years nearly all the buzz has been about blockchain technology and the potential uses for this technology that didn’t even exist 10 years ago.

Well, actually, in theory, it did.

All the way back in 1991 the technology for blockchains was outlined by Stuart Haber and W. Scott Stornetta. They were looking to create a system that could store indelible timestamps, but never got beyond the theoretical construct.

It wasn’t until 2009 that the first real-world use case for blockchain technology hit the world. That was bitcoin, and since its release on the world blockchain has quickly become the biggest and most talked about area of technology.

Bitcoin is a decentralized digital currency that runs on a public ledger, which is built on blockchain technology. In the bitcoin whitepaper released in October 2008, bitcoin was referred to as, ‘a new electronic cash system that’s fully peer-to-peer, with no trusted third party.’

If you can understand how blockchain was used to create bitcoin, you can begin to see all the other potential real-world implementations of the blockchain that become possible.

The bitcoin Blockchain

As mentioned above, the bitcoin blockchain is a public ledger that is tamper-proof and records every transaction that has ever occurred. This is said to make bitcoin transactions safer and more secure than the current monetary and financial systems.

The blockchain that underlies bitcoin is also decentralized. That means there is no single entity that controls the blockchain or the bitcoin currency. Instead the blockchain is maintained by the group of individuals and entities known as miners.

Miners run high-powered computers that work to solve complex cryptographic problems that verify the blocks and transactions on the blockchain. They are rewarded for their efforts with newly minted or mined bitcoin. Their activity also ensures the network remains secure from tampering.

After a miner validates a block and receives their reward the block is added to the chain of previous blocks. Thus the term “blockchain” was coined to describe this creation.

How the blockchain remains tamper-proof

The blockchain has been praised because it is tamper-proof. That’s because each block added to the chain has its own cryptographic reference, or hash, that refers to the previous block. The hash is created as a part of solving the cryptographic problem to validate the block. The hash is encrypted and unique, and if a block is tampered with it also changes the hash. In order to maintain a valid blockchain it would then require the person tampering with the block to re-mine every other prior block to create the proper hashes. With current computer processing power that is impossible.

Where Is the Blockchain stored?

In the case of bitcoin, the blockchain is stored on any computer running a network node and can also be viewed by anyone who wishes to do so. If you are running a network node you get a copy of every block as it is added to the blockchain. As of November 18, 2018 the 90-day average number of full nodes is just under 10,000.

The number of nodes has continued growing, and the larger the network becomes, the harder it is to tamper with the blockchain.

Advantages of Blockchain Technology

Even though it seems very complex, the potential of the blockchain as an indelible and decentralized record-keeping system is nearly limitless. Blockchain technology presents fewer errors, lower fees, better security, greater privacy and a tamper-proof record of transactions.

Here are the known advantages of blockchain technology for businesses:

  • Accuracy
  • Cost
  • Decentralization
  • Efficiency
  • Privacy
  • Security
  • Transparency

 

In Conclusion

The blockchain seems complex, and while it is if you need to understand the programming, it really isn’t much more than a public database of transactions, all linked together and secured by encrypted mathematical problems. This concept, which only emerged in 2009, could very well change the way businesses, governments and every single person on the planet operates financially.

We continue to come up with new implementations for blockchain technology, and improvements are now being developed that will make the technology more secure, more private, less expensive and much faster. The coming years will almost certainly see blockchain technology being used to increase security, efficiency, accuracy and privacy in business and government dealings.

As bitcoin heads into its second decade of existence the only question is what won’t be impacted by blockchain technology.


Because cryptocurrencies are typically referred to as coins or tokens it is perhaps unsurprising that we’ve settled upon the term wallet as an analogy for a place to store the digital assets. But since cryptocurrencies are digital, what exactly is a cryptocurrency wallet, and how are they used to store the various coins and tokens used to represent digital blockchain assets?

In short, a cryptocurrency wallet is a software application that is used to store the private keys that convey ownership of the digital assets known as cryptocurrencies.

The private key in cryptocurrencies is paired with the public key and is what allows for verification that a wallet address holds the cryptocurrencies when they are being transferred to a different address. The public key is what is shared to have coins sent to your wallet, while the private key is used to prove you have the coins when you’re trying to transfer them.

Types of cryptocurrency wallets

Cryptocurrency wallets are available in several versions, with differing functions and features, and a variety of user interfaces. Some store just one type of cryptocurrency, while others can hold dozens or hundreds of different cryptocurrencies.

The wallets come via several different platforms. There are basic web-based wallets, such as those you use when you purchase Bitcoin or other cryptocurrencies from an exchange. One such popular web-based wallet is MyEtherWallet. Its popularity stems from the fact that it can be used to store any of the hundreds of Ethereum ERC-20 compatible tokens. Another plus point is that it is free to use. This open-source client-side interface allows for easy interaction with the Ethereum blockchain.

There are also desktop cryptocurrency wallets that are installed on a PC, and mobile cryptocurrency wallets for use on smartphones and other mobile devices. Exodus and Jaxx are popular desktop wallets.

One of the most secure cryptocurrency wallets is the hardware wallet. These are small devices that were created specifically to store and secure cryptocurrencies. The most popular hardware wallets are the Ledger Nano S and the Trezor. Both can hold hundreds of different cryptocurrencies, and as long as they aren’t connected to the internet are considered 100% secure.

A final type of cryptocurrency wallet is the paper wallet. Where the other cryptocurrency wallets store the public/private keys of the cryptocurrency within the software application, often in an encrypted state, a paper wallet has the private key (and possibly a QR code) printed on a piece of paper. Because they can be generated offline, and are never connected to the internet, they are considered the most secure type of wallet. Of course, since they are paper, they are subject to other risks such as theft or accidental destruction.

They might be called wallets, but cryptocurrency wallets do much more than just hold your currency, cards, and receipts. They are a connection to the blockchain, allowing users to send and receive, keep track of, and secure their coins. Some wallets even have features that allow you to swap one cryptocurrency for another. In that way they are a blockchain interface, not just a storage medium.


Time decay in options is called ‘Theta’ decay. That is purely due to the appetite of options traders to use Greek terminology wherever and whenever possible. Theta decay and Time decay mean the same thing and are a measure of how the passage of time influences the price of an option.

Exercise

Any option that you are studying the price of will have that price determined by a range of factors which are all likely to be influencing the price at the same time. Taking a hypothetical situation where all other variables are constant illustrates the role of time on option prices and some of the ‘quirks’ that come about when considering Theta.

Holding an option contract gives you the ability (but not the obligation) to ‘exercise’ the option for the underlier. If for example, the underlier of the option is equity then the holder can exercise the option and will have their holding converted from options to the equivalent equity.

Expiration

If you are holding what are known ‘European Options’, then you can only exercise (from option to underlier) on Expiration date. ‘US Options’ on the other hand have slightly different T&Cs and you can exercise those at any time prior to, and including, the Expiration date. In either case you are holding a ‘wasting’ asset as the contract only applies up to the previously agreed deadline.

Price of the ‘same’ Option with different Expiry dates
Below is the price chart for UK Large Cap retailer Marks and Spencer. The current price of this CFD is 308.20

Options relating to the MKS LN CFD underlier with Expiry date 21stDec 2018 are priced as below:

Call Options with Strike Price 340 but Expiry date 1 month later (18th Jan 2019) cost more to buy 6.25

Longer dated Call options with the same Strike price but Expiry date of June 2019 cost 12.75 to buy.

Interactive Brokers Paper Demo account: Options Monitor for MKS CFD 20181126

The MKS LN CFD Call Option being analyzed has the same characteristics apart from Expiration date, and Theta decay is what explains why longer dated options have higher prices. Put another way, if you buy the MKS LN CFD Call 340 with the underlier trading at 308 then you have only 25 days for the December option to come into the money but over six months for the June option to do so.

MKS LN is a perennial subject of takeover rumor and gossip and the June option gives you six months exposure to news events. Remember, even unfounded rumors cause prices to spike.

Rate of decay

Theta decay tends to accelerate as options get closer to Expiry date. The daily rate of change would be less for an option that is 11 months from expiry than one that is only days away. That is because historical daily price volatility forms part of the calculation of option prices. Using historical closing price data it becomes clear what probability can be applied to what degree of a daily price move.

Of course, Historical Volatility is a methodology that studies past prices rather than predicts future ones; however, if you’re holding an option that is a long way out of the money and there are only a few days until expiry and its historical probability shows it has low daily price volatility there is a greater need for each daily movement to be in the right direction. This requirement for a combination of successive events to be in your favor is what causes Theta decay to accelerate. A six months until expiry price can move towards being in the money, fall away, move again and take a fairly circuitous route to finally being profitable.


2018 has been a tough year for anyone holding bitcoin, especially for those who only began investing late in 2017. So far there has been no indication that bitcoin is going to recover. In fact, after spending over two months trading in a tight range of $6,300 to $6,500 the world’s most valuable cryptocurrency by market cap dropped further and is now trading below the $5,500 level for the first time since October 2017.

Does that mean bitcoin won’t ever recover? Hardly. To keep perspective over the future of bitcoin price we need to look into the past of bitcoin price.

Bitcoin Price History

Despite the lack of volatility in bitcoin over the past few months we have to remember that bitcoin has always been a volatile asset. Of course the drop from nearly $20,000 to $5,500 in under a year isn’t much fun, but it also isn’t the first time we’ve seen such a large move from bitcoin.

Every time bitcoin has fallen so drastically it’s also recovered and moved to new all-time highs. And there’s no reason to think that this time will be different.

Of course a drop from $19,296 to $5,358 is huge, but it isn’t the largest fall for bitcoin percentage wise. From July 2011 to December 2011 bitcoin fell from $31 to $2; a drop of more than 90%.

Over the course of the following year the price increased from $2 to $13, or more than 600%, however, that was tiny compared to the 13,300% increase as bitcoin surged in the coming months to hit $266 by April 2013. And just two months later the price was back at $70.

There have been other dips that saw bitcoin losing 50% or more of its value in several months, yet each time it has come back stronger than ever. And that gives us little to be concerned about over this current pullback.

When will Bitcoin start moving higher again?

It’s easy to forget the history of bitcoin when you’re living through one of its massive dips. But just a little bit of perspective goes a long way. Bitcoin very recently celebrated its 10th birthday and in those 10 years it went from a value of basically $0 to the current value of $5,500. That’s incredibly bullish in my eyes, no matter what the shorter-term picture looks like.

Consider too that bitcoin’s ecosystem is just now beginning to find a solid footing. Scaling and high transaction fees have been issues, but the Lightening Network promises to solve those problems, leading to great merchant adoption, and greater mainstream adoption. Both of these can only increase the price of Bitcoin.

The combination of technical advances, mainstream adoption, and more interest from institutional investors will pave the way for the next rally in bitcoin. Even if it doesn’t occur in 2019, the coming rally is likely to make $19,000 look like pocket change, if it’s anything like past rallies.

Bear markets can seem to drag on forever, but once we emerge into a new bull market those who kept faith are likely to be rewarded very generously.


In the Forex market, support and resistance lines are formed when the price repeatedly returns to a certain level before reversing. When the price goes down and then reverses back up after hitting this level, the line produced is called “support.” When the price goes up and then reverses after hitting this level, it is called “resistance.” Traders often use these lines as entry and exit points in trades.

Support and resistance example

Here is an example of support and resistance on a chart.

Looking at this chart, we can see that since late August/early September of 2018, the price of AUD/USD has been unable to break through a horizontal line at 0.72745. It first fell below this line in late August. It then moved slightly above it in mid-September before reversing. In early November, it once again tried to move above this line and failed. For this reason, we can say that 0.72745 is a line of resistance.

We can also see that the price has attempted twice to break down below 0.70412. The first attempt was in late September and early October. The second was in late October. In both cases, the price rallied after hitting this line. For this reason, we can say that 0.70412 is acting as a line of support.

Points to remember about support and resistance

First, it is important to recognize that support and resistance levels are not exact. The price may go slightly above resistance or slightly below support before reversing. If that happens, most traders will not consider the line to have been broken. So it could be argued that it is more accurate to speak of “areas” rather than “lines” of support and resistance.

Here are a few other points to remember when using lines of support and resistance:

  1. Support becomes resistance (and vice-versa). When a line of support is broken, it often becomes a line of resistance in the future. When a line of resistance is broken, it often becomes a line of support in the future
  2. The more often a line is hit without being broken, the stronger it usually is.
  3. When a line breaks, the strength of the follow-through is usually proportional to the strength of the line. For example, if a line of resistance has been hit six times and then breaks on the seventh try, we should expect to see a much stronger follow-through move up then if the resistance had only been hit twice before being broken

 

How to trade using support and resistance

There are several strategies traders can use to take advantage of support and resistance lines. Here are a few of them.

  1. Go long near support, exit near resistance. If a trader believes the current lines will hold, buying just above support and selling just below resistance can be an effective strategy
  2. Go short near resistance, exit near support. This is the opposite of the previous strategy. A trader can sell just before the price reaches resistance and then buy the currency back just before it falls to support. This can be a reasonable strategy if the trader believes current lines will hold
  3. Wait for a break, then follow the momentum. If a trader believes one of the current lines will not hold, he can buy just after resistance breaks or go short just after support breaks. If the line that is broken has been tested multiple times and not failed, the follow-through after it is broken may be very strong. This may lead to a profitable trade
  4. Place a stop just below support or just above resistance. If a trader is going long, placing a stop just below support may be an effective means of limiting losses in case support breaks. If a trader is going short, placing a stop just above resistance can achieve a similar aim

 

Recognizing lines of support and resistance is one of the most used tools of successful traders. It allows traders to recognize at what levels the price is likely to reverse, and to approximate how strong the resulting move will be if the price does not reverse at these levels.


Bitcoin was born in January 2009, and it changed the financial world forever as it ushered in the new era of cryptocurrencies. It’s been a tumultuous time for the infant cryptocurrency industry as governments, regulators, tax authorities and enforcers worldwide debate how to deal with cryptocurrencies. Among all this the primary question many users ask is, ‘is bitcoin legal in my country?’

The answer depends on what country you’re talking about, and what you’re using bitcoin for. There’s no set answer, since confusion reigns even within individual countries.

Bitcoin is a computer generated digital currency, and as such it has no ties to any one government or central bank. It was created as a peer-to-peer alternative to government issued fiat currencies and it offers users a convenient and inexpensive way to transfer value while also remaining private.

With growing acceptance from merchants, the ability to convert bitcoin into fiat currency, the growth of exchanges and trading, and the burgeoning number of investments in other blockchain based platforms it certainly looks as if Bitcoin and its kin have been accepted.

Yet there is no global regulation of bitcoin, and even local governments have conflicting views on the new payment method.

Let’s have a closer country-by-country look to determine if bitcoin is legal in your country.

Countries where bitcoin is legal

Most countries have yet to fully rule on the legality of bitcoin, but we can say that it is not an acceptable substitute to any country’s legal tender currency. Some countries have accepted bitcoin’s usage by enacting regulations, others have outright demonized the digital currency, and most are taking a wait-and-see approach. Here are the countries where bitcoin usage and ownership are considered legal:
Japan – Japan is at the forefront of bitcoin acceptance. It was the first, and so far, the only, country to declare bitcoin legal tender in 2017. It is also ahead of other countries in regard to regulations, with laws being passed in 2017 to license cryptocurrency exchanges, while also putting them under Know-Your-Customer and Anti-Money Laundering regulations.

United States – In the United States there has been a generally positive attitude from government entities regarding bitcoin. While some do work to stop its use in illegal transactions, others have begun to draft regulations regarding taxation and investing, including the introduction of a bitcoin derivative on the Chicago Mercantile Exchange and the Chicago Board Options Exchange. The IRS has deemed bitcoin a property for taxation purposes, the U.S. Treasury has said it is a money services business rather than a currency, and the Securities and Exchange Commission is drafting regulations to define bitcoin trading.

On the commercial front there are a growing number of U.S. businesses that accept bitcoin in payment.
Canada – Canada has a friendly stance towards bitcoin, while also working to ensure it isn’t being used for illegal purposes. Canada’s Revenue Agency has determined bitcoin to be a commodity, which makes bitcoin transactions in Canada a barter transaction subject to business income laws and regulations. Taxation is determined by the intent of the bitcoin buyer and seller.

Like the U.S., Canada largely considers bitcoin exchanges to be money service businesses. That makes them subject to KYC and AML regulations and requires them to register with Canada’s Financial Transactions and Reports Analysis Centre (FINTRAC). On a negative note, some Canadian banks have banned the use of their credit and debit cards in Bitcoin transactions.

Australia – Australia has also taken a friendly stance towards bitcoin and considers it to be like any other foreign currency. Entities in Australia are permitted to transact with Bitcoin, as well as trading, buying and mining it.

The European Union – So far, the European Union hasn’t issued a formal decision regarding bitcoin and other cryptocurrencies. In the absence of a central decision individual countries have been developing their own stance regarding bitcoin. In many cases that has led to a lack of regulation and tax-exempt status for bitcoin across much of the European Union.

United Kingdom – The U.K. is pro-bitcoin and has been supportive of the digital currency in its regulatory and taxation approaches.

Countries where bitcoin is unwelcome

There are countries that haven’t embraced bitcoin with open arms due to worries over the decentralized nature of bitcoin, its links to illicit activities, its volatility, or its perceived threat to the current fiat currencies. In some countries it has been outright declared illegal and banned, while in others it has seen access to banking and financial services severed.

Bangladesh – This South Asian country is one of the few that has openly declared against cryptocurrencies. The Bangladesh government made it clear as early as 2015 that it is a “punishable offense” to use bitcoin and other cryptocurrencies in Bangladesh.

China – Because of its link to bitcoin mining, and the large number of altcoin projects in China, it has seen sometimes intense media scrutiny regarding its policies towards bitcoin. While the Chinese government has openly stated that they have no plans to ban bitcoin, they have also banned ICOs in 2017, and have cracked down on cryptocurrency exchanges by suspending trading of digital assets against the Yuan. It has also been removing the tax breaks and cheap electricity that made bitcoin mining so attractive and profitable in China.

Russia – Russia has also had a sometimes contradictory relationship with bitcoin and cryptocurrencies. At various points it was going to be regulated, then banned, then allowed, but not for transactions, and finally in early 2018 the Russian government released regulations making bitcoin exchanges officially legal in Russia. There are still rumors that the Russian Finance Ministry is drafting legislation to make it illegal to use bitcoin as a substitute to the Russian Ruble.

Vietnam – The central bank and government of Vietnam have stated that bitcoin is not a legitimate payment method, but they have not released any formal regulations regarding its use as an investment. That said, the Vietnamese government seized control of the country’s largest cryptocurrency exchange in May 2017 and banned the import of cryptocurrency mining equipment in August 2018.
Egypt – There hasn’t been a government ban on bitcoin in Egypt, but in January 2018 the highest religious leader in Egypt stated that cryptocurrency trading is forbidden under Islamic religious law.

South America (Bolivia, Columbia and Ecuador)

The Central Bank of Bolivia has banned the use of bitcoin and in Columbia it cannot be used for purchases or investment. Ecuador has also banned the use of bitcoin by a vote in their national assembly.

Africa (Namibia, Nigeria and Zimbabwe)

In Namibia it has been made expressly clear that bitcoin transactions are illegal, and users will face penalties. Nigeria has prohibited banks from dealing with cryptocurrencies, but the government has also said they are working on their official stance towards bitcoin as a method of payment and as an investment. Zimbabwe has banned its banks from processing transactions linked to bitcoin, but in May it also lifted a ban on cryptocurrency exchanges. The new finance minister has been outspoken in his desire to see Zimbabwe embrace cryptocurrencies.

The Bottom Line

Even though bitcoin is over 10 years old most countries haven’t yet determined how to deal with the fledgling digital currency. Progress is being made however, and in the free and open countries bitcoin has been accepted. Governments that typically exert greater control over their citizens have been hesitant or unwilling to embrace bitcoin, which isn’t surprising given their lack of control over the digital currency.

While bitcoin usage and investment remain a grey area in much of the world, its acceptance is slowly increasing, and most of the world’s citizens will find that bitcoin is legal in their country, especially as an investment.


How would you feel about an asset that has wildly volatile price swings, no regulation or protections, and a seemingly endless number of scams?

That’s the impression that new traders get when they first check out the cryptocurrency markets. The risk levels look off the charts, but cryptocurrency trading doesn’t have to be as risky as it appears at first glance.

If you take some time to educate yourself about the markets and various cryptocurrencies you can substantially reduce the risk in your cryptocurrency trades.

To get your education started and help you avoid some of the risks associated with trading cryptocurrencies here are the top risks you need to be aware of in the markets.

Market Risk #1: Asset Volatility

Here we are at the end of 2018 and the bear market that gripped cryptocurrencies throughout most of 2018 is well known. From January through November the MVIS CryptoCompare Index lost roughly 80% of its value. That makes the 2018 cryptocurrency bear market worse than the dot-com bust of 2000 when technology indices lost 78%.
Bitcoin peaked just above $20,000 in December 2017 and went on to drop below $6,000 by mid-November 2018. The rest of the market looks similar too, with most altcoins dropping substantially throughout 2018 and showing little movement at all during September and October.

But we can’t only look at 2018. Bitcoin and cryptocurrency markets have seen similar crashes before.

  • In 2011 the first Mt. Gox hack caused a 95% drop in bitcoin.
  • In 2013 banking issues in Cyprus caused a 52% move lower.
  • And 2014 had a second My Gox hack leading to a 63% bitcoin loss.

 

This makes 2018 the fourth loss of more than 50% in cryptocurrencies. Volatility is the bread and butter of these markets, and it’s also why some traders have become bitcoin and altcoin millionaires in such a short period of time.

Volatility can cause massive losses but can also cause massive gains. Ultimately you have to be prepared for the risk in cryptocurrency markets and avoid investing more than you can stand to lose.

Market Risk #2: Regulatory Issues

With little progress made on the regulatory front in 2018, this could be one of the largest risks in cryptocurrency trading in 2019. That’s because we simply don’t know what regulations and laws could be enacted, having a major impact on our trades.

The cryptocurrency asset class is just so new that governments and financial regulators haven’t yet decided how to classify and deal with them. Tax status, trading rules and even the legality could change on a dime, creating potential risks for you just by holding cryptocurrency.

Market Risk #3: Longevity

Not many traders think of it, but the growing number of altcoins can present trading risks. There’s probably more, but right now Coinmarketcap.com lists 2082 altcoins. And it’s an impossible task to complete due diligence on all of them to know which ones might have the potential to remain for the long term.

So far there are very few real world examples of mainstream blockchain adoption. Prices of coins are being driven solely by speculation. And experts in blockchain technology agree that nearly all the projects currently in existence will die off in the coming years.

Even after the bear market of 2018 there are 14 coins with market capitalizations greater than $1 billion. And that means nothing for the longevity of any of them. It’s simply far too early in the game to have any confidence that any single cryptocurrency will last more than a few years at best.

Market Risk #4: No Consumer Protection

So far there are absolutely no consumer protections for cryptocurrencies. No FDIC to protect your holdings, and no Better Business Bureau to complain to when an exchange treats you poorly. Speaking of exchanges, they are hacked frequently, and the return of your funds is completely up to the largesse of the exchange. With that said, there’s nothing to stop exchanges from manipulating prices to take your funds either. And that brings us to the next risk…

Market Risk #5: Market Manipulation

It’s been alleged many times, but it’s never been proven. Even without proof it’s widely believed that cryptocurrency markets are rife with collusion, market manipulation and insider trading. Experts have even hypothesized that the massive rally at the conclusion of 2017 was primarily due to the efforts of a small group of people with huge cryptocurrency holdings working together.

It’s well known that there are so called “pump and dump” groups, and seeing an altcoin shoot up one day and crash the next is commonplace. It’s also common to see accumulation of coins ahead of positive news, and dark pools are used to keep exchanges unaware of trade volume.

The lack of regulation makes these activities impossible to prevent, yet they do add risk to the markets, especially for new traders unaware of the morally questionable tactics sometimes being used.

Market Risk #6: Market Exits

Even the most devout cryptocurrency enthusiasts may want to cash in their altcoins for fiat at some point. Surprisingly, this too can create risk. It’s improving but moving cryptocurrencies back into fiat can be a difficult proposition. Several factors contribute to this problem:

  1. Most exchanges require KYC and AML verification before allowing withdrawals. This process can take valuable time.
  2. Many exchanges that allow fiat withdrawals only support a handful of the largest coins.
  3. Most exchanges only allow USD withdrawals. There are some that support EUR, GBP and JPY withdrawals, but the choice is frustratingly limited.
  4. Exchanges may have tight limits on fiat withdrawals.
  5. Exchanges have been accused of withholding or freezing funds for vague reasons.

 

As I said it is getting better, but it wouldn’t be unusual to see a trade that went like this:

Monero -> Bitcoin -> USD -> GBP

Not only does this introduce added costs, it also adds uncertainty about the true value of your crypto holdings and your ability to use them when they’re needed.

Market Risk #7: Scams

We all know that scams are widespread in the cryptocurrency industry and newcomers are most susceptible to getting pulled in and ripped off.

One common type of scam is the fake ICO. An ICO is the equivalent of a stock market IPO. Unfortunately too many people fail to do research into ICOs they hear about. Scammers quickly learned this, and they were quick to jump in and offer fake ICOs or set up phishing sites that looked like a known ICO. Once they get their hands on the cash – poof! – they’re gone.

Another common scam is on the social media platform Twitter. Scammers set up accounts that look official and promise to pay out a certain amount of coins in the future for a small deposit today.

Finally there are the Ponzi schemes that are branded as blockchain projects. The most famous include Bitconnect, Plexcoin and OneCoin. Remember that even in cryptocurrencies if it sounds too good to be true it often is too good to be true.

Market Risk #8: Human Error

You simply can’t avoid human error in pretty much anything you do, but with cryptocurrencies mistakes are easier to make and the risks are very real. Those with no trading experience are going to find the exchange interfaces very confusing, and the chance of making a mistake there for newcomers is nearly guaranteed. Placing an incorrect order is the smallest risk too. You could send your coins to the wrong address, or even lock yourself out of your account or wallet entirely.

In Conclusion

Risks are a part of any investing strategy. That’s why risk/reward ratios are so common around investments. When it comes to cryptocurrency trading, you’ll find both the risks and rewards at an extremely high level. If you don’t have the mental fortitude to watch an asset you own move by 10% or more in a single day, then cryptocurrency trading might not be for you. But if you can manage the risk that comes with cryptocurrency trading you could find it is a very rewarding activity.

Bitcoin Volatility.png from https://www.buybitcoinworldwide.com/volatility-index/


Cryptocurrencies are notoriously volatile, although more recently that volatility has dried up and bitcoin is now less volatile than the Nasdaq.

That lack of volatility makes it less likely that you would be able to make 2-3% daily in trading cryptocurrencies.

Even if the volatility were to return it is extremely unlikely, virtually impossible, for you to make 2-3% every single day when trading cryptocurrencies. The odds simply aren’t in your favor to get consistent daily returns like this day in and day out.

There are always going to be unexpected events that can cause you to have a bad day, or even a string of bad days. And since prices rarely continue going straight up, it’s almost guaranteed that you’ll make some bad trades all on your own.

If you still think making 2-3% daily seems realistic, consider this; starting with $10,000 and compounding by 3% per day you’d end a 31-day month with roughly $25,000. Maybe that still sounds realistic? What about the $147,000 you’d have after 3 months? And if you still think it sounds realistic consider that a 3% daily return for 365 days, 1 year, would net you a grand total of just shy of $485 million.

Bitconnect promised 40% monthly returns, which is far less than a 2-3% daily return, and it was soon discovered to be a scam. There are other scams, usually Ponzi schemes, that have offered similar returns.

I know cryptocurrencies have delivered some crazy returns for people over the years, but not consistent returns over the longer term. Like any other asset class there are periods of good returns and periods of poor returns. If anyone tells you they can deliver 2% every day you should run in the opposite direction, because it simply isn’t realistic.


Once there were several cryptocurrencies other than bitcoin it was inevitable that exchanges would pop up for those cryptocurrencies. Traditional exchanges are subject to many rules and regulations, and began as an open outcry system, but with digital currencies the exchanges have evolved digitally as well.

In the most general sense there are three different types of cryptocurrency exchanges, and they each work in somewhat different ways.

  1. Centralized Cryptocurrency Exchange

    A centralized cryptocurrency exchange works much like the traditional forex exchange. It acts as an intermediary, matching buyers with sellers and charging fees for doing so. In some cases the exchange is the counter-party. These exchanges will operate with fiat currencies, allowing for the exchange of cryptocurrency for USD, EUR, GBP, JPY and others. Centralized exchanges have higher fees and are more vulnerable to hacking. Some of the best known centralized cryptocurrency exchanges are Coinbase, Kraken and the largest crypto-exchange Binance.

  2. Decentralized Cryptocurrency Exchange

    Unsurprising given the decentralized nature of the blockchain, there have been an increasing number of decentralized exchanges (DEXs) sprouting up. These are based on blockchain protocols and do away with the broker/client relationship. Instead they use smart contract technology to match buyers and sellers directly with one another, dispensing with third-party intermediaries. These DEXs do not accept fiat currencies and work strictly with cryptocurrencies. They also have lower fees and are more secure. Some of the most well-known decentralized exchanges and protocols include the Kyber Network, the Bancor Protocol, 0x and EtherDelta.

  3. Peer-to-Peer (P2P) Exchanges

    These exchanges also match individuals directly, but they do so in a bulletin board fashion. Sellers can post the coins they have for sale, and buyers look for matches. Initially these P2P exchanges were meant for local exchange, and the two parties would meet physically to make the exchange. Since then they have added escrow settlement and over a hundred different payment methods, including many that are electronic so that they can be used globally. Because sellers are assuming the risk in the sale the prices on P2P exchanges are often much higher than market prices. The best known and oldest P2P exchange is LocalBitcoins. Others include Paxful and Bitsquare.

 

What to Expect when Using a Cryptocurrency Exchange

If you’re just getting started, you will almost certainly choose a centralized exchange. This will allow you to buy cryptocurrency using your credit card or a bank account. Once you purchase some Bitcoin or Ethereum you’re free to use it for trading, either on the decentralized exchanges or on a centralized exchange. When you want to cash out to fiat currency, you’ll have to transfer any coins you have back to the centralized exchange (possibly converting them to BTC or ETH prior), where you can sell them for a fiat currency like the USD.

Note that most exchanges, especially centralized exchanges, have limits on how much you can buy and sell during a given time frame (daily, weekly, monthly). You’ll also want to keep fees in mind and understand that all of the centralized exchanges will require personal ID documents from you before they allow you to withdraw, and in some cases before they’ll allow you to make any exchanges.