So I was on vacation in a foreign country and matched with a girl on tinder who was also visiting. Very cute and suspiciously keen, though we didn't meet before we both went home (not sure she was actually there.)
She is Chinese and is apparently a financial analyst. She mentioned how much money she makes trading gold/USD forex and suggested I should try it. Claims she makes $50k per month and has never lost money. Sure.
Obviously at that point it seems like she's trying to scam me, but I'll play along for a bit. She said I should download the MetaTrader 4 app on my phone and create an account, and she'll teach me how to make money like she does.
I downloaded it from the play store (after checking that the app in itself is legit, at least when not a modified version). However you can't create an account without much more buy-in, such as submitting IDs and possibly even bank information. So I told her my only ID is my passport and I sent it away (for a visa or something) and won't get it back for a week. She said 'OK just use the demo account today'.
Then she said 'OK I'll tell you what to do and if you make over $3000 on the demo account, then let's try some real investment'. Of course I agreed, pretending not to know that anyone who could 100% reliably make money on forex trading would be the richest person alive.
So then she told me a trade to make an I did ( I think it was the equivalent of investing like 45k, and highly leveraged. I don't know much about trading but I know I wouldn't want to see my real bank account go up and down like that position did....). At one point it was way up and she told me to close it, but I was eating ramen so when I got round to closing it it was only $2,910 in profit lol. She told me off for being 'untimely'. I was curious about how this scam works. I'm guessing that since the movement over that period (less than an hour I think) is random, they pretty much take a 50% shot and then make an excuse if it goes wrong or just cut off marks when it goes the other way.
That was yesterday, and sure she's gonna get me back on it today or tomorrow. Until my 'passport shows up' I guess she will just try to convince me more on the demo account. Obviously I'm never going to send any money anywhere. I'm just wondering if I can get anything from her or if I should just string her along to waste her time.
Anyone got any fun ideas?
Note: Obviously it may not even be a girl. She did send me some pics of her in the gym but who knows if that's her or not. Oh and she claims she owns that gym.
submitted by So this is a great conspiracy theory (hopefully only that) that I saw yesterday.
This is basically a repost of u/ Moppy771 that was posted on
southafrica last night and summarily deleted by the mods, although it seemed to be because of the inflammatory title ("Why the ANC rapes the Rand", the ANC is our current ruling party) rather than the content.
This is an abridged edit of what was posted, as OP named some very powerful names that he apparently had proof for. I however, don't have that proof, so I am redacting the names, as I do not have the same proof and as a South African I could be liable for libel.
So I was tipped off to this by someone who is in a position closely observe forex trades. The theory is that the vast majority of all top-level politics in SA is effectively controlled by a small (or maybe not so small) group of financial and political elites, hell, maybe even more than one group, who control and orchestrate events that are leading our country the way it is headed with the sole purpose of raking in money.
The TL;DR of forex trading is that being able to predict a currency is the world’s quickest route to having more money than you could ever spend. The day to day shifts are too jumpy, and the long term shifts too slow to make a profit on for the most part, but say for instance you had a reliable method to significantly crash your currency for a few days, well then you would have an easy path to making free money.
If you were the sort of person to have a forex trader on hand, it would be simple enough to make a deal for an option on forex at a rate on par to current exchange rates, for a week from now. Simply speaking, if the rand stays on par or becomes stronger than the dollar in that week, you just lost the money you paid to reserve that option, but if you were to get lucky enough for the rand to drop in value, then you just bought a million dollars for 15% below the exchange rate. I'm sure you can see how this scales with the investment.
The only thing now stopping you from literally buying free money is the rand not dropping in value. If only there was a convenient way to do that, such as paying off some public political figure to do something stupid such as firing a gun at a rally and threatening civil war, or having the president refuse to step down publicly, or announce that they are going to amend the constitution to allow them to crash the economy (this is assuming that said politicians aren't directly in on it, which is likely).
I have seen a lead trader that dealt with forex who would get a ton of instructions to get massive options (hundreds of millions of rand or more at a time) all at once, targeting a specific period. Then lo and behold, two days later there would be world news of students getting tear gassed or imminent civil war, and the rand would drop like a stone, and a couple dozen people just became tens of millions of rands richer, overnight, without lifting a finger. now imagine this repeated by hundreds of elite around the country, dozens of times a year, and including the inevitable almost-return-to-norm, and a million rand at the start of the year, with the very low assumption of 5 percent made on each intentional dip and subsequent rise, and you would have more than tripled your money by the end of the year. In fact this trader made millions just on commissions in each period, and there are dozens of traders in the same position as him.
So there you have it, the plan is to crash this country with no survivors because a few hundred people with no morals and enough cash and/or power to control the country and media want to make some quick cash at the expense of us unfortunates that have to use the currency and live in our country. I honestly wouldn't be surprised if this has been going on since the 70s or 80s, given trends and given the suspicious financial history of many of our country’s richest and most powerful. I think that's all.
Oh and this isn't just some crazy coincidence conspiracy theory I whipped up based on a few observations, almost every bank and major politician, the whole of the ...
this is where the names are redacted. I can mention the Zumas (the family of our ex-president who stepped down in a scandal) as some of them have actually been caught out at what is alluded to, and "major banks" as no corporations are actually named. I have a good idea of the "major politicians" too but redacted for the same reason as the business-people named.
...are all confirmed involved heavily in forex, and lots of them have already been busted for various forex-based and other schemes and collusions. There are others I strongly believe to be involved, but I chose not to name them in this post as the family names would be easier to use to identify the individuals, and they do not often appear in newspapers like those I have already mentioned, as I do not have proof of their involvement other than seeing them make profits off of exceedingly well-timed and counter-intuitive trade orders that luckily for them turned out to be right.
I think this is a very good and frighteningly probably theory. In the past year alone I can think of a dozen events that impacted the rand heavily that could have been easily avoided or were alluded to be intentional even at the time. Banks get fined for currency fixing all the time, so this is hardly an unheard of scheme, just one that runs much higher profit margins.
As a South African, it is pretty shit to think that our country could be heading the way of Zimbabwe as a side effect of some rich and powerful intentionally screwing the country over to become even richer and more powerful.
*Introductions: I'm joskye. A cryptocurrency investor and SDC holder. *
...
Hi again. This is the third part in our ongoing series on how to trade better and determine intelligent investments in cryptocurrency for the future.
- In part 1 I talked about the importance of selling enough to make back your principle investment i.e. if you buy something at $300 and it rises to $600 in value, sell $300 to eliminate all future risk of personal loss e.g. if that asset falls to $150 in value after (which can happen easily since suchvolatility is very common in cryptocurrency). In cryptocurrency trading/investments a 100% return of investment should always prompt you to consider selling 1/2 your stack.
- In part 2 I talked about the psychology behind fear of missing out; i.e. the dangers of buying during a sudden rise in an asset's price and how to make the most of such rallies whilst minimising the risks involved in joining them.
- In part 3a I discussed The importance of a value proposition and the absolute need for any cryptocurrency you invest in to already generate or have the potential to generate revenue in a manner completely independent of it's speculative value as dictated by daily market prices.
Part 3b continues where I left off with a discussion about price metrics specifically,
what determines the price and the
importance of liquidity:
...
The day traders: As I mentioned in my previous article, as of writing almost every cryptocurrency is determined purely by speculative value.
Thus
the absolute price of a given cryptocurrency is determined solely by the day traders and specifically the last price it was agreed that currency would be sold at with confirmation of that price by a buyer who bought it. People say lots of things determine the price; marketcap, liquidity, value proposition, revenues generated by the coin, the number of said coin in circulation but ultimately
it comes down to the number of buyers and number of sellers competing for that coin. Perhaps the other thing is the size of said market relative to the money held by the players in it.
For instance in cryptocurrency Bitcoin is still the biggest player in the game. It carries a per unit price of $900 per coin. There are currently 16,090,137 (16 million) coins in circulation giving it a total marketcap value of [$900 x 16090137 =] $14481123300 or 14.48 billion USD.
- This is 85% of the current cryptocurrency marketcap. (The total marketcap of all cryptocurrencies as of writing is 17.17 billion USD.)
- Compare and contrast Shadowcash (SDC) which has a unit price of $1.27 with 6,616814 coins in circulation giving it a total marketcap value of [$1.27 x 6616814=] $8392766 or 8.39 million USD.
- Thus Shadowcash in comparison to Bitcoin is a tiny cap of the cryptocurrency sphere. Shadowcash has a total value that is only 0.06% of Bitcoin when comparing marketcap's.
Shadowcash looks even more meagre compared to the total cryptocurrency marketcap with only 0.048% of the total cryptocurrency sphere.
To any Shadowcash holders despairing at this point, relax. There are over 707 cryptocurrencies trading as of writing and SDC holds the 27th ranking in terms of market cap. In such a competitive field, filled with scams that's pretty good. Moreso when you consider that SDC is a legitimate technology and is currently probably very undervalued. ...
Lets look at the rich list for bitcoin: - The top holder has 124,956 Bitcoin valued at $1,12460400 or 1.24 billion USD.
- The top SDC holder has 1027261 SDC valued at $1,304621 or 1.4 million USD.
- Thus the wealth of the top SDC holder is 1.16% that of the wealth of the top Bitcoin holder.
Why did I just talk about this? - Well they say that a big fish can easily occupy, make a splash in and empty a small pond just by diving in.
In cryptocurrency I see this happening on the markets
all the time.
Indeed market manipulation effects every single cryptocurrency eventually.
...
Market manipulation! Large holders of valuable, high marketcap coins will often make multiple small volume purchases of less valuable, low marketcap coins. Often this will follow announcements regarding developments in that low marketcap coin.
- An example of low volume ordering is buying 1 SDC at $1.20, 0.5 SDC at $1.2001, 5 SDC at $1.2010, 3 SDC at $1.21, 10 SDC at $1.22 and 0.11 SDC at $1.24, but then leaving someone else to fill the order for 100 SDC priced at $1.242.
- Thus by spending $23.77, in low volume purchases the buyer can raise the market cap of SDC from ($1.20 * 6,616814 coins) $7.94 million to (1.24 * 6,616814) $8.20 million! (4.2% increase).
Low volume buying in a market with low daily trading volume can gradually drive up the price attracting an influx of buyers into that coin; often they will make larger volume purchases of it which helps drive up the price much further. This will trigger a further chain of buyers experiencing FOMO (fear of missing out, detailed in Part 2) who will drive up the price even further.
The price will pump. Often will smaller cap cryptocurrencies this may result in a sudden 20, 40, 60 or even +100% increase in value often over a very short time space (1-2 days, 1-2 weeks maximum).
- Often the original purchaser who triggered these events will have accumulated a lot of said cryptocurrency cheaply prior to or during the early stages of the pump and will wind up selling the majority of his/her's purchases when the price reaches a peak; usually when the daily/hourly trading volume on that coin starts to decline but sufficient buyers are still available.
- This results in a sudden or often more gradual dump in the coins value, usually by falling by 75% or more of the rise.
The only way to discern if the sudden rise in coin value is due to pre-rigged market manipulation is to look at: - the value proposition of that coin (discussed extensively in part 3a of this guide)
- the order book
- the depth chart
- the pattern of change on daily trading volume (and liquidity)
- the price charts (15 minute, hourly, 1 day, 3 day, 7 day, 1 month, 6 months)
- the news cycle relevant to that coin
You are looking for organic, gradual growth based on a solid value proposition. Sudden large spikes in value should make you pause and wonder if it's worth waiting for a gradual correction (organic drop) in price before entering your buy order.
Do not fall for a pump and dump. Stick to the lessons covered in previous parts of this guide (especially part 3a and 2) and you will be much less likely to lose money in the long run trading and investing in cryptocurrencies.
...
The pattern of change on daily trading volume, the order book and liquidity: Lets look at SDC and Bitcoin again. This time we are going to compare the daily trading volume (last 24 hours) in USD.
- In the last 24 hours (dated 8th Jan 2016), SDC traded a total volume of $26,033. This is 0.01% of all USD daily trading volume on exchanges and only 0.39% of the total marketcap of SDC.
- In contrast Bitcoin traded $163,306,776 ($0.16 Billion) over the same 24 hour period. This is 76.15% of USD daily trading volume on exchanges and only 1.12% of it's total marketcap.
I'd just like to use this opportunity to point out and reinforce the idea
that day traders not holders dictate the daily price of an asset. I'd also like to point out
daily global trading volume on Forex is $4800 billion which makes Bitcoin a very small fish in the broader arena of global finance and trade i.e.
Bitcoin is still very vulnerable to all the price manipulation tactics and liquidity issues I am going to be describing in this article by bigger players with richer pockets.
- The numbers means that just because the marketcap of Bitcoin is $14 billion, that does not mean that there is truly $14 billion worth of fiat currencies (USD, Yuan, Euro etc) in Bitcoin; the total fiat volume is merely an estimate based on current price and number of Bitcoin in circulation.
The daily trading volume also gives you an idea of how much fiat currency you can invest into a given cryptocurrency before you suddenly shift the price. - For example based on the 24 hour daily trading volume for SDC I know that if I blindly spent $15,000 (57% of the daily trading volume) buying SDC without any regard to the price, I can be confident that I will likely cause the price of SDC to go up significantly.
- In contrast spending $15,000 to buy Bitcoin (0.0092% of the daily trading volume) without regards to it's price, I can be confident that it will not likely cause a significant rise in the daily spot price of Bitcoin.
A sudden rise in coin price heavily out of proportion to the rise in daily trading volume should be the first sign to alert you to a pump & dump scam. - It implies a low volume trading at low prices to trick the unseasoned trader to perpetuate higher volume, high price buys.
- If daily trading volume cannot organically increase to sustain the price, it will eventually fall when the original pumper (or group of pumpers) sell to take their profits.
Daily trading volume should show a steady increase over time with sustained buy support at new price levels; this is a good marker of organic, sustainable growth. - This does not always have to be the case! Sufficiently large price movements (several 1000%) can significantly raise the next absolute low in price for the mid-term (months) even if that is several 100% lower than the peak!
- Conversely declining trading volumes indicate loss of interest in the coin and a price that is potentially more prone to and at risk of price manipulation with smaller amounts of fiat/bitcoin (than if higher daily trading volumes existed).
- Finally the fact that daily fiat trading volume for Bitcoin and Shadowcash is such a small percentage of it's total marketcap reinforces the idea that price is set by day traders not by holders!
...
For more detail you can now look at the depth chart: The depth chart is very useful to know how much fiat currency is required to cause the spot price of a given cryptocurrency to rise or fall by a given amount. - The depth chart groups different bids (buy orders) and asks (sell orders) by price and volume e.g. 17.739 bitcoin worth of SDC are currently on sale at poloniex for 0.00117500 bitcoin each ($1.07 per coin) and 0.149 Bitcoin are on sale at the current spot price of 0.00135750 Bitcoin ($1.24)
- So as of writing, I can see (from the charts) to raise the price of SDC from 0.00135750 Bitcoin ($1.24) to 0.00181381 Bitcoin ($1.66) I would need to spend 26 Bitcoin ($23783).
NB the price of most cryptocurrencies is expressed in Bitcoin because it has the largest market cap and daily trading volume of all cryptocurrencies
by a very large margin and because with a few exceptions (Ethereum, Monero)
most cryptocurrencies do not have routes to directly purchase via fiat currency without first purchasing Bitcoin. - The depth chart shows me how many coins I can buy without significantly increasing the price and how many coins I can sell within a given price range. It gives me an idea of the liquidity and volatility of the market i.e. if I buy SDC right now and need to sell it later today or tomorrow for fiat, what is the realistic probability I can get my entire amount in fiat returned to me in the amount originally spent.
Liquidity is super important. People often complain about a market lacking liquidity but that is often because they are trading in fiat volumes which far exceed the daily trading fiat volumes of the cryptocurrency they are referring to.
If you are investing or trading in a cryptocurrency, always factor in the your personal liquidity and need for liquidity relative to that of the cryptocurrency you are investing in. In other words don't expect to make a profit next day selling 'cryptocurrency x' if the size your single buy order composes >90% of the buy orders on the market for 'cryptocurrency x' that day (indeed in such a scenario be very prepared to sell at a loss next day if you absolutely have to)!
- The depth chart also gives me an idea of where significant supports exists (price zones with large buy orders relative to the depth chart) to determine the true base price (in conjunction with daily trading volume) and where significant resistances exist (price zones with large sell orders relative to the rest of the depth chart) to determine what the majority of sellers think the coin is truly worth. Be wary though as buy walls (large supports) and sell walls (large resistances) can be moved at any time.
There are certain patterns on a depth chart that make me believe a significant, sustained price rise is imminent: One example occurs when there is a very large volume of buy orders (>25% of total buy volume within 5% of current price)
very close to the current (spot) price, and a
very large number of sell orders close to but significantly above the spot price (approx 25% total sell volume within 10% of current price)
and especially if the total buy order volume is a significantly higher percentage than it has previously been. This simply indicates high demand at current price which may soon outstrip supply. Again
I stress that these patterns can be manipulated easily by wealthy traders. - It is up to you to study the depth charts and discern the patterns. You will learn more about day trading this way.
...
The order book is another way of looking at the depth chart and allows you to see the specific transactions occurring that compose daily trading volume by the second! I find it useful because it allows me to identify:
- If there is a string of low volume orders that can be filled to pump the price (or conversely a string of low volume sell orders to dump it). This can play on the psychology of the entire market as many people aren't simply aware of how the manipulations occur; most people simply look at the price!
- Where resistances to price change occur and how much money it will take to break them (i.e. if I am day trading to make a profit via pumping, is it worth me spending X to clear a sell wall to encourage others to buy and push up the price further or do I need to spend so much of my capital that should I fail to stimulate buy orders, I become vulnerable to a dump in coin price with effective subsequent loss of fiat money).
- The presence of automated trading bots rapidly cycling a buy or sell order of fixed volume between a series of prices that dynamically adjust with the overall trend in price movements. Bots can be your best friend (to pumping or dumping price) if you know how to manipulate them!
...
The price charts: Discussions about price charts could be endless. I'm not going to go into too much detail, mostly because I'm an investor who believes the value proposition, good consistent development, decent marketing and communications will ultimately trump spot prices and adverse (or positive) short term price trends in the future.
- I'm also going to skim this because I'm not as versed in this subject as I'd like to be.
- I personally use the candle bar charts on Poloniex to look at 15 minute and daily candles on the hourly, daily, weekly and monthly charts.
- I combine this with charts on Bittrex which can calculate the RSI (to estimate if a coin is overbought or oversold) and Bollinger Bands (again to help estimate if a coin is overbought or oversold).
- I usually look at the overall direction of trading over a period of several days, compare it to the direction and trends over the last month. I then try to interpret it in the context of the daily trading volume and depth charts.
- I often get my predictions on short term price movement wrong if I only look at candle charts without factoring in depth charts, order book and daily trading volume patterns! I have a lot more learning to do on technical analysis.
- The charts do often reveal mid/long term supports and resistances in price!
- Investopedia is a good place to start learning about different mathematical techniques to analyse charts (including any terms used in these articles).
- I'm a big fan of u/kustonoy who inhabits the Ethtrader sub. I personally feel his analysis of the short term markets are generally pretty good. You should never be too lazy to not do your own regular market analysis especially if trading short term, but if you want a good reference point, I suggest following him.
...
The news cycle: - I've mentioned this lower down the list because for intra-day and day traders and even to some extent investors, the news cycle matters very little unless it directly affects the value proposition in some way.
- If a news event does result in real maturation of the proposed value proposition (such that the technology has confirmed a new sustained user base or revenue stream) then it might justify a sustained rise in price regardless of the volatility achieved reaching and following the peak.
- Some assets may have nothing but an endless stream of good news which meets the above criteria yet it's valuation fails to increase. This is likely a sign that a larger player is deliberately manipulating the market to accumulate more of that asset to sell very high later (I believe Ethereum has fallen victim to this recently).
...
Other interesting points: The 'coin x' scenario and the ridiculousness of marketcap: 'Coin X' is an imaginary hypothetical coin. There are only 10 in circulation. It has no value proposition beyond it's speculative value i.e. it will never generate a revenue independent of it's speculative value.
- If 'coin x' had only 10 in circulation, was indivisible and each coin had a value of $3 billion, the market cap of 'coin x' would surpass Bitcoin!
- If all 10 coins were not on sale then 'coin x' would have a value of zero.
- If 9 people had bought 'coin x' at $1 and the 10th person bought it at $3 billion, it's marketcap would still be $30 billion. This does not mean there is $30 billion of fiat stored in coin X.
- If an 11th buyer came along and bought 'coin x' at $1.20 the price of coin X would fall to $1.20 and the marketcap of 'coin x' would be $12.0.
- This still does not mean there is $12 of fiat stored in coin x.
- This does not mean everyone can sell 'coin x' at $1.20.
- A new buyer blind to the purely speculative nature of 'coin x' looking at the trend charts could try to argue it is now extremely undervalued and a great buy or possibly was a grand scam and untouchable.
- Either way the next price at which 'coin x' is bought/sold is purely arbitrary and determined by the patience of the seller and the impatience of the buyer.
- [Edit]: I could also issue 10 more of 'coin x' and if it's unit price remained $1.20 the market cap would instantly double from $12 to $24!
I'd like to point out the similarities between ZCash and 'coin x' (especially during it's launch).
...
Lessons: - Marketcap is derived from the price, not the other way around. Until a cryptocurrency generates significant revenue independent of it's speculative valuation this will remain the case.
- Price is determined by the day traders, not by the holders.
- The spot price of any given cryptocurrency is determined by the patience of the seller and the impatience of the buyer.
- Price of most cryptocurrencies is derived from bitcoin unless they have a direct fiat gateway. Unless a significant amount of trading volume occurs via the fiat gateway, the price of that cryptocurrency is still heavily dependent on the price of bitcoin.
- Bitcoin is (for now) is the gold standard of cryptocurrencies. Because it has the largest marketcap (by a very massive margin).
- Market manipulation means that large holders in more valuable currencies (large marketcaps) can tamper with and set the value of much smaller currencies (i.e. smaller marketcaps).
- Bitcoin's price itself can be manipulated by investment banks, governments or firms who trade in multi billions of USD daily. This is because the daily trading volume is almost 5 trillion trillion USD (which is several thousand times larger
- There is nothing wrong with investing or trading in cryptocurrencies with low daily trading volumes and marketcaps, just be concious not to put more money into them than their long term buy support can handle and only invest what you can afford to lose.
- The concept of liquidity in a market is important relative to the amount of fiat you are planning to invest or trade in it.
- Whether day trading or investing, pick cryptocurrencies with good fundamentals i.e. excellent development teams, good marketing and strong value propositions that will provide the cryptocurrency in question use and value independent of speculative valuations. You are less likely to get manipulated or scammed in the long run that way especially if you are a holder.
- Be very weary of trading or investing small amounts of money in larger markets that allow leveraged trading. Those markets will behave irrationally and not follow the fundamentals in the short term.
- It is up to you to study the depth charts, order books, candle bar charts, daily trading volumes and news cycle to discern the patterns. The price is a composite of this and the psychology of people who don't understand this. You will learn more about day trading this way and more importantly learn to trade/invest independent of the price.
...
Finally why am I writing this? I mean I just spoke openly about how SDC and indeed any cryptocurrencies (or purely speculative assets) price can be manipulated in the short term.
Well SDC has an incredible value proposition that could generate and attract large amounts of non-speculative fiat currency into it's ecosystem. I already covered that in part 3a (
https://www.reddit.com/Shadowcash/comments/5lhh6m/the_intelligent_investors_guide_to_cryptocurrency/).
For this reason I think the short term speculative pump and dumps in SDC will eventually be replaced by a more sustained, larger buy support. I suspect this will occur when the marketplace is released and certain other announcements are released.
For this reason I declare my opinion that
Shadowcash is the best cryptocurrency investment of 2016 and I believe it will be again by March 2017. ...
References: - Coin market capitalisations and data including rich lists derived from:
1. Coinmarketcap rankings: https://coinmarketcap.com/all/views/all/ 2. Coinmarketcap daily trading volumes https://coinmarketcap.com/currencies/volume/24-hou 3. Bitinfocharts - Top 100 Richest Bitcoin addresses: https://bitinfocharts.com/top-100-richest-bitcoin-addresses.html 4. Crypto ID - Shadowcash Rich list: https://chainz.cryptoid.info/sdc/#!rich
...
Disclaimer: All prices and values given are as of time of writing (Midday 08-Jan-2016). I am not responsible for your financial decisions, nor am I advising you take a particular financial position. Rather I am sharing my experiences and hoping you form your own opinions and insights from them. Full disclosure: I have long positions in Ethereum (ETH), Shadowcash (SDC), ICONOMI (ICN), Augur (REP) and Digix (DGD). *Introductions: I'm joskye. A cryptocurrency investor and holder. *
...
Hi again. This is the third part in our ongoing series on how to trade better and determine intelligent investments in cryptocurrency for the future.
- In part 1 I talked about the importance of selling enough to make back your principle investment i.e. if you buy something at $300 and it rises to $600 in value, sell $300 to eliminate all future risk of personal loss e.g. if that asset falls to $150 in value after (which can happen easily since suchvolatility is very common in cryptocurrency). In cryptocurrency trading/investments a 100% return of investment should always prompt you to consider selling 1/2 your stack.
- In part 2 I talked about the psychology behind fear of missing out; i.e. the dangers of buying during a sudden rise in an asset's price and how to make the most of such rallies whilst minimising the risks involved in joining them.
- In part 3a I discussed The importance of a value proposition and the absolute need for any cryptocurrency you invest in to already generate or have the potential to generate revenue in a manner completely independent of it's speculative value as dictated by daily market prices.
Part 3b continues where I left off with a discussion about price metrics specifically,
what determines the price and the
importance of liquidity:
...
The day traders: As I mentioned in my previous article, as of writing almost every cryptocurrency is determined purely by speculative value.
- Thus the absolute price of a given cryptocurrency is determined solely by the day traders and specifically the last price it was agreed that currency would be sold at with confirmation of that price by a buyer who bought it.
- People say lots of things determine the price; marketcap, liquidity, value proposition, revenues generated by the coin, the number of said coin in circulation but ultimately it comes down to the number of buyers and number of sellers competing for that coin.
- Perhaps the other thing is the size of said market relative to the money held by the players in it.
For instance in cryptocurrency Bitcoin is still the biggest player in the game. It carries a per unit price of $900 per coin. There are currently 16,090,137 (16 million) coins in circulation giving it a total marketcap value of [$900 x 16090137 =] $14481123300 or 14.48 billion USD.
- This is 85% of the current cryptocurrency marketcap. (The total marketcap of all cryptocurrencies as of writing is 17.17 billion USD.)
- Compare and contrast Shadowcash (SDC) which has a unit price of $1.27 with 6,616814 coins in circulation giving it a total marketcap value of [$1.27 x 6616814=] $8392766 or 8.39 million USD.
- Thus Shadowcash in comparison to Bitcoin is a tiny cap of the cryptocurrency sphere. Shadowcash has a total value that is only 0.06% of Bitcoin when comparing marketcap's.
Shadowcash looks even more meagre compared to the total cryptocurrency marketcap with only 0.048% of the total cryptocurrency sphere.
To any Shadowcash holders despairing at this point, relax. There are over 707 cryptocurrencies trading as of writing and SDC holds the 27th ranking in terms of market cap. In such a competitive field, filled with scams that's pretty good. Moreso when you consider that SDC is a legitimate technology and is currently probably very undervalued. ...
Lets look at the rich list for bitcoin: - The top holder has 124,956 Bitcoin valued at $1,12460400 or 1.24 billion USD.
- The top SDC holder has 1027261 SDC valued at $1,304621 or 1.4 million USD.
- Thus the wealth of the top SDC holder is 1.16% that of the wealth of the top Bitcoin holder.
Why did I just talk about this? - Well they say that a big fish can easily occupy, make a splash in and empty a small pond just by diving in.
In cryptocurrency I see this happening on the markets
all the time.
Indeed market manipulation effects every single cryptocurrency eventually.
...
Market manipulation! Large holders of valuable, high marketcap coins will often make multiple small volume purchases of less valuable, low marketcap coins. Often this will follow announcements regarding developments in that low marketcap coin.
- An example of low volume ordering is buying 1 SDC at $1.20, 0.5 SDC at $1.2001, 5 SDC at $1.2010, 3 SDC at $1.21, 10 SDC at $1.22 and 0.11 SDC at $1.24, but then leaving someone else to fill the order for 100 SDC priced at $1.242.
- Thus by spending $23.77, in low volume purchases the buyer can raise the market cap of SDC from ($1.20 * 6,616814 coins) $7.94 million to (1.24 * 6,616814) $8.20 million! (4.2% increase).
Low volume buying in a market with low daily trading volume can gradually drive up the price attracting an influx of buyers into that coin; often they will make larger volume purchases of it which helps drive up the price much further. This will trigger a further chain of buyers experiencing FOMO (fear of missing out, detailed in Part 2) who will drive up the price even further.
The price will pump. Often will smaller cap cryptocurrencies this may result in a sudden 20, 40, 60 or even +100% increase in value often over a very short time space (1-2 days, 1-2 weeks maximum).
- Often the original purchaser who triggered these events will have accumulated a lot of said cryptocurrency cheaply prior to or during the early stages of the pump and will wind up selling the majority of his/her's purchases when the price reaches a peak; usually when the daily/hourly trading volume on that coin starts to decline but sufficient buyers are still available.
- This results in a sudden or often more gradual dump in the coins value, usually by falling by 75% or more of the rise.
The only way to discern if the sudden rise in coin value is due to pre-rigged market manipulation is to look at: - the value proposition of that coin (discussed extensively in part 3a of this guide)
- the order book
- the depth chart
- the pattern of change on daily trading volume (and liquidity)
- the price charts (15 minute, hourly, 1 day, 3 day, 7 day, 1 month, 6 months)
- the news cycle relevant to that coin
You are looking for organic, gradual growth based on a solid value proposition. Sudden large spikes in value should make you pause and wonder if it's worth waiting for a gradual correction (organic drop) in price before entering your buy order.
Do not fall for a pump and dump. Stick to the lessons covered in previous parts of this guide (especially part 3a and 2) and you will be much less likely to lose money in the long run trading and investing in cryptocurrencies.
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The pattern of change on daily trading volume, the order book and liquidity: Lets look at SDC and Bitcoin again. This time we are going to compare the daily trading volume (last 24 hours) in USD.
- In the last 24 hours (dated 8th Jan 2016), SDC traded a total volume of $26,033. This is 0.01% of all USD daily trading volume on exchanges and only 0.39% of the total marketcap of SDC.
- In contrast Bitcoin traded $163,306,776 ($0.16 Billion) over the same 24 hour period. This is 76.15% of USD daily trading volume on exchanges and only 1.12% of it's total marketcap.
I'd just like to use this opportunity to point out and reinforce the idea
that day traders not holders dictate the daily price of an asset. I'd also like to point out
daily global trading volume on Forex is $4800 billion which makes Bitcoin a very small fish in the broader arena of global finance and trade i.e.
Bitcoin is still very vulnerable to all the price manipulation tactics and liquidity issues I am going to be describing in this article by bigger players with richer pockets.
- The numbers means that just because the marketcap of Bitcoin is $14 billion, that does not mean that there is truly $14 billion worth of fiat currencies (USD, Yuan, Euro etc) in Bitcoin; the total fiat volume is merely an estimate based on current price and number of Bitcoin in circulation.
The daily trading volume also gives you an idea of how much fiat currency you can invest into a given cryptocurrency before you suddenly shift the price. - For example based on the 24 hour daily trading volume for SDC I know that if I blindly spent $15,000 (57% of the daily trading volume) buying SDC without any regard to the price, I can be confident that I will likely cause the price of SDC to go up significantly.
- In contrast spending $15,000 to buy Bitcoin (0.0092% of the daily trading volume) without regards to it's price, I can be confident that it will not likely cause a significant rise in the daily spot price of Bitcoin.
A sudden rise in coin price heavily out of proportion to the rise in daily trading volume should be the first sign to alert you to a pump & dump scam. - It implies a low volume trading at low prices to trick the unseasoned trader to perpetuate higher volume, high price buys.
- If daily trading volume cannot organically increase to sustain the price, it will eventually fall when the original pumper (or group of pumpers) sell to take their profits.
Daily trading volume should show a steady increase over time with sustained buy support at new price levels; this is a good marker of organic, sustainable growth. - This does not always have to be the case! Sufficiently large price movements (several 1000%) can significantly raise the next absolute low in price for the mid-term (months) even if that is several 100% lower than the peak!
- Conversely declining trading volumes indicate loss of interest in the coin and a price that is potentially more prone to and at risk of price manipulation with smaller amounts of fiat/bitcoin (than if higher daily trading volumes existed).
- Finally the fact that daily fiat trading volume for Bitcoin and Shadowcash is such a small percentage of it's total marketcap reinforces the idea that price is set by day traders not by holders!
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For more detail you can now look at the depth chart: The depth chart is very useful to know how much fiat currency is required to cause the spot price of a given cryptocurrency to rise or fall by a given amount. - The depth chart groups different bids (buy orders) and asks (sell orders) by price and volume e.g. 17.739 bitcoin worth of SDC are currently on sale at poloniex for 0.00117500 bitcoin each ($1.07 per coin) and 0.149 Bitcoin are on sale at the current spot price of 0.00135750 Bitcoin ($1.24)
- So as of writing, I can see (from the charts) to raise the price of SDC from 0.00135750 Bitcoin ($1.24) to 0.00181381 Bitcoin ($1.66) I would need to spend 26 Bitcoin ($23783).
NB the price of most cryptocurrencies is expressed in Bitcoin because it has the largest market cap and daily trading volume of all cryptocurrencies
by a very large margin and because with a few exceptions (Ethereum, Monero)
most cryptocurrencies do not have routes to directly purchase via fiat currency without first purchasing Bitcoin. - The depth chart shows me how many coins I can buy without significantly increasing the price and how many coins I can sell within a given price range. It gives me an idea of the liquidity and volatility of the market i.e. if I buy SDC right now and need to sell it later today or tomorrow for fiat, what is the realistic probability I can get my entire amount in fiat returned to me in the amount originally spent.
Liquidity is super important. People often complain about a market lacking liquidity but that is often because they are trading in fiat volumes which far exceed the daily trading fiat volumes of the cryptocurrency they are referring to.
If you are investing or trading in a cryptocurrency, always factor in the your personal liquidity and need for liquidity relative to that of the cryptocurrency you are investing in. In other words don't expect to make a profit next day selling 'cryptocurrency x' if the size your single buy order composes >90% of the buy orders on the market for 'cryptocurrency x' that day (indeed in such a scenario be very prepared to sell at a loss next day if you absolutely have to)!
- The depth chart also gives me an idea of where significant supports exists (price zones with large buy orders relative to the depth chart) to determine the true base price (in conjunction with daily trading volume) and where significant resistances exist (price zones with large sell orders relative to the rest of the depth chart) to determine what the majority of sellers think the coin is truly worth. Be wary though as buy walls (large supports) and sell walls (large resistances) can be moved at any time.
There are certain patterns on a depth chart that make me believe a significant, sustained price rise is imminent: One example occurs when there is a very large volume of buy orders (>25% of total buy volume within 5% of current price)
very close to the current (spot) price, and a
very large number of sell orders close to but significantly above the spot price (approx 25% total sell volume within 10% of current price)
and especially if the total buy order volume is a significantly higher percentage than it has previously been. This simply indicates high demand at current price which may soon outstrip supply. Again
I stress that these patterns can be manipulated easily by wealthy traders. - It is up to you to study the depth charts and discern the patterns. You will learn more about day trading this way.
...
The order book is another way of looking at the depth chart and allows you to see the specific transactions occurring that compose daily trading volume by the second! I find it useful because it allows me to identify:
- If there is a string of low volume orders that can be filled to pump the price (or conversely a string of low volume sell orders to dump it). This can play on the psychology of the entire market as many people aren't simply aware of how the manipulations occur; most people simply look at the price!
- Where resistances to price change occur and how much money it will take to break them (i.e. if I am day trading to make a profit via pumping, is it worth me spending X to clear a sell wall to encourage others to buy and push up the price further or do I need to spend so much of my capital that should I fail to stimulate buy orders, I become vulnerable to a dump in coin price with effective subsequent loss of fiat money).
- The presence of automated trading bots rapidly cycling a buy or sell order of fixed volume between a series of prices that dynamically adjust with the overall trend in price movements. Bots can be your best friend (to pumping or dumping price) if you know how to manipulate them!
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The price charts: Discussions about price charts could be endless. I'm not going to go into too much detail, mostly because I'm an investor who believes the value proposition, good consistent development, decent marketing and communications will ultimately trump spot prices and adverse (or positive) short term price trends in the future.
- I'm also going to skim this because I'm not as versed in this subject as I'd like to be.
- I personally use the candle bar charts on Poloniex to look at 15 minute and daily candles on the hourly, daily, weekly and monthly charts.
- I combine this with charts on Bittrex which can calculate the RSI (to estimate if a coin is overbought or oversold) and Bollinger Bands (again to help estimate if a coin is overbought or oversold).
- I usually look at the overall direction of trading over a period of several days, compare it to the direction and trends over the last month. I then try to interpret it in the context of the daily trading volume and depth charts.
- I often get my predictions on short term price movement wrong if I only look at candle charts without factoring in depth charts, order book and daily trading volume patterns! I have a lot more learning to do on technical analysis.
- The charts do often reveal mid/long term supports and resistances in price!
- Investopedia is a good place to start learning about different mathematical techniques to analyse charts (including any terms used in these articles).
- I'm a big fan of u/kustonoy who inhabits the Ethtrader sub. I personally feel his analysis of the short term markets are generally pretty good. You should never be too lazy to not do your own regular market analysis especially if trading short term, but if you want a good reference point, I suggest following him.
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The news cycle: - I've mentioned this lower down the list because for intra-day and day traders and even to some extent investors, the news cycle matters very little unless it directly affects the value proposition in some way.
- If a news event does result in real maturation of the proposed value proposition (such that the technology has confirmed a new sustained user base or revenue stream) then it might justify a sustained rise in price regardless of the volatility achieved reaching and following the peak.
- Some assets may have nothing but an endless stream of good news which meets the above criteria yet it's valuation fails to increase. This is likely a sign that a larger player is deliberately manipulating the market to accumulate more of that asset to sell very high later (I believe Ethereum has fallen victim to this recently) or that it is occuring during long period of consolidation is where diversification of asset ownership is happening which means a new price floor is being set for much larger increases later on. The lowest most frequently occurring point which the price repeatedly bounces off of (stops falling below) is the new floor.
...
Other interesting points: The 'coin x' scenario and the ridiculousness of marketcap: 'Coin X' is an imaginary hypothetical coin. There are only 10 in circulation. It has no value proposition beyond it's speculative value i.e. it will never generate a revenue independent of it's speculative value.
- If 'coin x' had only 10 in circulation, was indivisible and each coin had a value of $3 billion, the market cap of 'coin x' would surpass Bitcoin!
- If all 10 coins were not on sale then 'coin x' would have a value of zero.
- If 9 people had bought 'coin x' at $1 and the 10th person bought it at $3 billion, it's marketcap would still be $30 billion. This does not mean there is $30 billion of fiat stored in coin X.
- If an 11th buyer came along and bought 'coin x' at $1.20 the price of coin X would fall to $1.20 and the marketcap of 'coin x' would be $12.0.
- This still does not mean there is $12 of fiat stored in coin x.
- This does not mean everyone can sell 'coin x' at $1.20.
- A new buyer blind to the purely speculative nature of 'coin x' looking at the trend charts could try to argue it is now extremely undervalued and a great buy or possibly was a grand scam and untouchable.
- Either way the next price at which 'coin x' is bought/sold is purely arbitrary and determined by the patience of the seller and the impatience of the buyer.
- [Edit]: I could also issue 10 more of 'coin x' and if it's unit price remained $1.20 the market cap would instantly double from $12 to $24!
I'd like to point out the similarities between ZCash and 'coin x' (especially during it's launch).
...
Lessons: - Marketcap is derived from the price, not the other way around. Until a cryptocurrency generates significant revenue independent of it's speculative valuation this will remain the case.
- Price is determined by the day traders, not by the holders.
- The spot price of any given cryptocurrency is determined by the patience of the seller and the impatience of the buyer.
- Price of most cryptocurrencies is derived from bitcoin unless they have a direct fiat gateway. Unless a significant amount of trading volume occurs via the fiat gateway, the price of that cryptocurrency is still heavily dependent on the price of bitcoin.
- Bitcoin is (for now) is the gold standard of cryptocurrencies. Because it has the largest marketcap (by a very massive margin).
- Market manipulation means that large holders in more valuable currencies (large marketcaps) can tamper with and set the value of much smaller currencies (i.e. smaller marketcaps).
- Bitcoin's price itself can be manipulated by investment banks, governments or firms who trade in multi billions of USD daily. This is because the daily trading volume is almost 5 trillion trillion USD (which is several thousand times larger
- There is nothing wrong with investing or trading in cryptocurrencies with low daily trading volumes and marketcaps, just be concious not to put more money into them than their long term buy support can handle and only invest what you can afford to lose.
- The concept of liquidity in a market is important relative to the amount of fiat you are planning to invest or trade in it.
- Whether day trading or investing, pick cryptocurrencies with good fundamentals i.e. excellent development teams, good marketing and strong value propositions that will provide the cryptocurrency in question use and value independent of speculative valuations. You are less likely to get manipulated or scammed in the long run that way especially if you are a holder.
- Be very weary of trading or investing small amounts of money in larger markets that allow leveraged trading. Those markets will behave irrationally and not follow the fundamentals in the short term.
- It is up to you to study the depth charts, order books, candle bar charts, daily trading volumes and news cycle to discern the patterns. The price is a composite of this and the psychology of people who don't understand this. You will learn more about day trading this way and more importantly learn to trade/invest independent of the price.
...
References: - Coin market capitalisations and data including rich lists derived from:
1. Coinmarketcap rankings: https://coinmarketcap.com/all/views/all/ 2. Coinmarketcap daily trading volumes https://coinmarketcap.com/currencies/volume/24-hou 3. Bitinfocharts - Top 100 Richest Bitcoin addresses: https://bitinfocharts.com/top-100-richest-bitcoin-addresses.html 4. Crypto ID - Shadowcash Rich list: https://chainz.cryptoid.info/sdc/#!rich
...
Further articles in this series: "The intelligent investors guide to cryptocurrency" Part 0 -
Part 1 -
Part 2 -
Part 3a -
Part 3b -
Part 4 -
Part 5 -
Part 6 -
Part 7a -
"The intelligent investors guide to Particl -" Full disclosure/Disclaimer: At time of original writing I had long positions in Ethereum (ETH), Shadowcash (SDC), Iconomi (ICN), Augur (REP) and Digix (DGD).
All the opinions expressed are my own. I cannot guarantee gains; losses are sustainable; do your own financial research and make your decisions responsibly. All prices and values given are as of time of first writing (Midday 8th-Jan-2017).
Second disclaimer: Please do not buy Shadowcash (SDC), the project has been abandoned by it's developers who have moved on to the Particl Project (PART). The PARTICL crowd fund and SDC 1:1 token swap completed April 15th. You can still exchange SDC for PART but only if it was acquired prior to 15th April 2017 see: https://particl.news/a-community-driven-initiative-e26724100c3a for more information. Addendum: Article updated 23-11-2017 to edit references to SDC (changed to Particl where relevant to reflect updated status) and clean up formatting.
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