Pipsqueaks #40: Much Ado About Crypto’s

Nowadays, especially in circles where currencies are a hot topic, it’s hard to avoid talk about the crypto’s, especially Bitcoin. Seems like everybody and his uncle is doing something with were talking about Bitcoin or some other crypto currency such as Lightcoin or Swiftcoin or Peercoin or Ethereum or any one of the other 1384 (and growing) crypto currencies out there. So just what are they and should we be owning and trading them?

Pipsqueaks 40 Much Ado About Crypto's

Well, to answer what they are: digital assets designed as a medium of exchange –  basically they are best thought of as units of digital work. Each “coin” is validated by a growing list of records called a blockchain, which is secured via encryption. In crypto currency networks the validation process for transactions is referred to as mining. For processing this work, successive minors obtain new crypto currency as a reward. You can keep your crypto currency in a digital “wallet” and spend it if you like, although most people tend to hold them as investments or speculate with them, which begs the question “should I trade Bitcoin? And the answer is, like so many things in the business of trading, that depends…

 

You see, everything in trading is all about risk. If you content with the risk, great, trade all you want. What I was observing with Bitcoin in 2017 were very strong swings of around 20%. I don’t think I have the stomach for that, unless I’m messing with a very small lot size. But some people love this kind of volatility, it’s just that I don’t. That’s not to say that you shouldn’t trade it, but if you want to venture into this type of trading, you need to have a good and comprehensive understand of what the risks are, and be prepared to deal with very powerful moves both up and down.

 

Whereas I don’t actively “trade Bitcoin”, I do own Bitcoin inasmuch as I actively mine it, which for me is a great way of assuaging the risk associated with its volatile market behavior. Basically in this paradigm my “risk” is the cost of electricity to run the miners. To date, this has been a profitable activity for me, and I’ve been happy with the results so far. And I know, mining isn’t trading, but it is a passive income stream, and that, after all, was one of my goals in terms of trading my brokerage account.

pipsqueaks 40 crypto cryptocurrency bitcoin

Of course, Bitcoin isn’t the only game in town. There are 1000 other “coins” out there to choose from. Ethereum is very popular, as is Litecoin and dozens of others too numerous to mention. They all vary in different degrees in regard to their market capitalization and unit price as expressed in US dollars. And, in recent months, we’ve pretty much witnessed many of them mimicking Bitcoin’s inexorable rise higher and higher. And why is this? Just why has the price of Bitcoin gone through the roof? The answer is a simple one, basically it’s an issue of supply and demand. Unlike many other central bank issued currencies, crypto’s are pretty finite collection of coins (just under 17 million coins for Bitcoin I believe). The limited product, coupled with comparatively unlimited demand, you get the price going to the moon! Of course, markets don’t just keep going up forever, they will, in time, correct and move in a more measured and orderly fashion. That might be what were seeing now with the price hovering around the 12 K mark since Bitcoin futures started trading on the CME. Only time will tell.

 

One thing that’s easy to tell, and that’s the benefits of joining a truly robust trading group, such as Slick Trade Academy. With trading signals, educational materials, expert advisors (trading robots) and more available to Sapphire members at Slick Trade. So if you have been thinking about joining, when I give it a try? You may be surprised by what you find out!

 

That’s all for this week. Until next time, have a great week, and good luck in the markets!

 

JC

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