Darryn Pollock

The Dangers of Retiring on Bitcoin: High Risk on Important Investment

The idea of retiring on Bitcoin has become more and more attractive, but there are some stern warnings against setting up cryptocurrency retirement funds
The Dangers of Retiring on Bitcoin: High Risk on Important Investment

 

The world is changing significantly, and Bitcoin and Blockchain are part of that change, as a younger generation start to look to their futures and securing a retirement plan that can work for them.

It is unsurprising then that a generation that has been part of Bitcoin’s boom is now looking to this asset as a potential asset on which to base their retirement on because of its potential for huge growth.

However, that growth is a double-edged sword as many have experienced. The highs that Bitcoin can reach, can also be matched with dizzying lows. And, for an investment plan based on retirement, which is supposed to be low risk and steady, Bitcoin seems counterproductive.

An SEC warning

It is not only common sense that says one needs to rather look to steadily, slow-growing asset for a retirement plan, but the SEC in the US has also weighed in on the trend of people trying to set their retirement up on Bitcoin.

Cryptocurrency prices are incredibly hard to predict, and their behavior makes them very risky, especially when it comes to retirement funds. It’s generally advised that if you have a penchant for cryptocurrency, it’s best to play with funds you can afford to lose, not with the money you’re planning to live on.

But the SEC’s concern is more than just about volatility, they are concerned with the number of fraud and scam investment opportunities that abound in the cryptocurrency space.

Lori Schock, director of the SEC’S Office of Investor Education and Advocacy, explains:

“Now that some self-directed IRAs include digital assets m– cryptocurrencies, coins and tokens, such as those offered in so-called initial coin offerings (ICOs)– we think it is important to alert investors about the potential risks and fraud involved with these kinds of investments that may not be registered.”

Dangers of ICOs

Even moving beyond simply investing in cryptocurrencies, there is a lot of danger in investing in ICOs as part of a retirement plan as ICOs have often encapsulated the dangers of fraud and the volatility of the cryptocurrency market.

It is all too tempting for people to try and become early investors in an ICO with the hopes of making astronomical gains, but, as the ICO market has moved along, there have been a number of instances where projects are abandoned, or fail, or are outright scams.

The idea of putting your retirement into one of this projects is extremely risky as the project may collapse, be a scam to begin with or never really gain, only lose.

views
Coins Guide George Shnurenko

How to buy Ripple (XRP) in USA: A Step-by-Step Guide

🎓 Coins Guide
One can’t still buy Ripple via credit card in the USA – no direct way exists.
How to buy Ripple (XRP) in USA: A Step-by-Step Guide

How many Ripple coins can we buy?

XRP - Ripple’s token, was issued in some kind of similar way like companies issue stocks. It isn't mined like other digital coins: Ethereum, Bitcoin and Litecoin. The company picked some number (100 billion) and many XRP coins were issued as a result.

Ripple own 61 billion of this 100. To win the investors’ trust, Ripple has blocked 55 billion of them via 55 smart contracts (1 billion is held by 1 contract). Every month as date of expiration comes, the corresponding amount releases.

The company spends about 300 million XRP per month to cover operating expenses. Such operational transparency should convince skeptics that Ripple does not plan to disappear, selling its stocks and thus destroying the XRP price.

How to Buy Ripple

One can’t still buy Ripple via credit card in the USA – no direct way exists.

Coinbase

Wherever you are located you need to purchase Ethereum or Bitcoins first and then convert them to the Ripple.

The easiest way for USA residents is Coinbase – use credit card with USD.

Having got ETH or BTC, you can also use Binance for converting them to Ripple. It will take you about 10 minutes. Due to its good volume, it is considered to be best place for Ripple to be exchanged.

If you are from Canada, USA or European countries as well as from Australia or Singapore – you can use Coinbase easily.

Kindly get acquainted with Coinbase guide.

BitPanda

This resource features brokerage service based in Austria. From most European countries one can purchase Ripple on BitPanda via credit cards. See our review of this service. CoinMama

Kindly read our review of CoinMama. The portal eases the purchasing of Ethereum or Bitcoins via credit card. You can do it almost from any point of the world.

As you get ETH or BTC, you can convert them to XRP - Binance will help you.

Buy Ripple with Bank Account

For USA residents: if you use your bank account:

  1. Come back to Coinbase or similar one for buying BTC or ETH.
  2. Visit Binance to convert the received Ethereum or Bitcoins into XRPs.

For Europeans – you’d better use BitPanda. In case of your location in any other country, visit our home page in order to find a Bitcoin exchange suitable for your country with bank transfer support. After you purchased Bitcoins convert them to Ripple. It will take you less than ten minutes. Getting a Ripple Wallet

You should never store your XRP on an exchange – it is the way for your values to be stolen. Take control under withdrawal - your XRP needs to be got out to any secure offline wallet for example Ledger Nano S or similar. Kindly read our Ripple wallets’ guide. Buy Ripple with PayPal

Unfortunately there is no direct way to purchase buy Ripple with PayPal – you will be to buy Bitcoins first using PayPal and proceed converting them to XRP (Binance will help).

Buy XRP with Cash

There is also no way for direct buying XRP with cash. Less than 1% cryptocurrency ATMs support Ripple.

The algorithm is the same - buy BTC with cash and then convert them to XRP via Binance or some service like this. Buy Ripple with Bitcoin or Etheteum

If you need to exchange BTC or ETH for Ripple – go to Binance, this is the simplest way. Buy XRP with Skrill

Via BitPanda all those living in Europe can buy Bitcoins or Ethereum with Skrill. And after that they are to visit Binance to make exchange of the received digital coins into Ripple. Buy Ripple (XRP)

The Ripple creators aimed to create the "Machine" providing fast transfers of great money sums all over the world. Being claimed as great platform, Ripple focused on cooperating with banks and as a result their immediate global payments became more easy and effective. It is not too late to join us as the current Ripple price of 0.5$ allows it to be purchased for almost every of you. The price can change immediately - its recent level achieved 3.00$. The next big move is oncoming! How to Buy Ripple

You can buy XRPs only with BTC OR ETH - no more currency is suitable for it (we mean US dollars or Euros and others). You are to visit only cryptocurrency exchange to get some XRPs.

In case you don't have any idea how to start the process of converting fiat currency (dollars/euros/yen/etc.) to BTC or Ethereum, follow our guide - there will be explained how to buy Bitcoins or Ethereum. After that you are welcomed here to proceed.

In case you are skilled crypto expert, skip to next page of our tutorial to learn process in detail.

Here are the best addresses for buying Ripple:

  • Changelly
  • Binance
  • Bittrex
  • Bitstamp
  • Kraken

How to Buy Ripple on Changelly

This service also allows you to buy Ripple with Bitcoin or Ethereum. It is not actually possible to store your values here - get a Ripple wallet. The best secure option will be Ledger Nano S (kindly see review), nevertheless Binance exchange wallet with 20 Ripple will be rather suitable.

The system requirement is to store 20 or more Ripple in your each Ripple address: it is a preventive measure against huge amounts of unused addresses. You will be ok sending 20 or more Ripple within first transaction to your wallet.

The next step is to go to site and make a pick of input currency that you will send to address for Ripple provided by Changelly. This resource allows choosing any coin for this. Our recommendations still remain the same: use Bitcoin or Ethereum for Ripple purchase. For output you can use Ripple.

You will face with 2 fields:

  • XRP Address: (Your Ripple Address)
  • Destination Tag (Optional): (a tag for notes about the transaction)

The Next step of processing: send Bitcoin or other input currency to the deposit address. As soon as you launch it – the funds are sent to specified address.

How to buy Ripple on Binance

Binance favorably differs from other exchanges with incredibly low fees of 0.05%. It starts working since 2017 and gained the great popularity among “cryptocommunity”. It also features serious great security system that adds "points" to Binance in the fight for the customers’ hearts. Algorithm

  1. What you need for start is to sign up on Binance for make your exchange. The system maximally eased this process; it doesn’t need any verification, it is fast and available for all users of the world.
  2. Already signed up? The next step is visiting the navigation bar. Every cryptocurrency offers deposit addresses. Move your mouse over funds and click Deposits.
  3. Depending on what currency you will use for buying Ripple (BTC or ETH) – you should locate that very currencies deposit address.
  4. As you locate your addresses, copy them for the next step, where will be explained how to make a transaction in cryptocurrency.
  5. If you need to send ETH or Bitcoin from Coinbase, go to the accounts tab and after that click “send”.
  6. When your cryptocurrency reaches Binance, choose the corresponding trading pair of the sent currency. For example in case of sending Bitcoin, go to the BTC/XRP trading pair.
  7. As you open this page, you will see a screen like this. For purchasing Ripple enter an order in middle of the bottom. Click the “Market” tab - here you can see current rate of Ripple and buy it.
  8. If prompted price doesn’t suit you, you can use a limit order. How many coins do you want to buy? Take the needed amount (you can choose 100% of your balance). You can also take advice about Ripple price - the chart or the order book is highlighted in red. When you have set the order’s conditions, click Buy Ripple and it will be filled – you need to wait a bit!
  9. Once your order is filled, you get the ability to put Ripple to a secure wallet. Get mouse over funds and click “withdrawals”.
  10. Type a Ripple address to send your coins. Before complete the first transaction to a new address, check if it contains at least 20 Ripple. We consider the Ledger Nano S to be one of the most secure wallets, despite this you can use another one – see our Ripple wallets’ review. How to buy XRP on Bitstamp

Take your pick of trading pairs provided by this service:

  • XRP/USD
  • XRP/EUR
  • XRP/BTC

If you’d like to purchase Ripple on Bitstamp, first of all you are to create and authenticate the Bitstamp account.

The front page of account contains the link ‘Deposit’, follow it and deposit the funds. After the funds appear at your account – go ahead and buy Ripple! How to buy XRP on Kraken

This is good choice of cryptocurrency exchange with high reputation for purchasing Ripple. Create the account first, confirm it, log in and make the funds’ deposit. This can be completed by following the deposit link, and further entering all needed information (card number, payment method and so on).

The main feature of service – here you can’t buy Ripple directly; first you need to buy XBT. Set the order to buy XBT, and skip to XRP/XBT pairing. You should enter an order at the current rate and be patient until it is filled. After deal is completed you become the owner of the Ripple! The reasons to choose Ripple

Actually when you buy Ripple tokens you make a great investment to the future. This train really has successful destination – that is not our guess, but the opinion of global financial institutions. As it has a great potential of investment’ returns, especially if it continues integration to banking sector. It has got unquestionable pros:

  1. Speedy processing, transactions are held in four seconds.
  2. You can purchase ordinary items with Ripple (when you are sure that it will be accepted by both trader and user)
  3. Ripple is highly scalable due to supporting of thousand transactions per second.
how to buy ripple

How to purchase Ripple tokens?

Due to state of the art technology of Ripple platform, many successful achievements within its functionality became truth. This caused Ripple to increase 3800% in value for less than a year. It sounds really fantastic and no wonder that many experts predict Ripple a brilliant serious future.

Ripple can be purchased on plenty of exchanges like other popular cryptocurrencies. In comparison with purchasing process of other major cryptocurrencies, we are glad to share with you some ways to purchase XRP token via those exchanges.

Coins Guide
views
Alexander Goborov

Where Is It All Happening? The Biggest Crypto Cities of the World

We’ve done our research, and we bring you our succinct conclusion: the most influential crypto cities of our planet
Where Is It All Happening? The Biggest Crypto Cities of the World

Today, we bring you our version of the biggest crypto cities in the world. Two factors were taken into account when compiling this list : 1) the number of crypto companies in each city, as well as their influence on the global market, and 2) how widely crypto payments are accepted in the region. So, here they are listed alphabetically:

Crypto city

Amsterdam (the Netherlands)

With numerous Bitcoin ATMs and many merchants that accept Bitcoin as a legitimate form of payment, the capital of the Netherlands has by now also become one of the crypto hotspots of Europe. The Dutch city is home to at least 90 such businesses, as it is to the Bitcoin Embassy, one of Bitcoin’s major global promo establishments anywhere in the world. So, if you happen to be in town, there is now more than Van Gogh and Rembrandt to see and buy, RLD excluded.

Buenos Aires (Argentina)

With most South American economies in a state of financial uncertainty and terrible inflation, many are looking for alternative ways to store their wealth, or whatever is left of it. Here, the capital of Argentina is leading the way: the city is home to almost 150 businesses that accept Bitcoin as a form of payment. For this same reason, Argentina has also become a major player on LocalBitcoins, causing a boom on the platform. The first ever Bitcoin conference in Latin America was also held in Buenos Aires last year.

Hong Kong (China)

Hong Kong, while technically belonging to China, retains its vital political and financial independence from the mainland. While the crypto ban has made things very difficult in Shanghai and Beijing, Hong Kong is taking full advantage of its economic freedom by bringing crypto prosperity to business in all possible (and profitable) forms. Among the numerous successful crypto companies that Hong Kong can boast about are two major global players: Bitfinex and HitBTC, founded in 2012 and 2013 respectively.

Ljubljana (Slovenia)

Many might not have even heard of Slovenia, let alone its capital Ljubljana; after all, it’s a small nation with a small capital. However, this city is a serious force to be reckoned with when it comes to the world of cryptography, Blockchain, and DLT: Ljubljana is home to the world’s first ever Bitcoin mall known as Bitcoin City, i.e. a shopping center where all vendors accept Bitcoin. The mall is an impressive 475 000 square meters in size, concurrently making it Slovenia’s largest shopping center of any kind. Major crypto firms, among them NiceHash and Bitstamp, are also based in the city.

New York (USA)

It is a well-known fact that New York is considered to be the world’s financial capital. When it comes to centralized finance, i.e. Wall Street and banking, there is hardly any rival that can challenge NYC’s dominance. When it comes to the world of decentralized finance, though, the city’s claim to power is yet to be made, after it manages to catch up with San Francisco’s arguably stronger output. Be that as it may, NYC is already home to more than 100 businesses that accept crypto payments, as it is to a number of major crypto companies, among them ConsenSys.

Prague (Czech Republic)

The capital of the Czech Republic may not have that much to offer, comparatively speaking, in the way of giant crypto companies which are on par with some of the other brands mentioned in this list. At least not yet. But what Prague is still lacking in quality, it is certainly making up in quantity, a pattern which is bound to eventually pay off. The city is growing in crypto adoption at a stunning rate, and for this reason it is currently ranked first by Forbes by number of businesses accepting crypto payments, more than 150, which is more than anywhere else in the world as of this year.

San Francisco (USA)

San Francisco may quite possibly be the most influential crypto city in the whole world. It has already established its reputation as a major tech hub, thanks to its proximity to Silicon Valley (around 40 miles). Now the city is also swiftly turning crypto on a huge scale: it is already home to many giants of the crypto game, among them such well-known brands as Ripple, Kraken, Coinbase, and Blockchain Capital. Furthermore, San Francisco is home to around 120 merchants that accept cryptocurrency and almost as many crypto ATMs. With such impressive stats, not many places can compete with this global crypto hotspot located in Northern California.

Singapore (Singapore)

Singapore is a unique city-state. Known for its international trade and entrepreneurial vibe, it got involved in the crypto world early on and is now considered to be one of the most crypto friendly places on our planet. It is, of course, no coincidence that one of the current crypto trade leaders of the world, the exchange platform Huobi, proudly calls Singapore its home. Among many other crypto companies based here are Litecoin, Signum, NEO, and Virtuse.

Toronto (Canada)

The largest city in Canada is also one of the biggest crypto cities in the world, which, according to some sources, contains over 200 crypto ATMs within its borders, more than any other city in the world. This is in part because Canada’s progressive government is for the most part supportive of DLT, and hence most laws on ICOs and crypto startups are quite relaxed. This is also why Toronto is said to have as many businesses within its greater suburban area that accept digital currency as the Dutch capital, Amsterdam.

Zug (Switzerland)

There is a very good reason why Zug is on our list, and it can be summed up in two words: Crypto Valley. The town located in central Switzerland is tiny. What is huge, however, is the amount of talent it contains and the number of crypto companies it hosts: over 300 of them from 20 different countries, including Buterin’s Ethereum. With the Swiss government being supportive of the Blockchain technology, the town is also home to the annual Crypto Valley Blockchain Summit, which is regularly visited by members of the European Parliament.

💼 Related Article
Crypto Valley: Blockchain’s Silicon Valley Tucked Away in Swiss Alps
🔥 Hot
3 weeks 4 days
256
Crypto Valley: Blockchain’s Silicon Valley Tucked Away in Swiss Alps

views
Wikicoin George Shnurenko

What are Stablecoins and What do They Mean for the Crypto Market?

📚 Wikicoin
Stablecoins are sure to bring forth a paradigm shift in the way cryptocurrencies operate
What are Stablecoins and What do They Mean for the Crypto Market?

Technology, sometimes, takes a long-winded, tortuous path. As we have often experienced in life, the graph of success is never a straight line. It’s filled with contours, slopes, steep valleys, and few peaks. When you think of cryptocurrencies and how far Bitcoin has come, you might be tempted to smile and count it as a remarkable success. But let’s take a closer look.

Traditional cryptocurrencies are extremely volatile. Let’s consider Bitcoin – at the beginning of 2017, it was barely $1,000, but before December of the same year, it peaked at $20,000. Cool, right? But as of June 2018, the Bitcoin price is hovering around $7,000.

Ethereum, Litecoin and other altcoins have demonstrated a similar behavior so we know that it’s not peculiar to Bitcoin alone. In fact, traditional fiat currencies also suffer from inflation and hyperinflation. Check out the case of Venezuela, Nigeria, Zimbabwe, and even some European countries. It seems as though the concept of a stable currency is an illusion. Is there a solution?

What are stablecoins?

The extremely volatile nature of cryptocurrencies makes them attractive for long-term investors, highly skilled short-term day traders and news analysts. However, this same characteristic makes them less than ideal for mainstream purposes.

What if we had a kind of cryptocurrency which could afford us the level of stability that we have with our fiat currency? Well, we do. We have stablecoins.

Stablecoins, basically, are cryptocurrencies which are stable in the purchasing power they possess. Even if they exhibit traits of inflation, this is in a bid to encourage the holders of this currency to spend rather than hold the currency. In other words, stablecoins are cryptocurrencies which have a fixed price, usually measured against another fiat currency.

💼 Related Article
EOS vs. Ethereum - Which Сoin is More Promising?
🔥 Hot
6 months 1 week
256
EOS vs. Ethereum - Which Сoin is More Promising?

What are the properties of a stablecoin?

Now that you have an answer to the question, “what are stablecoins?” we can go on to explore what makes a stablecoin ideal. In essence, if a crypto can achieve the properties discussed below, it is an ideal stablecoin.

  1. Can the coin be used as a medium of exchange to trade goods and services?

  2. Can it be used to maintain wealth over a period of time without depreciating in value?

  3. Is it an appropriate measurement unit which can be used to define and compare different values?

  4. Is it scalable? Can it be used by 7 billion people?

If any cryptocurrency meets all four conditions, then we can agree that it is, indeed, one of the best stablecoins we have.

Why are stablecoins important?

All about stablecoins crypto involves stability and making cryptocurrencies parallel fiat currencies better. This is in a bid to diversify and have cryptocurrencies enjoy wider use, especially in practical applications. We can safely say that stablecoins would attract more than investors or short-term traders. The success of stablecoins will cause an average person to consider crypto for day-to-day trading activities. What more do we stand to gain? Here are some of the benefits of stablecoins.

1. Stablecoins hedge against volatility

Remember the time when Bitcoin was selling for $20,000? If you had 2 BTC and then decided to trade the BTC for a stablecoin which was measured in USD, the transaction would give you 40,000 units of stablecoins. Now that the price is around $7,500, rather than having $15,000, you would still have $40,000 worth of stablecoins. This is pretty impressive, right?

2. Stablecoins facilitate the global use of a stable currency

In countries like Nigeria and Argentina, the annual inflation rate can be as high as 15 percent yearly. For this reason, it is not unusual to see citizens of these countries seeking USD to preserve the value of their wealth. Think of the stress which will be eliminated if a digital, decentralized and stable currency was made available to the general public.

3. Stablecoins suit the crypto-based lending and derivatives market

A modern financial system with very minimal interference, human error and middle-men is perceived as the ideal concept of finance and cryptocurrencies provide that advantage. However, at the moment, it is impossible for capital markets to rely on cryptocurrency because of the lack of stability.

Providing or collecting crypto-based loans will prove daunting to both the lender and the borrower due to the fluctuations in price. Stablecoins will ensure that there’s a reliable price which one can expect.

💼 Related Article
Generational Crypto-Investment Gap: Why Warren Buffett Just Doesn’t Get It
🔥 Hot
6 months 1 week
256
Generational Crypto-Investment Gap: Why Warren Buffett Just Doesn’t Get It

Types of stablecoins and how they are created

1. Fiat-collateralized stablecoins

These are quite straightforward and they are relatively easy to create. Using this method, a certain amount of fiat currency is held as collateral and then the coins are provided in a 1:1 ratio. The simplicity and flexibility of this approach make it ideal, but it requires a custodian and close monitoring.

2. Crypto-collateralized stablecoins

Instead of fiat currency, these have another cryptocurrency as collateral. Over-collateralization, the concept of paying more than is required – for example, paying $1,000 worth of BTC to receive $500 in stablecoins – is a common drawback of this approach. In the event that the crypto being held as collateral also loses its value completely, the holder of the stablecoins loses out.

3. Non-collateralized stablecoins

The concept of trading these stablecoins with the expectation that they will retain their value is, perhaps, the best alternative. The seigniorage shares approach which uses an automatically-programmed smart contract to control the supply of the currency has been hailed as the best alternative yet.

Different stablecoins in existence

If you think stablecoins are doomed to fail or that they are only good on paper, think again. We already have existing currencies which attest to the viability of the concept.

Tether

Tether is backed by a fiat currency and the currency is held in a reserve account. It uses the 1:1 concept, making 1 USDT equal to 1 USD. However, it is centralized and this brings an iota of distrust.

MarkerDao

MarkerDao is decentralized and also measured with respect to the US dollar. The Ethereum network is the underlying tech and stability is ensured by a series of smart contracts. The coin, Dai, is also worth 1 USD. However, it can prove complex and slow.

Havven

This system supports itself by providing two coins – Nomins, the stable coin which can be used during day-to-day transactions, and Havvens, the coin in reserve. It is fully decentralized and fast, however, it is relatively new and might not be fully trusted.

💼 Related Article
5 Ways to Earn Passive Income with Cryptocurrency
🔥 Hot
6 months 1 week
256
5 Ways to Earn Passive Income with Cryptocurrency

Wikicoin
views
Darryn Pollock

Bitcoin Theft Going Offline: In-Person Attacks Becoming More Common

Bitcoin owners may have to literally watch their backs as criminals are targeting them in the non-virtual world.
Bitcoin Theft Going Offline: In-Person Attacks Becoming More Common

There is an understanding with Bitcoin owners that hackers and thieves lurk online where their digital currencies are stored, and there is a level of danger and potential risk that comes from this asset.

However, there are more and more spates of in-person attacks occurring where Bitcoin owners are being confronted by people and forced to transfer their Bitcoins to the thieves’ anonymous wallets.

There has been such a focus on building protection for cryptocurrency owners online, that some thieves are simply circumventing it by going old-school and attacking people face on, forcing them to part ways with their digital currencies.

Hostage situations

There has not been as much coverage of in-person Bitcoin thefts as there have about hacks and other methods of taking Bitcoin off people illegally, but there has been a few instance in the recent past.

In a beach resort in Phuket, Thailand, in January, thieves held captive a Russian man in his apartment until he logged onto his computer and transferred about $100,000 worth of Bitcoin to an online wallet they controlled.

Even more high profile people have been faced with in-person attacks aimed at stealing Bitcoin.

Chief Executive of a UK-based Bitcoin exchange called EXMO, Pavel Lerner, on leaving his offices in Kiev, was kidnapped just After Christmas last year and held ransom for a fee of $1 mln Bitcoin.

A month prior to that, in Turkey, a businessman was forced to hand over the passwords for his virtual wallets which contained in excess of $3 mln. He was stopped by an armed gang in his car, in Istanbul.

Rare occurrences

These thefts are still rare and mostly one-off instances that are simply aimed at a valuable commodity. Instead of jewels and money, thieves are a little more sophisticated in targeting those who are known to be virtual currency-rich.

These one-off hits pale in comparison with the multiple wallets that are usually attacked when entire exchanges are targeted by hackers, leaving thousands of people out of pocket.

views
Cryptotips Thejas Nalval

Demystifying Bitcoin Futures Curve: Risks and Rewards

💡 Cryptotips
Miners or larger institutional investors may look at Bitcoin futures as a hedging mechanism
Demystifying Bitcoin Futures Curve: Risks and Rewards

In the months following Bitcoin’s first regulated future trade, a healthy discourse has emerged around how best to think about the corresponding futures curve. Bulls and bears alike are working to gauge the relationship between the current spot price and the projected spot price implied by a futures contract.

A foundational understanding of the way in which derivative products affect the supply/demand equation will allow a market participant to develop truly accurate abstractions for the price and volatility of this nascent asset class. It will allow a market participant to intelligently predict and speculate on trends, just as it’s done with more mature asset classes.  

In order to create abstractions and predict trends using Bitcoin futures, it’s paramount to first understand the many characteristics of Bitcoin’s futures curve.

💼 Related Article
5 CryptoComes’ CryptoTips on What to do When Market Plummets
🔥 Hot
10 months 1 week
256
5 CryptoComes’ CryptoTips on What to do When Market Plummets

The core of the curve  

At its core, Bitcoin’s futures curve consists of a series of forward prices of varying expiration dates plotted together on one surface. The result is an illustration of where the market believes the Bitcoin price will be at some specific date in the future. The slope of this curve gives us a glimpse into these beliefs. And just like in other commodity markets, these beliefs can manifest in contango or backwardation:

  • Contango is an upward sloping curve. This occurs when the futures price is above the expected future spot price. Put simply, contango results when people are willing to pay more for the commodity at some point in the future rather than buying it today and incurring the cost of storing it.

  • Backwardation is a downward sloping curve and happens when the relationship described above is reversed. In other words, when the expected spot price is trading higher than the futures price, backwardation results.

As to be expected, whether the curve is in a state of contango or backwardation is determined by a variety of elements. Some key components include price sentiment, storage costs and insurance costs; along with ‘force majeure’ factors like weather conditions or geopolitical events.

💼 Related Article
10 Crypto Trading Mistakes: How to Trade Cryptocurrency Profitably
🔥 Hot
7 months 2 weeks
256
10 Crypto Trading Mistakes: How to Trade Cryptocurrency Profitably

Holding Bitcoin: risk and reward

Not surprisingly, holding Bitcoin poses a risk. The biggest risk, of course, is the risk of being hacked. This perceived risk impacts the curve. Another similar threat includes misplacing private keys, which therefore results in the loss of the asset. Some argue that these risks can be defined as costs of storage.

So when it comes to the futures curve, a risk-averse investor may put a premium on a product that provides Bitcoin exposure yet alleviates this cost. This results in a premium for the futures price. And this is what can create a contango in the futures curve.

Other traders, like miners or larger institutional investors, may look at Bitcoin futures as a hedging mechanism. They have no directional view of where Bitcoin price might be in the short term and aren’t necessarily looking to arbitrage. Rather, they're interested in protecting the downside.

This may make them willing to sell contracts at the current spot price, or even slightly below it, in order to earn downside protection. This dynamic can create what may be perceived as backwardation. As of the end of Q1, the latter dynamic appeared to hold more credence.

💼 Related Article
10 Best and Biggest Bitcoin Mining Pools
🔥 Hot
7 months 2 weeks
256
10 Best and Biggest Bitcoin Mining Pools
 

How the future looks for the futures curve

In order to even attempt to predict the future, it’s critical to understand the past. In a recent report written by Element Group, the team analyzed the progression of Bitcoin’s futures curve from Bitcoin’s first regulated futures trade in December 2017 through the end of Q1. They found that the Bitcoin futures curve started out in contango but by early 2018, moved into backwardation. The curve has since teetered between being in this state and being effectively flat for most of Q1. The team determines that the downward curve implies that as of March 2018, there was little to no conviction in the Bitcoin futures marketplace.

While it’s too soon to make any large-scale generalizations regarding the Bitcoin futures market, assessing data and analyzing trends and what causes them will pave the way for determining how various factors influence Bitcoin pricing and what “normal” patterns look like for this emerging and volatile sector. 

💼 Related Article
Bloomberg Launches Cryptocurrency Benchmark Index for Investors
🔥 Hot
7 months
256
Bloomberg Launches Cryptocurrency Benchmark Index for Investors

A topic of discussion right now is the shift of institutional investors into cryptocurrencies. An environment where traditional stock market portfolio returns are lackluster may foster an appetite to add risk exposure through unconventional means. The inclusion of an uncorrelated asset class with hyper growth potential could be intriguing for a portfolio manager looking for additional yield without the additional opportunity cost of capital.

However higher rates and the looming threat of a trade war has seen institutional investors rotate firmly out of equities and into fixed income on a large scale this year. Contrary to what some speculate though, economic uncertainty alone won’t cause this shift- the reality is that several structural constraints need to be overcome before the shift occurs. Much of which hinges on improvements in the service provider market as well as continued clarity from regulators on how they view cryptocurrencies as an asset class.

In conclusion, we submit that as we head into the summer, a number of possible tail winds could arise and impact the future of Bitcoin. Conferences will occur, spurring industry announcements that will serve as catalysts for market growth. Protocol main nets and dapps releases are on the horizon. These are all factors that could kick off a secular bull market in the latter half of 2018 that may mirror that of 2017.

Thejas Nalval is the Director of Portfolio at Element Group, a full-service advisory firm for the digital token capital markets.

Cryptotips
views
👓 Recommended articles