Survey: Most Americans Remain Blissfully Unaware of the Blockchain Revolution

Survey:
Most Americans Remain Blissfully Unaware of the Blockchain Revolution

With the cryptocurrency market cap now estimated

to be in the hundreds of billions of dollars and a sort of familiar frenzy kicking into overdrive, here’s another reminder that widespread adoption by the U.S. public has not yet materialized. A September poll conducted by student loan refinancing market LendEDU found that 78.6 percent of Americans were aware of Bitcoin, the most famous cryptocurrency—and up to 39.6 percent were open to “the idea of using Bitcoin for transactions and purchases.” But a poll released by LendEDU on Tuesday suggests that beyond having heard about Bitcoin in the news, the vast majority of Americans have so far declined to learn more than the bare minimum.

LendEDU’s new 1,000-respondent online poll found that just 31.6 percent were aware of Ethereum, a newer cryptocurrency which has exploded in scale to the second-largest market position in recent years. Just 18.2 percent said they planned to invest in Ether tokens. Even fewer had heard or planned to invest in Ripple, the third-largest cryptocurrency. Almost exactly three-quarters of respondents said they had never heard of initial coin offerings, a complicated and almost completely unregulated form of investment vehicle in which crypto-backed companies sell stakes in “new” cryptocurrencies in lieu of traditional stocks. Just 15.1 percent said they planned to invest in an ICO.

ICOs have boomed this year, with billions of dollars flooding into the sector despite warnings from various authorities—as well as notorious Wall Street scammer Jordan Belfort—many of the companies involved could be pump-and-dump schemes. There are hints of a possible crackdown by the Securities and Exchange Commission in the future, though U.S. regulators don’t have a great track record. ICOs’ relative obscurity may be both a curse and a blessing. It could limit the fallout of any possible implosion in the cryptocurrency markets, but people who haven’t been adequately informed of the risks might also wander into bad investments.

Taken together, the polls also suggest that regardless of the ongoing crypto boom, much of the public is staying away from the rampant speculation. It’s hard not to envy them, especially given how much resemblance the typical blockchain business pitch has to a time-share promotion. But it’s also a reminder that if trends continue, a crash could hit the larger economy with possibly serious consequences—and for many people it will seem like it came out of nowhere. Of course, it’s also possible that the bubble will never pop and the 15.1 percent who plan to get into ICOs will be the billionaire libertarian overlords of our future, in which case…

Chuck Reynolds


Marketing Dept
Contributor
Please click either Link to Learn more about -Bitcoin.
Interested or have Questions. Call me 559-474-4614

Arkansas Police Generates Its Own Cryptocurrency to Track Child Porn

Arkansas Police
Generates Its Own Cryptocurrency
to Track Child Porn

The Cyber Crimes Division of the Benton County Sheriff’s Office

in Arkansas has launched a pilot program involving the mining of Bitcoin and other cryptocurrencies to monitor the activities of criminals online. The division has generated its own digital currency to track such crimes as the proliferation of child pornography.

Combating cybercrimes

Based on data from the US Federal Bureau of Investigation (FBI), there has been an increase in the number of individuals who use Bitcoin and secret web browsers to trade or distribute child pornography, to illegally purchase drugs, as well as to engage in prostitution or human trafficking and other unlawful activities. In an interview with television news station KHBS in early October 2017, Benton County detective David Undiano claimed that the program aims to help their investigators to tackle crimes that they might have previously been

unequipped to process.

"People are selling child pornography on the dark web and on the Internet. They are accepting Bitcoins, not payments. We can't use the sheriff's office credit card, and we can’t exchange child pornography. We need some type currency to get this and then identify who we are getting it from. That way, we can go arrest that person."

Opposition to the pilot program

However, despite the potential effectiveness of the campaign, some individuals seem not to be very supportive of it. In his interview with the Arkansas Democrat-Gazette, potential sheriff candidate Glenn Latham voiced his opposition to the policy, claiming that it would eventually result in very high expenses that will be shouldered by

local taxpayers.

"These machines that they have to use draw a huge amount of power and cooling costs will go up. That’s at the taxpayers’ expense.”

Chuck Reynolds


Marketing Dept
Contributor
Please click either Link to Learn more about -Bitcoin.
Interested or have Questions. Call me 559-474-4614

Bitcoin Gold Off to Rocky Start After DDoS Attack

Bitcoin Gold Off to Rocky Start
After DDoS Attack

Recently, Bitcoin Gold became the latest “fork” of the original Bitcoin digital

currency, joining Bitcoin Cash which was the first major hard fork back in August. However, Bitcoin Gold’s emergence has been far less controversial or even influential, but it has been rocky. The aim of Bitcoin Gold is to be a currency that hands power back to the ordinary miner and enable anyone with a graphics processing unit to mine the new cryptocurrency that has roots in the original Bitcoin. However, Bitcoin Gold has essentially zero chance of replacing Bitcoin in the marketplace as a ‘fork,’ it’s more of an air-drop than a chain split. And, as such, its entrance onto the stage, has been less than impressive.

Massive DDoS attack

As Bitcoin Gold split, a tweet was sent out that alerted the community that a massive DDoS attack had hid the site. "Massive DDoS attack on our cloud site," stated a tweet from the Bitcoin Gold account. "10M requests per minute. We are working with the providers to ban all the IPs.

We will be up soon!"

Massive DDoS attack on our cloud site. 10M requests per minute. We are working with the providers to ban all the IPs. We will be up soon!

This means what probably happened was a network of hijacked devices were accessing the Bitcoin Gold site 10 mln times a minute in order to block out legitimate traffic. At 10 mln attacks a minute, it was a rather large hijacking, but still not the biggest. However, on the Bitcoin Gold Slack channel, it was announced that most of the attacks were emanating from China. Hours later, Bitcoin Gold tweeted that the attack had been "handled" but that "it will take a bit more time" for the site to be operating normally.

A long road for Bitcoin Gold

Although it is calling itself a fork, Bitcoin Gold really does not satisfy many of the presumed attributes of a forked currency, and its operation and application have been shaky already. The team has given itself a soft deadline of Nov. 1 to "launch" the coin properly by releasing the code and allowing people to mine it. At this time people will also receive a mirror balance of their Bitcoin in Bitcoin Gold. There have been warnings and non-support from many exchanges about Bitcoin Gold; however, there is still interest about for the chance of being additionally credited the equivalent amount of Bitcoin Gold. Bitcoin Gold futures were trading at $117.50 per coin on Bitfinex the day after the split.

Chuck Reynolds


Marketing Dept
Contributor
Please click either Link to Learn more about -Bitcoin.
Interested or have Questions. Call me 559-474-4614

Happy Birthday Bitcoin! October 31 Sees $6k Crypto Turn 9 Years Old

Happy Birthday Bitcoin!
October 31 Sees $6k Crypto
Turn 9 Years Old

Tuesday marks nine years since Satoshi Nakamoto

announced the creation of the Bitcoin “Peer-to-Peer Electronic Cash System.” The Bitcoin whitepaper, still available on the same Bitcoin.org domain as it was in October 2008, offers an increasingly fascinating view into the niche project which in October 2017 has a market cap of over $100 bln. The document famously begins:

“A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.”

“Digital signatures provide part of the solution, but the main benefits are lost if a trusted third party is still required to prevent double-spending. We propose a solution to the double-spending problem using a peer-to-peer network.”

Those networks are now used by three mln users every day, with that number expected to increase to 200 mln within just seven years projections state. This year’s anniversary is especially timely as Bitcoin reaches new all-time highs without a hint of serious price corrections.

Oct. 31 this year is also significant for other reasons, the date marking the deadline by which China’s domestic market exchanges must cease providing Bitcoin-to-fiat trading. While those traders have since migrated to alternatives, the mood both inside and outside the multibillion-dollar cryptocurrency industry is that Bitcoin is here to stay and will come out stronger as a result of competition from copies – Bitcoin Cash, Bitcoin Gold, Bitcoin Silver and SegWit2x.

Huobi Says ‘Goodbye’ To Bitcoin Industry Amid Rumors It’s Not Over For China

Chinese Bitcoin exchange Huobi’s domestic arm

has issued a farewell to the industry as it prepares to shut down Tuesday. In a blog post, Huobi said it would reimagine itself as an “integrated information and research service provider in the vertical field of Blockchain (sic)” dedicated to the Chinese market. Commenting on the shutdown, founder

Leon Li called this month’s events a “milestone.”

“I believe that this is not only a milestone for Huobi but also a watershed in the history of Chinese digital assets and even a memorable day in the development of global digital assets.”

While hope remains that China’s domestic traders will once again get access to exchanges, the country’s big names such as BTCChina, OKCoin and others will all disappear from Nov. 1. This week saw rumors that Chinese investors may be able to use Huobi and OKCoin’s international sister platforms in the future when they launch p2p Bitcoin-to-fiat trading. The information nonetheless comes only in the form of implication.

Li continued:

“In the past, Huobi brand in China has been a significant symbol in the industry of digital assets. In the future […] Huobi team will continue to actively and globally participate in the development of the industry.”

An interim measure has seen Chinese traders return en masse to p2p platforms, principally LocalBitcoins, the use of which has ballooned for a second time this year. Li concluded by thanking users and reiterating a desire to leverage benefits of the Chinese regulatory crackdown.

He wrote:

“With your trust and talent, I believe all challenges Huobi is facing today can be opportunities.”

Chuck Reynolds


Marketing Dept
Contributor
Please click either Link to Learn more about -Bitcoin.
Interested or have Questions. Call me 559-474-4614

Bitcoin Price Will Have ‘No Difficulty’ Hitting $10k, With 30,000 New Wallets a Day: Max Keiser

Bitcoin Price Will Have ‘No Difficulty’ Hitting $10k, With 30,000 New Wallets a Day: Max Keiser

After Bitcoin hit $6,000 and stayed above it Monday,

the virtual currency’s most famous fans are confident $10,000 will involve little effort. Mixed messages are accounting for Bitcoin’s sudden second surge above the $6,000 mark, with Max Keiser pointing to a combination of

factors for underlying support.

30,000 new #Bitcoin wallets a day. ETF coming soon. Wall St. just getting started. Regulators waking up to their impotence. Hello $10,000!

The move itself, however, could be down to just one trader, analysis on

social media suggests.

it wont appear in the feed due to time to close but all signs point to a top holder getting liquidated credit

Bitcoin continues to deny bubble criticism from major legacy finance figures, which now include infamous investor Warren Buffett, while JPMorgan CEO Jamie Dimon has taken a back seat in his cryptocurrency chiding. Keiser meanwhile remains steadfast in his prediction of an easy ride to $10,000 per Bitcoin, reiterating his long-term target since 2011 being ten times that – $100,000.

Anyone who thinks otherwise, he wrote on Twitter Monday, “has not been paying attention.” Bitcoin prices reached a new all-time high of $6,300 Sunday before tailing off to hover around $6,110 at press time. The move dragged altcoin markets along with it, with the top ten seeing 24-hour gains of up to 6.6 percent. Bitcoin Cash, too, has achieved multi-week highs with its Sunday trading price of $475 at its highest since mid-September.

Bitcoin Fork SegWit2x:

eToro Draws Battle Lines While OKEx Could Service China

The Bitcoin industry continues to take different approaches

to SegWit2x as eToro and OKEx issue their positions on the Bitcoin hard fork. In statements over the past week eToro became one of the more skeptical exchange platforms, opting for limited SegWit2x support and shunning the Bitcoin Gold fork altogether. “…In the case of the upcoming Bitcoin2X fork, there is no Replay Protection, which may lead to transaction errors and double spending,” a dedicated blog post reads. eToro added it would continue applying the BTC ticker to the Bitcoin Core chain, unlike others such as Xapo, which has stated BTC could signify the SegWit2x chain should the latter receive adequate support.

Conservative standpoints like eToro’s have seen support from community commentators, with popular commentator WhalePanda even endorsing companies treating SegWit2x as an altcoin. OKEx meanwhile has taken a more inclusive stance. Coming at a time when a major p2p trading offer is about to launch, rumors say Monday, the exchange’s support for the 2x chain could affect the huge domestic Chinese market. “…As a company dedicated to promote Bitcoin application, we strive to provide the best services to our customers. Therefore, we will support all major Bitcoin technical development roadmaps and respect our customers’ individual desire,” OKEx wrote in

its corresponding announcement.

“The […] token supporting Segwit2x will be named as BT2, the token derived from the original chain will be named as BT1.  If the hardfork occurs then BT1 will be renamed as BTC.”

Chuck Reynolds


Marketing Dept
Contributor
Please click either Link to Learn more about -Bitcoin.
Interested or have Questions. Call me 559-474-4614

How About an ICO? Company’s Stocks Rocket 400% On Blockchain Rebranding//Chinese may trade again.

How About an ICO?
Company’s Stocks Rocket 400%
On Blockchain Rebranding

It’s not just initial coin offerings (ICOs) that are acting like magic

– the word ‘Blockchain’ has just revolutionized one company’s finances by 400 percent. UK-based On-Line PLC, which supplies Internet-related software through various subsidiaries, saw its share price rocket from £15 ($19.60) to a high of £84 ($110) in hours after it announced it was adding ‘Blockchain’ to its name. On-Line, which has been around since the start of the Internet boom in 1996, saw unprecedented trading based on the news, Bloomberg reports. Shares in the company are currently retracing after the sudden spike to circle around £60. The performance mimics that of multiple altcoins following news about their interaction with the mainstream cryptocurrency market.

“We feel the time is right to re-name the company to reflect these developments, where we believe the future growth will be in our sector,” a statement released Thursday explains, calling Blockchain “new and exciting.” The day’s growth puts On-Line’s market cap at £4.17 mln and reflects the continued buzz around Blockchain which is seeing an increasing number of corporations go in for experimenting with it. This week, ratings agency Moody’s nonetheless said Blockchain’s disruptive potential still made it a distant threat, albeit one which would likely inevitably shake up the norm when it hit.

Chinese Might be Able to Trade
Bitcoin Again Soon

19th National Congress of the Communist Party of China,

the most important conference in China this year, ended on Oct. 24. With the end of the conference, some temporary regulations and policies are canceled as well. Among the regulations, the shutdown of Bitcoin trading in China might be one. On Oct. 28 ZB.com, which is a new cryptocurrency trading platform, announced that all trading functionality will be available from Nov. 1. Users can sign up for accounts and deposit now.

The platform claims that people all over the world, including those in mainland China, can exchange and trade on the platform. The languages of the website are Chinese and English. However, it’s too soon to state that the regulation toward Bitcoin and other cryptocurrencies is invalid. Maybe the platform will be closed by the government soon. Nevertheless, there are also people saying that the Chinese government is behind the platform.

Offline trades become popular after regulation

For now, nobody knows exactly what’s going to happen after Nov. 1. It's good news if Chinese Bitcoin traders may operate more easily. Since the shutdown of Bitcoin trading platforms in China, people have started to trade Bitcoin through Taobao, which is the Chinese version of eBay which belongs to Alibaba Group, Wechat chatting group, and QQ chatting group. Offline trades have become popular between Chinese Bitcoin traders.

Chuck Reynolds

 


Marketing Dept
Contributor
Please click either Link to Learn more about -Bitcoin.
Interested or have Questions. Call me 559-474-4614

 

UK Auditors Blast NHS ‘Basic’ Security Failures Over WannaCry Cyberattack // more

UK Auditors Blast NHS ‘Basic’ Security Failures Over WannaCry Cyberattack

The UK’s National Audit Office (NAO) has said the country’s health service failed

to “follow best practices” to prevent the WannaCry cyberattack. The National Health Service (NHS) was one of the first major victims of May’s international Bitcoin ransomware, which demanded users pay $300 in order to regain access to infected computers. Despite being a “relatively unsophisticated attack,” the NAO said in a new report, the NHS was easy prey. WannaCry “could have been prevented by the NHS following basic IT security best practice.”

“There are more sophisticated cyber-threats out there than WannaCry, so the Department (of Health) and the NHS need to get their act together to ensure the NHS is better protected against future attacks,” it advised. The report comes as a new variety of ransomware known as Bad Rabbit makes its way across the world, infecting public computer systems in Russia, Ukraine, elsewhere in Europe and even Japan. WannaCry was the most prolific attack of its kind, spreading easily due to a conspicuous lack of security guarding the IT systems of its victims.

“The NHS could have fended off this attack if it had taken simple steps to protect its computers and medical equipment,” Meg Hillier, chair of the UK government’s public accounts committee reiterated. “…The NHS and the department need to get serious about cybersecurity or the next incident could be far worse.” Though the discovery of an antidote, WannaCry’s effect was limited after a certain point, and the attack was notable for the correspondingly meager amounts collected by hackers. This led Russia’s Internet advisor Herman Klimenko even to suggest the perpetrators were children.

Japan’s Quoine – Too Much Interest
to Handle from ‘Desperate’
Chinese Exchanges

China’s Bitcoin-to-fiat exchange and ICO ban

is producing a record number of “desperate” refugees, Quoine’s CEO Mike Kayamori has said. In comments to Bloomberg, the Japanese exchange head said the fallout from the Chinese rules means the country’s exchange operators are fervently looking for alternatives, including in Japan. “We’re talking to almost all of those guys. They’re all desperate now,” he told the publication.

Japan offers a ‘friendlier’ licensed environment for crypto exchange businesses, while China’s household names such as OKCoin and Binance are eyeing up Hong Kong, Singapore and South Korea. Kayamori said that such is the scale of demand, Quoine alone is unable to service Chinese requirements. “There’s a lot of Chinese retail people reaching out to us, but we can’t handle it. So if a Chinese partner can handle all of those and they connect to us, that will be much easier,” he added.

As China’s flagship exchange BTCChina shuts its doors in the coming days, the Bitcoin sphere is buzzing with speculation as to if and when the situation will change once again. In the meantime, international scaling is something OKCoin is considering in light of current demand. “China used to account for a significant share of the cryptocurrency market, so we think the demand is there," Lennix Lai, financial market director for its subsidiary OKEx said. “As formerly one of the biggest operators in China, we think we have a good chance of competing globally.”

Chuck Reynolds


Marketing Dept
Contributor
Please click either Link to Learn more about -Bitcoin.
Interested or have Questions. Call me 559-474-4614

How Bitcoin Forks Influence Bitcoin Price Rise and Fall

How Bitcoin Forks Influence Bitcoin Price Rise and Fall

Prior to the Bitcoin Gold fork two days ago,

the market made some interesting moves. Bitcoin price reached a new all time high on Oct. 20, 2017 – five days before the Bitcoin Gold fork -surpassing $6,000 for the first time and eventually climbing to nearly $6,200.

Those of you who have endured past chain splits are aware of what usually happens when there’s a split from the Bitcoin network. Ordinarily, the community complains, reddit.com, medium.com, and twitter.com become platforms for soapbox speeches, and a lot of trash is talked by factions within the community. However, have you noticed the other events that are correlated with a chain split? Once a chain splits, you suddenly own a number of split tokens equivalent to the number of tokens you had on the Bitcoin network. This is because the new chain will be an exact copy of the Bitcoin Blockchain up until the point where the fork occurs.

If the wallet you use supports the forked chain’s software, you will be the owner of two digital tokens: Bitcoin and the Forked Chain Token. In our example we will use Bitcoin Cash (BCH) as the forked token. When the Bitcoin Cash chain forked off of the main chain, owners of Bitcoin became owners of an equivalent amount of Bitcoin Cash. This is because the chains were identical until the fork occurred. If you owned 10 BTC before the split, then you owned 10 BTC and 10 BCH after the split. This is where the slope becomes slippery.  People or organizations with unfathomable amounts of money can use forks as an opportunity to extort both the Bitcoin network and the forked network for enticing capital gains

when a fork occurs.

 How important is the impact of #Bitcoin forks on Bitcoin price?

Preparing for the fork

Let's say Randy owns 35,000 Bitcoins; at a value of $5,000 per Bitcoin, Randy’s digital assets are worth $175,000,000. Just like anybody with large amounts of money invested in a market, Randy pays attention to news that may affect his position (wealth) in that market. Randy learns that there will be a hardfork in the Bitcoin network and that the hardfork will create a new token, Bitcoin Cash (BCH).

On top of this, Randy learns that his Bitcoin wallet provider will support the forked software, so he knows that he will own Bitcoin Cash as well as Bitcoin once the fork occurs. Now, Randy expects to have 35,000 Bitcoin Cash tokens in addition to his 35,000 BTC after the fork.  If Randy was to increase his position by millions of USD worth of Bitcoin, he would be the owner of more Bitcoin than he previously owned.

However, he would also create a buy wall that drives the Bitcoin price up since he is such a large player in the Bitcoin market. When Randy increases the amount of Bitcoin he owns, he also increases the amount of Bitcoin Cash he will own once the fork occurs. Because Randy is an educated investor, Randy decides to increase his position in Bitcoin so that he owns 50,000 Bitcoin the day before the fork. Randy did this because he would like to own even more Bitcoin Cash than the 35,000 he would have had if he did not increase his position in Bitcoin. Now when the fork occurs, Randy expects to have 50,000 BCH in addition to his 50,000 BTC.

What happens when a chain forks

When the Bitcoin Network forks, some of the value that was in the Bitcoin network splits into the forked chain. When Bitcoin Cash forked from the Bitcoin network, the value of Bitcoin went from $2800 to $2700 (July 23,2017). As a result of the fork, Bitcoin Cash was created and was valued around $555 at the time of it’s launch. (July 23, 2017).

Now what does that mean for Randy?

When Bitcoin dropped from $2,800 to $2,700, Randy's digital assets (wealth in Bitcoin)  dropped from $140,000,000 to $135,000,000, a $5 mln loss. However, because of the fork, Randy now has 50,000 BCH worth $555 a piece. Because Randy is an educated investor and has no plans to use the Bitcoin Cash (BCH), he immediately sells his BCH for a profit the moment the option to sell BCH becomes available to him on his preferred exchange.

Randy sells all 50,000 of his BCH for a profit of $27,750,000. A nice $28 mln gain (rounded number) to make up for the $5 mln loss that he suffered due to the decline in the price of Bitcoin. At the end of the day, Randy profits around $23,000,000 from the chain split. Keep in mind, there are other investors like Randy who are highly educated and extremely skilled at what they do. Furthermore, they may be executing a similar or even more efficient strategy as Randy regarding the hardfork; buy a lot of Bitcoin, anticipate a chain split where you are left with a number of new altcoins equivalent to the number of Bitcoin you own, quickly sell off the altcoin for a profit and then decrease your position in Bitcoin because it is overvalued.

Individuals like Randy are referred to as whales: individuals who hold positions so large in the Bitcoin market, that their bid and ask orders are capable of shaking up the market. Since it only takes a few big players using a similar strategy to drive the value of Bitcoin up or down, when an opportunity like this presents itself (a hardfork), the price of Bitcoin may not reflect the true value of Bitcoin.

Since educated investors know that the Bitcoin price may be artificially high due to big players like themselves implementing a hardfork strategy, the big investor(s) have an incentive to lower their position in Bitcoin once they have executed their hard-fork gameplan. This is because they expect the Bitcoin price to correct to a value that is closer to its true value once all the hard-fork affiliated nonsense subsides. Because there are multiple people like Randy who have a relatively large position in the Bitcoin market, when these people decrease their position in Bitcoin to an amount that they are comfortable owning during a bear period (and that number may be zero) their collective ask offers are capable of creating a sell-wall that drives down the price of Bitcoin.

After the big sell off of both the altcoin – because investors find it virtually worthless for them to hold for the long term – and Bitcoin – because investors know the price is artificially high for the short term due to their market strategy – investors capitalize on the low price of Bitcoin from the massive sell-wall and they buy back the Bitcoin that they previously unloaded. On top of the profit investors make from selling-off all of their altcoin, investors will experience capital gains from selling their Bitcoin at an artificially high price and then purchasing Bitcoin back once the price is lower. During the period where investors buy back Bitcoin, we tend to see the price stabilize for a short period of time.

Boom and bust

Investors may have stockpiled Bitcoin anticipating an equal amount of altcoin and then sold off a significant amount of both Bitcoin and altcoin – in our example Bitcoin Cash – to reap the massive capital gains available to them. I can’t rule out the possibility that several other market factors had an effect on the Bitcoin price surge and subsequent plummet, but that being said, how plausible do you think it is that the whales set off the surge and fall of Bitcoin?

Chuck Reynolds


Marketing Dept
Contributor
Please click either Link to Learn more about -Bitcoin.
Interested or have Questions. Call me 559-474-4614

Market Volatility, Illiquidity Can Be Quite Profitable for Bitcoin Traders

Market Volatility,
Illiquidity Can Be Quite Profitable
for Bitcoin Traders

Introduction to “spreads”

The cryptocurrency markets are often volatile and suffer from periods of limited liquidity. Combined, they increase the risk profile for Blockchain asset investors. But with increased risk, the potential for reward should increase as well. In this post we explore one method professional traders use to handle volatility and liquidity issues and explore ways to profit from these inefficiencies.

Introducing mean-reversion strategies

Volatility is driven by uncertainty. Some strategies, however, profit from volatility and even illiquidity. At the same time these strategies help mitigate market inefficiencies and should be rewarded for that. Mean-reversion is the assumption that a stock's price will tend to move toward its average price over time. In other words, deviations from the average price could be exploited for profit, based on the knowledge that the price should tend to revert to the mean in time.

A simple implementation of this strategy is to quote both a sell and a buy price, like a market maker. If the market is in fact mean reverting, then the strategy profits from the difference between the buy and sell price. The difference is also called the quoted spread. Mean-reversion strategies trade the market as if the market oscillates around a fair price for an asset. The swings are driven by the uncertainty of other market participants or illiquidity at different market levels. Mean-reversion strategies bridge the gap between buyers and sellers and can expect to generate a profit from that.

This strategy is most effective in markets that are both high in volatility and are mean reverting. Volatility measures the size of the market’s swings. With high volatility, market swings are large and the mean-reversion strategy has a high probability of generating a profit. In markets with low volatility only small spreads are possible and the strategy is less profitable. The best market scenario for mean-reversion is a sideways market with large volatility or market swings. This market scenario is damaging for trend-following strategies but profitable for market making or mean-reversion strategies.

Simple example

The figure below shows an example of a profitable trading day using a mean-reversion strategy. At the beginning of the day, both buy and sell orders are placed in the market. The day develops and volatility drives a random walk of the price. Throughout the day, the strategy buys one Bitcoin at $4377.70. At some point later during the day, you sell this Bitcoin at $4421.48 and generate a profit of 1%. From this profit, fees have to be added or deducted. Some exchanges charge as little as 2.5 basis points for providing liquidity using such passive strategies.

Implementing mean-reversion?

As we have already learned, mean-reversion strategies capitalize on the spread between buy and sell prices. These are usually placed around a mid price. The mid price incorporates all assumptions about the true price. For example, if the market exhibits large trends, these would be considered to adjust the mid price.

In general, buy and sell orders are determined by

Buy/Sell = Mid Price +/- Spread

The spread is determined largely by the market’s volatility and the skew of the its returns. The skew is determined by the probability of up or down moves of the market. Such moves are usually not equally probable and therefore the spread is adjusted. The volatility determines the size of the spread. With a high volatility, buy and sell orders are executed with a higher probability because the market shows larger price swings. On the other hand, if the volatility is small, the buy and sell might not be hit and the strategy keeps a long or short position, i.e. either ends up holding the underlying asset or holding cash and being short the asset.

The recursion is usually initiated with the variance over the first 10 days. λ determines the half-life of the EWMA system. The half-life is the time required for the system to forget half of its former value. With daily data, the half-life is usually set to 10 days and therefore λ set to 0.93. The figure below shows the annualized volatility for Bitcoin prices as estimated by the EWMA model. Bitcoin is fluctuating around an annualized volatility of 116%.

Strategy’s performance

To test the mean-reversion strategy we explored to quote buy and sell prices every day since the inception of Bitcoin through the end of September 2017.. All data is taken from Cryptocompare. Given a 116% average volatility, we chose the quoted spread as 1% between buy and sell prices. If returns would be normally distributed this spread would be hit with a probability of 99.6% over, for example, 10 days.

Of course, Bitcoin returns do not follow a normal distribution. So what is the likelihood that a trader could both buy and sell Bitcoin over the course of 10 days and earn 1% each day? Based on our data, this strategy would have been successful in 2297 out of 2615 days, or 87.84% of the time. For this backtest, we calculated the buy and sell orders on +/- 0.5% of the last closing price and compared this price with the highs and lows over the course of the next 10 days. Of course, this strategy would result in some large long or short positions in Bitcoin. In fact, for 189 of the days, the strategy would have sold Bitcoin, but not bought. And for 129 of the days, the strategy bought Bitcoin, but did not sell it. The main reason for this is the large upward trend in Bitcoin prices.

To account for the trend in Bitcoin prices, we use the moving average return as an estimate and arbitrarily chose the look-back as 60 days, based on a previously published strategy. We also tested other look-back periods which produced similar results, and the look-back of 60 days is in the range of general trend-following strategies.

Adding the moving average to shift the spread increases the number of days the mean-reversion strategies buys Bitcoins and reduces the number of days that it only sells Bitcoins. Therefore the strategy ends up with a long position in Bitcoin rather than a short position. In total, this strategy would have made 1% profit on 2288 days out of 2615. On 327 days, the strategy either only sold Bitcoin or only bought Bitcoin. Adjusting the mid-price for trend resulted in more days that the strategy only bought Bitcoin and therefore accumulated Bitcoin over time. As an additional rule, the strategy could sell the additional Bitcoin at the end of each month or even keep them as a market position.

A trader can improve this strategy by considering the volatility estimate and adjusting the spread. With higher volatility estimates, the strategy would aim to profit from a larger spread and vice versa. Other models use more sophisticated supervised learning algorithms to predict market movements. While some search for trading signals in order books, others use market news as an input to make directional predictions (Li et al., 2014; Kanagal et al., 2017). When trading a mean-reversion strategy, the liquidity of the market has to be considered. Here we did not consider any limitations to the ability to trade at the quoted prices. Obviously, that is not always the case and largely depends on the deployed capital.

Broader market benefits

Trading a mean-reversion strategy also plays a crucial role to establish efficient market mechanisms. While efficiency has already improved dramatically over the recent years, cryptocurrency markets still face fundamental issues that are typical for any new market. Illiquidity, matching inefficiencies and unstable spreads are frequent symptoms that can be observed across all currently available exchanges. Mean-reversion strategies provide additional liquidity to the market and therefore resolve these frictions. They bridge the liquidity gap, for which they get paid.

Market making strategies extend mean-reversion strategies, in that they trade on the spread many times a day with relatively large volumes on both sides of the trade. Market making strategies provide the liquidity that is essential for any well-functioning financial system. Abrupt spikes of demand or supply, like when traders either buy or sell large volumes, are absorbed by market makers. Any successful Bitcoin buy order requires a seller who is willing to take the opposite side and sell the particular volume of coins to the quoted price. The exchange (broker) matches both parties to make the trade happen.

This frequently leads to order delays and varying fulfilment prices, at the cost of traders. By placing orders at each side of the trade, market makers have the capacity to make more trades happen and thereby eliminate fulfillment delays. Bitcoin markets still observe very unstable spreads, which are absorbed by the market makers. By fixing bid and ask prices for other traders, market makers profit from keeping spreads low and stable. The more liquidity they provide, the narrower and more stable the spread becomes.

Conclusion

Mean-reversion strategies are very profitable in high volatility markets and can be adjusted for trends. This strategy can be easily applied to Bitcoin trading and improve the performance of a buy-and-hold strategy. The mean-reversion strategy would post buy and sell quotes around the current market level and earn the spread.

Since the strategy is independent of the market level, it can add an independent performance to a buy-and-hold strategy. As an example, the strategy could use 1% of the portfolio assets and then aim to earn an additional 1% per day on this part of the portfolio. Historically, this strategy would have added 24% per year to the portfolio performance.

Mean-reversion strategies are providing liquidity to the market. On the other hand, these strategies might end up long or short the asset, if the market does not revert to the mean. In that case they are taking a market position. On the other hand, providing liquidity should earn these strategies a potential profit that rewards the trader for his risk. Market making strategies extend mean-reversion strategies by quoting bid-ask spreads more frequently.

Chuck Reynolds


Marketing Dept
Contributor
Please click either Link to Learn more about -Bitcoin.
Interested or have Questions. Call me 559-474-4614

Here’s What Gold Bugs Miss About Bitcoin’s ‘Intrinsic Value’

Here's What Gold Bugs Miss About Bitcoin's 'Intrinsic Value'

Gold bars are pictured at the German central Bank Bundesbank,

in Frankfurt, Germany (BORIS ROESSLER/AFP/Getty Images).While bitcoin would appear to be a libertarian’s monetary dream at first glance, the reality is that many of the longtime gold bugs have yet to go all the way down the cryptocurrency rabbit hole. For those most part, these gold bugs do not believe in the long-term viability of bitcoin due to its lack of “intrinsic value”.

Peter Schiff is one such gold bug who is a noted critic of bitcoin. I recently dissected some of the arguments he made against bitcoin on The Joe Rogan Experience in another post. Indeed, I also followed this line of thinking when I first found out about bitcoin. One of the first questions I had about this new digital commodity was why it was not backed by a physical commodity such as gold.

However, that was back in 2011. And I eventually learned that the lack of physical backing behind bitcoin is a feature, not a bug. Without physical backing, bitcoin is able to act as the world’s first digital bearer asset, which can be stored and transacted without interference from a third party custodian or government. Like many others who have researched bitcoin thoroughly over the years, my understanding of money and intrinsic value has been flipped on its head by Satoshi Nakamoto’s financial innovation.

Bitcoin’s Intrinsic Value

So how does bitcoin have any value at all? How can you go from zero to one? In the early days, bitcoin was nothing more than a collectible to most people who were looking into the new technology. This is in contrast to the “cryptocurrency” and “digital currency” monikers that would eventually be placed on it. In an early thread on the Bitcointalk.org forum regarding how bitcoin should be defined, Nakamoto stated, “Bitcoins have no dividend or potential future dividend, therefore not like a stock. More like a collectible or commodity.”

This speculative view of bitcoin as a sort of collectible for crypto-anarchists and other like-minded individuals is where bitcoin first attained any value at all. The fact that there was a limited supply of bitcoins meant you had to convince someone else to send you theirs (or put in work as a miner) if you wanted to have any.

The Collectible Use Case Bootstraps More Value

Once bitcoin gained a price in other assets, it could then be used to transmit value over the internet in a censorship-resistant manner. “If it somehow acquired any value at all for whatever reason, then anyone wanting to transfer wealth over a long distance could buy some, transmit it, and have the recipient sell it,” Nakamoto wrote back in 2010.

One Bitcointalk.org user famously traded 10,000 bitcoins for a couple of pizzas, but the best illustration of bitcoin’s use as a censorship-resistant medium of exchange likely came in the form of darknet marketplace Silk Road. The bearer nature of bitcoin made it the perfect option for illicit commerce on the internet.

Chuck Reynolds


Marketing Dept
Contributor
Please click either Link to Learn more about -Bitcoin.
Interested or have Questions. Call me 559-474-4614