Since we’ve been monitoring this Crypto market we’ve noticed a few things. First, it’s important to check your sources for data – as many exchanges are pumping 90% fake data (Start here for a lesson on fake Crypto data). Some sites like Total Cryptos are doing more data analysis, filtering, and processing and can be useful. Just be aware of where the data is coming from. For the major coins, such as BTCUSD and others data is obviously harder to fake – however volumes can easily be inflated as exchanges are unregulated and un-audited.
Although thousands of new coins/tokens have been created in the past months, Bitcoin still remains the majority of the market cap. When Bitcoin goes down many other Crypto currencies follow. That’s not only a leader of the pack reason, it’s also because many coins are actually denominated in BTC. Here’s an important point for those who don’t have an FX background – Bitcoin is denominated in USD primarily, so when you see without the BTCUSD or BTCEUR you’re actually hearing the BTCUSD price, it is ‘assumed’ – Currencies whether they are Crypto or Fiat are traded in pairs. That’s because you can’t just ‘Sell’ Bitcoin you have to ‘Sell’ it against something, i.e. US Dollars. It doesn’t have to be USD it could be JPY, EUR, CHF or any currency the exchange allows.
The pair trading system underpins the global digital currency markets. As explained in Splitting Pennies – The US Dollar is the world reserve currency because it is used to ‘back’ other currencies either with a peg or in the case of the Euro, a huge USD reserve base and open swap arrangement to get unlimited supply of USD should the need arise. While Crypto has a different architecture, the reserve model is the same for the purposes of this explanation – that some Cryptos are ‘based’ in BTC and ETH. So, if BTC goes down, all the coins denominated in BTC go down too.
What we’ve been watching though that is interesting is the gainers and losers which are published daily at Total Cryptos, such as todays:
Everyday there are some tokens that are up 20%, 50%, 100% or more. So what?
Forex Traders, Day Traders, and other traders see many similarities to the days of the late 90’s in Crypto – lots of new issues, lots of hype, great shorting opportunities, big swings, large volatility. Of course all of these things pose big risks, and one should always realize that with any chance for big wins comes the chance for big losses. But we’re not talking about investing. In fact we can summarize all the advice about Crypto investing in one simple sentence: Don’t invest in something you don’t understand. The only folks who really made fortunes ‘investing’ in Crypto were the HOLDrs from 2011 – now in BTCUSD. They are still holding (data shows).
The opportunity now seems to be for Crypto Day Traders. That means getting in, getting out – capturing the moves. We are not promoting trading as an easy way to make money – far from it! It’s difficult! For this reason most people use BOTS. But there are opportunities when markets swing so violently and sometimes for no reason. Unlike traditional markets, BTC may move for unknown reasons. If we compare to futures markets, for example, detailed trading information is published regularly about open positions such as the “Commitment of Traders” report:
The Commitment of Traders (COT) reports provide a breakdown of each Tuesday’s open interest for markets in which 20 or more traders hold positions equal to or above the reporting levels established by the CFTC. Commitment of Traders (COT) charts are updated each Friday at 3pm CST.
The Commitment of Traders information is available with both the Disaggregated and Financial Traders Reports.
Crypto is far from having a COT style report as most exchanges aren’t even honest about the data they report! But of course, that’s also because futures are traded on centralized regulated exchanges with transparency rules.
Crypto is mostly an OTC opaque market in that there are no traces of money flows, something disturbing to regulators but another information edge to traders, at least the information flow is not ‘controlled’ by companies like Thompson Reuters.
The impact of economic releases and macroeconomic news events on FX, fixed income, futures and options markets can’t be overstated – these events drive market volatility. However capturing this data and getting it to algorithms at sub-millisecond latency is a challenge. Economic releases come from all around the world and are released via a host of different mechanisms, while macroeconomic news is unstructured for applications to consume.
In Crypto it’s almost the opposite, there isn’t even a news feed that would make a basis for such a service. There aren’t economic reports, news services (like Dow Jones) there’s a big black nothing. Now of course big news impacts the markets, like the fake charges against Russian hackers in the Trump witch hunt. But there aren’t economic reports, no streaming news services, it’s just the wild west. There’s no Bloomberg for Crypto.
So that means that for the foreseeable future, Crypto Day Trading is going to be a growth market, and the more coins that come online the better the opportunities will be. We aren’t recommending people get into trading, we are just observing, as traders, that just like with penny stocks, there’s always something on the move. Although the ‘big caps’ like the BTC and ETH are stuck in a range, they do move wildly, and the small caps and microcaps are still up 200% on a day sometimes. Of course, knowing which one is going to be the mover is the big question all traders ask when they turn on their machines in the morning.