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Acquiring Bitcoin: Profiting in a Flash Crash

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We promised another article about peer-to-peer trading, but given the events of yesterday, when the Winklevoss Twins had their Bitcoin ETF denied and panic selling ensued, it’s a good time to talk about what to do when the prices drop sharply in a short period of time. Bitcoin was at a high of almost $1300 and within hours had dropped below $1000. It appears to have slowed down around there, now having climbed back up to over $1100.

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If you’re business-minded, you already see where the opportunity was here. If you had been able to get anyone to sell you bitcoins at around $1000 yesterday, you’d already have made more than $100 on each one. That’s a tidy, fast profit. Bitcoin traders love the volatility of the market.

Also read: Acquiring Bitcoin: Do’s and Don’t’s of Peer-to-Peer Trading

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While they have occasionally suffered when the price has gone as low as it did in 2015, or 2013 for that matter, the simple reaction to these times is to hold tightly to the coins until things turn around. Because bitcoins are not shares in a company which can actually become worthless, but rather tokens of a currency which is future-proof and largely immune to government intervention. Although we know for sure that they can seize your coins, it is strongly believed that all the governments of the world would need to conspire in concert to actually kill the network. Like many things, saying that it is illegal doesn’t simply make it go away.

There are a lot of reasons to sell when the price stagnates or goes down, but if Bitcoin is not your entire basket, there are many more reasons to hold on to it. It is one of the bets performing financial instruments of the past decade, for starters, and traditionally big losses have been followed by big gains. You can be assured there were people rejoicing when the price tumbled yesterday, for these people were able to acquire even more bitcoins than they previously intended to. Many of the people selling them had their hopes pinned to the ETF decision, and perhaps they are the only ones to blame for the losses they took. Had they followed the advice in this article, for instance, they’d already be almost whole.

So, the way to profit during Bitcoin’s many, many volatile times is, simply, to go in deeper when the price goes lower. Rather than having a fixed price target that you buy and sell at, have a range for both. Say you will not spend more than a certain amount, but accept that you will have to spend at least another certain amount. Say that you would like to make X% profit on your money, and stubbornly wait for that day to come.

The price is steep for entry at this point, and one needs faith that most people are not interested in losing the money they’ve invested at this and other levels over the past 4 months. Bitcoin offers advantages that no other investment can offer. What other investment can you go shopping with, for instance? One way to hedge against losses is to buy other expensive items during high prices, such as gold bars and/or jewelry or other things that have lasting value, and then if the price of Bitcoin tumbles it is likely you will be able to recover some of the losses through the sale of these.

Investing in Bitcoin can be risky, but any investment has the same quality. The bottom line is that the quiet bull, who bides his time, is more likely to profit on something which has not even reached full maturity. There’s really no telling what the price of a coin will be once mining rewards are in fractions of a coin level, but it seems that during that time more and more people will enter the market with interest and vigor, and those people will help raise the price as well as stabilize it by having a far greater number of people who can decide if and when Bitcoin is losing value.

Important: Never invest money you can't afford to lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here.



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2 Comments

  1. mvppvm_07

    March 12, 2017 at 8:35 pm

    Having more and more people, risking based on a less-than-robust understanding of the underlying security of cryptos isn’t necessarily a formula for prices going up or for stabilization. I’d argue that as long as behavior in currency markets reflect the proven “sell the news” dynamic of traditional markets, it’s likely we’ll see regular “flash dances”. I only hope I have enough liquidity and the tools to react within the minutes needed to effect trades as the panic runs away from this investment. Panic pays if you know the storm doesn’t have power.

    • P. H. Madore

      March 13, 2017 at 3:26 pm

      Very true. Although, it’s harder to have a major impact on a market with fixed supply when that supply is spread among many hands, which is what I was getting at with the “more people” part of the article. Thanks for reading and commenting.

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Fidelity Investments is Mining Cryptocurrency

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Fidelity Investments is a multi-billion dollar brokerage  that just so happens to be mining cryptocurrency. In fact, it has been at it for three years, using its own computers to harvest bitcoin and Ethereum.

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Profitable Experiment

CEO Abby Johnson recently told Fortune that its U.S.-based mining operation is “making a lot of money.” This comes despite running a relatively modest operation.

Hadley Stern, Senior VP of Fidelity Labs, described his company’s venture as an “experiment.”

The real reason we began mining, and still do, is to learn how the network works, how consensus works, how difficulty levels work,” he said in reference to the mining process.

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The key to profitability has been the dramatic rise in cryptocurrency over the past year. Bitcoin and Ethereum are the world’s No. 1 and 2 cryptocurrencies by market capitalization, and no-one else comes close.

Well Ahead of the Pack

The fact that Fidelity has been at this for three years speaks volumes about the company. Other, much bigger players are still dipping their toes in the market, but are unsure about how to proceed. Goldman Sachs is reportedly on the fence about starting a cryptocurrency trading operation, while J.P. Morgan has already begun handling customer orders for bitcoin-based instruments.

Fidelity is doing a lot more than just mining tokens. Earlier this year, it reached an agreement with Coinbase to let customers view cryptocurrency prices alongside other assets on their Fidelity homepage.

Coinbase is the world’s most funded cryptocurrency exchange with more than 7.4 million users.

Cryptocurrency Prices

The cryptocurrency market ended the week on a firm note, with bitcoin (BTC/USD) reaching a session high of $4,425.00. At press time, the index was up 1.6% at $4,368.

Ether is also trading higher against the dollar, with the ETH/USD rallying more than 3% to $305.

Ripple (XRP) lost momentum on Friday, but still managed a weekly gain of 21%.

Important: Never invest money you can't afford to lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here.



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Chinese Government Eyeing Fresh Bitcoin Legislation?

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The Chinese government could roll out fresh cryptocurrency regulation in the coming months permitting licensed brokers to operate, based on recent information from Xinhua.

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The state-owned news publication recently revealed that the government is mostly concerned with stamping out illegal activity involving bitcoin and other cryptos. Government authorities could be planning to regulate the market by creating a licensing program with strict Know Your Customer (KYC) and Anti-Money Laundering (AML) systems.

The Case for AML

The need for KYC/AML protocols has long been raised by cryptocurrency proponents, especially in reference to initial coin offerings (ICOs). In response, the blockchain community has come together to create the Simple Agreement for Future Tokens (SAFT). The SAFT is both an instrument and open-source framework for token sales that vets accredited investors.

SAFT activity is quickly gaining traction, with the likes of Gizer recently issuing a presale of its ICO through SAFTLaunch.

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SAFT was officially created by Protocol Labs in close collaboration with AngelList and Cooley.

China’s Stance Looms Large for Cryptocurrency Market

Although digital assets have recovered from the China-induced flash crash of September, favorable regulations on the mainland could mean big business for bitcoin exchanges. Prior to the ban on ICOs and bitcoin brokers, Chinese investors were responsible for a quarter of all BTC trades.

According to Xinhua, China is likely to pursue a licensing program similar to Japan, a country that recently approved 11 cryptocurrency exchanges. CnLedger, a leading source of cryptocurrency news in China, recently had this to say:

“Xinhua News, official press agency of CN: Virtual currencies have become the top choices of underground economies. We shall adopt ‘0-tolerance policies’ towards crimes hidden underneath and take measures such as record-keeping, licensing, AML processes, real-name, limiting large transactions.”

Is China’s cryptocurrency ban temporary? It certainly looks that way. Regulators must already know that the ban hasn’t stopped mainland investors from buying cryptocurrencies next door in Hong Kong or Singapore. A saner approach to an all-out blanket ban is a tighter regulatory framework that will stamp out money laundering and other underground activities.

«Featured image from Shutterstock.»

Important: Never invest money you can't afford to lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here.



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Tim Draper Has Made Over $110 Million Since 2014 With his Bitcoin Investment

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Tim Draper, the billionaire technology investor and prominent venture capitalist who has invested in some of the most successful technology startups in the likes of Coinbase, Patreon, SpaceX, Tesla, Box, FourSquare, has profited over $110 million from his investment in bitcoin less than three years ago.

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In 2014, Draper participated in the auction of 144,336 bitcoins by the US government and the US Justice Department, which were seized during the investigation into Silk Road, a dark web marketplace. Draper was granted the permission to purchase a batch of 30,000 at around $600 from the US government.

Upon securing 30,000 bitcoins, Draper told Fox Business:

“[I’m] very excited about bitcoin and what it can do for the world. Bitcoin is as big a transformation to the finance and commerce industry as the internet was for information and communications. If bitcoin were here in 2008, it would be a stability source for our world economy. Everybody should go out there and buy a bitcoin. Every investor who’s a fiduciary should at least be partially involved in bitcoin because it’s a hedge against all the other currencies. There’s a whole ecosystem being built that’s going to make commerce much easier with much less friction and safer.”

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Today, Draper’s 30,000 bitcoins are worth $129.9 million. Considering that Draper had spent $19 million purchasing the batch of 30,000 bitcoins in 2014, Draper has recorded a profit of over $110 million in less than three years.

While Draper held onto his investment in bitcoin, the US Justice Department was quick all of the 144,336 bitcoins seized during the Silk Road operation. According to various sources, the US government sold the majority of its 144,336 bitcoins at a price of $336, at $48 million. If the US government had sold its bitcoins in 2017, it would have generated an additional profit of around $573 million, as 144,336 bitcoins at today’s bitcoin price of $4,330 are worth $624.9 million.

Bitcoin price was below $350 in 2014. Today, it is over $4,330.

Since 2014, in addition to purchasing tens of thousands of bitcoins, Draper has funded some of the most successful bitcoin companies in the cryptocurrency market including Coinbase and Korbit. Earlier this year, Coinbase secured a $100 million investment at a $1.6 billion valuation, while Korbit was acquired by the parent company of a $10 billion gaming company in Nexon at a $140 million valuation.

Furthermore, Draper has not sold his stake in Coinbase and earlier this year, Brian Armstrong, the CEO of Coinbase, revealed that Coinbase is still at an early stage in terms of developing and scaling. Armstrong noted that it will evolve into the safest and most trusted exchange in the global market.

“Digital currencies are having their ‘Netscape’ moment. The pace of innovation has been accelerating and we are now seeing exciting projects and companies being built on top of digital currencies. We’re beginning to transition into phase three of our secret master plan. Our goal is to be the safest, most trusted and compliant, and easiest to use. Not the first to market with new assets. Especially at scale, it takes time to ensure any new asset we add is well tested and secure,” said Armstrong.

Coinbase is also one of the two exchanges in the US market apart from Gemini that is targeting institutional and retail investors by providing sufficient liquidity. As Coinbase and its flagship cryptocurrency trading platform GDAX continue evolve, Draper will position himself at the forefront of cryptocurrency innovation and disruption.

Important: Never invest money you can't afford to lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here.



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