Trading Crypto20 and the Rise of Cryptocurrency Index Funds Published 9 months ago on February 5, 2018 By Sam Bourgi It has been more than two months since Crypto20 concluded its public crowdsale. Over that period, the value of its tokenized crypto index fund has fluctuated dramatically, reflecting broader movement in the digital currency market. For passive investors, the fund offers a simple and cost effective way to gain exposure to the world’s leading class of cryptocurrencies. It’s often said you get what you pay for. In the case of Crypto20, the underlying token is usually priced at a significant premium over the fund’s net asset value (NAV). Crypto20: An Introduction The Crypto20 index fund provides investors with a single asset in which to track the performance of the cryptocurrency market. The portfolio, which launched in October, provides exposure to the top-20 cryptocurrencies by market capitalization, allocating a maximum component weighting of 10%. The fund buys the 20 largest cryptocurrencies and re-balances its position weekly based on the market’s performance. Investors gain exposure to the fund by purchasing the C20 cryptocurrency, which is normally marked at a significant premium over the NAV price. Although some have argued this points to significant speculation in the market, it may be justifiable to those who are willing to pay a premium for convenience. After all, purchasing 20 cryptocurrencies separately, storing them in different wallets and rebalancing the holdings weekly is a time consuming process that an index fund can take care of much more efficiently. According to the C20 fact sheet, the fund charges a flat annual fee of 0.5%. There are no other fees associated with the fund and traders can exit at any time. Indexing is slowly breaking ground in the crypto market. In addition to C20, Bitwise recently launched a cryptocurrency index fund holding the top 10 digital assets. A platform by the name Bit20 also appears to offer a similar product as C20, although the re-balancing is done less frequently. There’s reason to believe these assets will continue to grow as investors adopt conventional assets to play the volatile cryptocurrency market. Grayscale’s Bitcoin Investment Trust is another traditional asset vehicle that provides exposure to the crypto market, although its entire focus is bitcoin. The fund was conceived in 2013 and has more than $1.7 billion in assets under management (AUM). Total shares outstanding are 175,984,800, according to the fund’s website. Its annual fee is 2%. Fund Performance The Crypto20 fund has been extremely volatile since its inception – a feature that cryptocurrency traders have come to expect. The fund’s total value peaked above $164 million U.S. in early January as the cryptocurrency market soared to record highs. Since peaking, it has declined by more than 50% to $70 million. From a NAV perspective, the fund peaked at $4.05 but is now at $1.72. The C20 token has followed a similar trajectory, although the coin has only been trading for a few weeks. It was down more than 17% on Monday to $2.13, having reached an earlier low of $1.98. Trade volumes over the past 24 hours reached $2.8 billion, according to data provider CoinMarketCap. Disclaimer: The author has no exposure to Crypto20. Featured image courtesy of Shutterstock. Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink. Rate this post: Important for improving the service. Please add a comment in the comment field below explaining what you rated and why you gave it that rate. Failed Trade Recommendations should not be rated as that is considered a failure either way. (2 votes, average: 5.00 out of 5)You need to be a registered member to rate this. Loading... Sam Bourgi 4.6 stars on average, based on 648 rated postsSam Bourgi is Chief Editor to Hacked.com, where he leads content development for one of the world's foremost cryptocurrency resources. Over the past eight years Sam has authored more than 10,000 articles and over 40 whitepapers in the fields of labor market economics, emerging technologies, cryptocurrency and traditional finance. Sam's work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Contact: email@example.com Twitter: @hsbourgi Follow @HackedCom Feedback or Requests? Related Topics:crypto20nav Up Next Grayscale Launches New Fund for Top Cryptocurrencies Don't Miss The End of Human Money Managers You may like Trade Recommendation: NAVCoin Click to comment You must be logged in to post a comment Login Leave a Reply Cancel replyYou must be logged in to post a comment. Altcoins Stellar Price Analysis: XLM/USD Marching Higher amid Launch of StellarX Decentralized Exchange Published 3 weeks ago on September 29, 2018 By Ken Chigbo Stellar launches “StellarX”, the world’s first zero-fee decentralized exchange with fiat deposits. XLM/USD making strong progression, with indicators pointing to the upside, eyes on a potential reclaim of the $0.30 mark. The Stellar camp has built a new trading platform known as StellarX, which is decentralized boasting a zero-fee structure. The platform has been built on the Stellar blockchain, which will accommodate a range of trading options. The StellarX website notes it “is the first full-featured trading app for Stellar’s universal marketplace. It was created by a team with deep user-friendly building experience and showcases a wide selection of assets: crypto, fiat tethers, commodities, bonds, and more”. StellarX is most certainly stepping it up a notch in revolutionizing the industry. The Stellar network charges a flat per-transaction fee as an anti-spam measure. The the fee is nominal (0.00001 XLM) that they refund it out-of-pocket for every trade made on StellarX. Network fee refunds are bundled into a single payment and issued each week. In terms of incentives for users, “If you hold funds in Stellar, you’ll also get a pro rata airdrop each Tuesday. They return all of Stellar’s built-in inflation (1% APR) directly to their users via lumenaut.net. All you have to do is opt in, and they will set this up for you”. The platform is therefore another important step towards democratizing cryptocurrency. Taking at looking technically at XLM/USD, the price has been making strong ground over the past few weeks. Since the 11th September, it has gained around 40%, initially receiving decent bidding within a strong touted demand area at $0.1800 level. There is a descending trend line and supply zone seen just above. Both of which have already weighed on the bulls, during the trading session of 23rd September. The price had hit $0.3040, well into the mentioned supply, before sellers coming in. The above line of resistance was further confirmed, given the rejection. Eyes will be on for another retest of the $0.3000 mark, which could be game-changing. The bulls will need to gather enough power and momentum to burst through. A retest of the 25th July high up at $0.3512, will then likely come into play. XLM/USD daily chart On the flip side, it is worth noting that current price action is moving within a pennant pattern. Should this continue to be respected, it will further move in favor of the bears. Support to the downside is eyed back down at $0.1900. The lower trend line of the pennant pattern is tracking at the mentioned support. Eyes will also be on a demand zone, seen from $0.1700-$0.1900. Stellar XLM is the world’s sixth largest cryptocurrency by market cap. In terms of value it sits at around $4.8 billion, roughly $400 million shy of EOS. Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading. Featured image courtesy of Shutterstock. Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink. Rate this post: Important for improving the service. Please add a comment in the comment field below explaining what you rated and why you gave it that rate. Failed Trade Recommendations should not be rated as that is considered a failure either way. (1 votes, average: 5.00 out of 5)You need to be a registered member to rate this. Loading... Ken Chigbo 4.5 stars on average, based on 33 rated postsKen has over 8 years exposure to the financial markets. During a large part of his career, he worked as an analyst, covering a variety of asset classes; forex, fixed income, commodities, equities and cryptocurrencies. Ken has gone on to become a regular contributor across several large news and analysis outlets. Follow @HackedCom Feedback or Requests? Continue Reading Cryptocurrencies Exploring the Korean Bitcoin “Kimchi Premium” Published 4 weeks ago on September 25, 2018 By Nic Puckrin If you have been trading Bitcoin for over a year, you will no doubt have heard of a weird market phenomenon called the “Kimchi premium”. This is essentially the premium that Korean traders will pay over the international price of Bitcoin. More specifically, it is the difference between the USD equivalent of the KRW price of Bitcoin vs. the USD price of Bitcoin on an international exchange. This premium has varied anywhere from a few percent to over 20% in periods of severe market volatility. This opens up a whole host of questions around potential “arbitrage trades” between the markets. So, can you take advantage of the Kimchi premium? Do other local market premiums exist? In this post, we will give you everything you need to know about the Kimchi premium as well as the potential to trade it. Kimchi Premium Example Before we can take examine the implications of the Kimchi premium, it helps to take a look at a practical example of it in the markets today. At the time of this post, the price of Bitcoin on an international exchange such as the Binance exchange is currently sitting at $6,618. However, if we take a look at the price of Bitcoin on a South Korean exchange such as Bithump, it is currently 7,540,000 KRW. The current exchange rate between the Korean Won and the USD is about 1,100 KRW/USD. This means that the price of Bitcoin on an exchange like Bithump converted into USD is $6,854. This is about a 3.5% premium over the price of Bitcoin on Binance. While this is far from the 20% premium that we have seen in the past, a 3.5% risk free profit would entice many traders who trade arbitrage. Yet, there are a number of factors that you need to take into account before you can consider attempting to arbitrage this market. Triangular Kimchi Arbitrage If a trader wanted to take advantage of this Kimchi premium, then they would have to buy Bitcoin in USD, send the coins to a South Korean exchange, sell them for Korean Won and then convert them into USD. Below is an example of the triangular arbitrage nature of the trade. Triangular Arbitrage Example with Binance and Bithump This is a simple example of how it will work. However, there are a few things that you should consider that could reduce the potential gains. These are fees, both on the exchange side as well as the fiat banking side. There is also the added scrutiny that comes from fiat currency exchange controls. In terms of fees, there is likely to be a Bitcoin network fee as well as a withdrawal fee from Bithump. Then, when you try to send the funds abroad, you are likely to encounter more fees on the purchase of USD (rate above is spot) as well as international wiring fees. When all of these fees are added up, it is likely that the Kimchi premium will be greatly reduced. Another really important consideration is the requirements in order to obtain an exchange account and bank account in South Korea. There is no doubt that they will want to see proof of residency for the applicant. So, unless you happen to have access to both a South Korean trading and Bank account, then you may find it difficult to ever place an arbitrage trade on the Kimchi premium. However, I have observed similar market premiums on a number of other local currency exchanges in the past. I have seen premiums between the USD and the EUR, AUD, CAD, JPY and ZAR prices on these exchanges. All that is required is you to observe the USD equivalent of the different currency prices for Bitcoin on Coinmarketcap. Interestingly enough, the South Korean exchanges have actually been removed from these calculations given the pricing distortion they had on prices in the past. In order for you to make the most of these local market premiums, you have to understand why they are present. Why Do they Exist? Arbitrage opportunities exist in the Bitcoin markets because of the varying degrees of local supply / demand vs the demand on international markets. There could be specific reasons that an individual country has such high demand for Bitcoin In the case of Kimchi premium, it is well known that South Korean users are much more bullish than their counterparts in other countries. This excessive demand will drive up the price of Bitcoin in Korean Won. Taking a look at a more extreme example, you have the case of Zimbabwe. Prices for Bitcoin in Zimbabwe have exceeded the international price by over 60% in the past. Bitcoin is so highly prized in Zimbabwe because of the hyper inflation that is currently gripping the country. The same can be said for other countries such as Venezuela or Argentina currently. A 100 Trillian Bank Note in Zimbabwe. Source: citeco.fr These premiums also exist because they are hard to take advantage of. For example, it would be very hard to use any traditional banking in countries such as Zimbabwe or Venezuela to take advantage of the premium. Who would trust their fiat money in a country where the inflation rate tops 100,000%? There are also a number of countries that have exchange control limits on their citizens. On the individual level, these are likely to be quite low which means that eventually you will be stopped from converting your local currency for USD. In the more secure western countries, the premium may still exist merely because there is not enough money pursuing the trade. This is the more favourable position to be in and it means that you as an individual have a slight advantage over larger hedge funds and institutional money managers. These established markets with developed banking infrastructure are the most likely place for you to try and take advantage of these opportunities. Conclusion While markets have fallen considerably over the past few months, so has the Kimchi premium. This is probably as a result of South Korean trader’s lack of appetite for Bitcoin currently. However, this is likely to turn the moment that the next Bitcoin bull market rolls in. South Korean traders will feel a great sense of FOMO and the local demand for Bitcoin is likely to increase. As the Bitcoin markets are still relatively unexplored by large financial institutions, pricing inefficiencies are likely to remain along with the Kimchi premium. Featured Image via Fotolia Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink. Rate this post: Important for improving the service. Please add a comment in the comment field below explaining what you rated and why you gave it that rate. Failed Trade Recommendations should not be rated as that is considered a failure either way. (1 votes, average: 5.00 out of 5)You need to be a registered member to rate this. Loading... Nic Puckrin 5 stars on average, based on 5 rated postsNic is an ex Investment Banker and current crypto enthusiast. When he is not sitting behind six screens trading Bitcoin, he is maintaining his numerous mining rigs. Follow @HackedCom Feedback or Requests? Continue Reading Trading BitMEX Liquidations: How to Avoid Getting Rekt Published 1 month ago on September 10, 2018 By Nic Puckrin For those Bitcoin traders who like to trade with leverage (and lots of it) they will most likely end up at BitMEX. This exchange based in Hong Kong is well known in the Bitcoin community for being one of the most efficient and sophisticated Bitcoin futures exchanges on the market. With leverage up to 100x your initial investment, traders relish the high-risk, high return nature of the exchange. However, BitMEX is a profit maximising futures exchange. Although they give traders the opportunity to make large returns on positions, they have become incredibly efficient at mopping up loose change. This easy money is handed on a plate to them by new traders who make silly decisions. In this post we will take you through one of these bad decisions that you can easily avoid and reduce your chance of becoming liquidated or, in crypto lingo, “Rekt”. BitMEX 101 Before we can take a deep dive on the nature of BitMEX order types, we have to give you a quick overview of BitMEX. BitMEX (Bitcoin Mercantile Exchange) is a futures exchange that operates out of Hong Kong. It was started in 2014 by a team of ex investment bankers and traders. It is perhaps best known for being the first exchange to offer leveraged derivative products on Bitcoin. These futures on BitMEX are not the regulated type that you have read about on the CME or CBOE. These are futures contracts that are traded on the open order books on the BitMEX exchange. They are not regulated and can be traded by any retail cryptocurrency trader. BitMEX has grown substantially since their early beginnings and have rode the crypto wave more skillfully than most other exchanges. In fact, they recently broke a record for total volume of more than 1m BTC in a 24-hour period. It’s safe to say, BitMEX is successful. How BitMEX Margin Works When you are doing any sort of leveraged trading on exchanges, you are required to put up margin for your account. These are required to make sure that the exchange or broker is not left holding the bag should the position quickly move against you. Initial margin is required in order to cover the position of your futures contract. This initial margin is determined according to the amount of leverage that you have decided to take on. For example, if you are using 1:100 leverage then your initial margin is going to be 1% of your position. When you place a futures trade on BitMEX, you are actually trading what is called a “limited risk” futures contract. Your losses cannot exceed the value of your initial margin. This asymmetric payoff profile is one of the reasons that BitMEX is often chosen by traders. It gives them all the upside and limited downside. In fact, the payoff looks almost exactly the same as the payoff of a financial option. Below is a simple illustration of how the payoff looks. Payoff of BitMEX limited Risk futures How does BitMEX allow you such a favourable position? This is because of the way they determine the Maintenance Margin Requirement (MMR). With usual brokers in traditional finance, when you breach your maintenance margin requirement, you will get what is called a “margin call”. However, BitMEX has something much more efficient and that is their Liquidation engine. This is basically an automated system that will immediately close out positions that have already moved against the trader and have started eating into the initial margin. What is the catch? The relationship between the MMR and the initial margin is not constant and will vary arbitrarily according to the amount of leverage that one is taking on. Liquidation price vs. Bankruptcy Price BitMEX uses two prices that will determine levels for initial margin and the MMR. Your bankruptcy price is the price at which your initial margin has been exhausted and your loss from the position is 100%. The liquidation price is the price at which you have exhausted your MMR and it is the price at which your position will be closed. This is done in order to protect BitMEX from the adverse and potentially harmful moves in the price of Bitcoin. You can read more about BitMEX liquidations here. When you are placing an order, you will see your liquidation price as it presented in the order form. There is, however, no bankruptcy price being show to you upfront. This means that you can’t see how far the bankruptcy price is from the liquidation price and hence how much room your trade has to move from your complete initial margin. Order forms with liquidation on Bitmex. Left with 100x leverage, Right with 1x. Image source: Bitmex. By not showing you the difference between your bankruptcy price and the liquidation price, BitMEX is hiding away a secret edge that they have when it comes to high leverage contracts. That edge is the amount by which BitMEX will allow the trade to eat into the initial margin before they liquidate it. This may sound like a bit of a mouthful right now but it helps to take a look at some examples as well as some actual numbers. Statistical Edge When your position is getting closed at a liquidation price that is further away from the bankruptcy price, you are being denied extra price participation and the chance for a market recovery. You are giving BitMEX the statistical edge in the long run even though a large proportion of your initial margin was not used. It helps to take a look at some numbers in order to contextualize this. Below are the calculations for the bankruptcy price, liquidation price and the resulting margin rates. This is live data and you can monitor it yourself with this handy tool. Liquidation and Margin Calculations on BitMEX. Image source: BambouClub. What this shows is the amount of theoretical MMR you will have on a BitMEX long futures trade and how large this number is compared to the initial margin. This is all calculated by using the liquidation price given by BitMEX and the bankruptcy price which is calculated separately (based on the leverage). From these two numbers, one is able to get an idea of the initial margin as well as the MMR that is being applied to that trade. As you can see in the second last column, the MMR is larger as you take on more leverage (as would be expected). However, what is really interesting is viewing this relative to the initial margin. This is the last column in the sheet and this shows that for larger leveraged trades, the MMR makes up an increasingly greater percentage of the initial margin. In the case of the 100x leverage trade, the position would have to move only $35 away from current prices and it will be liquidated. Hence, even though you have put up $70 in initial margin (price move from spot to bankruptcy), you will be liquidated when the price has only being moved to half of that ($35 MMR). When you take a look at the numbers for the 10x leverage, the effect is way less pronounced. Your initial margin is $639 and you won’t get liquidated until the price has moved $609 away from the spot level. Hence, you are allowed to participate in a change in price that is almost 95% of your initial margin. Put another way, the MMR of 10x leverage position is only 4.58% of the initial margin. This is more than 10 times below the 50% of initial margin MMR that is required for a 100x leveraged trade. So, from a purely statistical perspective, the 100x or 50x leverage trade is not the most efficient trade to make and can in the long run give BitMEX the edge. Lower Leverage, Less Liquidation (LLLL) BitMEX is a well-oiled machine and they are very efficient at closing out the riskiest trades. Their risk management protocol comes at the expense of your long-term trading profits. This is nothing against BitMEX and they are doing exactly what any high leveraged trading operation is doing. They have to make sure that they always have enough funds to cover losing trades. In fact, BitMEX even has a reserve fund that is used as insurance on those occasions when they cannot stop losing positions fast enough. This insurance fund currently has a balance of 12,336 XBT. However, if you want to avoid funding the BitMEX insurance fund, don’t trade at 50x or 100x leverage. The 4 “Ls” will save you in the long run. Lower Leverage -> Less Liquidation Disclaimer: These are the writer’s opinions and should not be considered investment advice. Readers should do their own research. Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink. Rate this post: Important for improving the service. Please add a comment in the comment field below explaining what you rated and why you gave it that rate. Failed Trade Recommendations should not be rated as that is considered a failure either way. (1 votes, average: 5.00 out of 5)You need to be a registered member to rate this. Loading... Nic Puckrin 5 stars on average, based on 5 rated postsNic is an ex Investment Banker and current crypto enthusiast. When he is not sitting behind six screens trading Bitcoin, he is maintaining his numerous mining rigs. Follow @HackedCom Feedback or Requests? 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