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Grayscale Launches New Fund for Top Cryptocurrencies

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One of bitcoin’s largest asset managers is giving investors more ways to play the cryptocurrency market. On Wednesday, Grayscale announced a new crypto fund designed to track the market’s largest and most liquid assets.

Digital Large Cap Fund

Officially called the Digital Large Cap Fund, Grayscale’s newest investment vehicle provides direct exposure to bitcoin, Ethereum, Ripple XRP, bitcoin cash and Litecoin. The fund employs a market cap-weighted methodology and rebalances quarterly. This means the fund’s underlying assets will be evaluated every three months, possibly removing some cryptocurrencies for others.

At its inception the fund had $4 million in assets and 400,000 shares outstanding.

Grayscale offers three other digital currency funds with exposure to bitcoin, Zcash and Ethereum Classic. Its flagship Bitcoin Investment Trust was conceived in 2013 as a way to bring the digital asset class under a traditional investment vehicle. The Bitcoin Trust has more than $1.7 billion in assets under management and nearly 176 million shares outstanding.

The investment vehicle is more likely to appeal to institutional traders and passive investors keen on exploring cryptocurrency without having to buy and sell individual assets or store them in a wallet. Although the fund will still be subject to large fluctuations, it offers more convenience for those who seek long-term exposure to crypto assets.

The Rise of Crypto Funds

Several startups have raised initial coin offerings (ICOs) inviting investors to participate in their cryptocurrency fund. Crypto20 is one of the most prominent examples. The fund, which launched in October, provides exposure to the world’s top-20 cryptocurrencies based on market capitalization. The holdings are then rebalanced weekly. Bitwise is another notable example of a crypto index fund that offers broad diversification benefits.

The rise of indexing strategies suggests cryptocurrencies are entering mainstream consciousness. Combined with the recently launched bitcoin futures contracts courtesy of CBOE and CME, investors have more opportunities than ever to play the market using traditional asset classes.

Fund managers have tried unsuccessfully to list bitcoin exchange-traded funds (ETFs). Two U.S. companies ditched their listings last month, citing complications with the Securities and Exchange Commission (SEC). Efforts to get bitcoin ETFs listed have been on ice ever since.

A cryptocurrency-based ETF would make bitcoin and other tokens as accessible as stocks, possibly leading to higher demand.

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.

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4.6 stars on average, based on 544 rated postsSam Bourgi is Chief Editor to Hacked.com, where he specializes in cryptocurrency, economics and the broader financial markets. Sam has nearly eight years of progressive experience as an analyst, writer and financial market commentator where he has contributed to the world's foremost newscasts.




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A Trading Strategy For Big Announcements

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Traders love volatility – this is no secret. The number one thing that is going to help a trader make lots of money is volatility in the markets, and this is a lot of what initially attracted so many people to trading cryptocurrency. There was high profit potential without the need to leverage up.

And one thing that tends to put even more of an emphasis on the swings in the markets are large announcements. These tend to cause dramatic increases or decreases in the value of a cryptocurrency, and then temper out over time.

Coinbase Has the Pull

There are few things that will cause a massive swing in the prices of cryptocurrencies. You could have a country like Japan ruling favorably in terms of cryptocurrency regulation, or you could have South Korea cracking down on exchanges. These would both have a strong effect on the overall sentiment towards the sector. Additionally, if there was a major breach on an exchange or with a cryptocurrency protocol, that would have a massive affect too.

But on a micro-level (with a focus on certain cryptocurrencies), one of the highest causes of volatility is an announcement from Coinbase. As the largest and most reputable exchange, when they make an announcement regarding what coins they intend to list, there is usually a massive run-up in price. Following that, there tends to be a retracement back to the previous levels.

Recently, Coinbase announced it was considering adding Cardano, Basic Attention Token, Stellar Lumens, Zcash, and 0x to their exchange. This would be a significant expansion to their offerings, and it isn’t clear what the timeline is or how certain they are of moving forward with this, but it did cause quite the ruckus in the markets.

Similarities to the Equity Market

These swings are similar to a phenomenon that occurs in the equity markets. Usually with binary outcomes, there are similar spikes in volatility followed by a regression to the mean. This may occur when companies announce their quarterly earnings, as they can either outperform or underperform the predictions, but it bears the most similarities to announcements in the healthcare industry.

One of the most binary outcomes that can be announced is whether a drug has received FDA approval or not. The markets tend to show that when an announcement is made, there is a massive spike or drop in the price (depending on the result) and then the price moves back to its original levels in a short period of time. How similar does this sound to Coinbase announcements?

Two things are happening here. First, you have a perceived increase of the risk of an investment, and then the volatility dissipates as investors realize that the fundamentals of the stock (or cryptocurrency) have stayed the same.

How to Trade More Intelligently

When Coinbase makes an announcement such as this, there is no actual appreciation in volatility. There are just deeper liquidity pools. This can be a large positive for a company, since there are more people with access to the coin, but often investors think they are getting quick returns and then find out there isn’t demand behind the trade. None of this is to negate the fact that there is higher liquidity and this is a positive signal for the cryptocurrency, but the end effect on the price is somewhere in the middle of the first reaction and the retracement.

So knowing that the general tendency is for an overreaction that moves back towards the norm, the best thing to do might be to buy the dip. If a cryptocurrency receives positive indications from Coinbase, wait until it retraces back to earlier levels, buy the dip, and you should be setting yourself up for long-term profits.

Avoid Trading Based on “FOMO”

The crypto-world works very different from the equities world in that there are a large amount of retail-level investors who have massive pull because of their blogs and the high value placed on their opinions. This means that sentiments such as fear of missing out (FOMO) play a large part in the markets (many credit the December 2017 run-up in prices to FOMO), and should be factored into your analysis. Any buy you make should be with the long-term in mind, and it helps to understand trading trends such as the one outlined above.

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.

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3.8 stars on average, based on 24 rated posts




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Trading Trump’s Tweets

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Trump twitter

Even after more than 500 days in office, the unconventional style that President Trump has brought to the White House continues to offer new opportunities for creative traders. The latest example of this is a set of new strategies designed to take advantage of any clues about economic data releases and company-specific news that Trump tweets out.

Trading strategies that track the President’s tweets and place trades in the market accordingly have reportedly been used successfully on a number of occasions. One example was immediately following the announcement of new tariffs on China and the EU, when Trump’s tweeting directly affected both metal prices as well as individual companies.

Trading Trump's Tweets

On GitHub, an online hosting service for computer code, interested traders can even find an open-source trading bot called Trump2Cash that scans Trump’s tweets for any mentions of publicly traded companies, and then uses sentiment analysis to decide on whether the tweet will affect the stock price of the mentioned company positively or negatively. The bot then proceeds to automatically place a trade in accordance with the expected market reaction to the tweet. You can read the full background story of the bot in this blog post.

 

Another interesting strategy that has been proposed is to pay attention to the self-praise coming from the President’s Twitter account. For example, one could pay attention in the hours and days leading up to the first Friday of every month when the US Department of Labor releases its monthly Jobs Report at 8:30 AM. It’s well-known that senior members of the administration are briefed on the data the evening before it is released to the public, and it appears they sometimes have a hard time keeping quiet about it.

Here is one example from Friday June 1st that was published at 7:21 AM:

Trump tweet

As you may have guessed, the numbers that came in exceeded expectations, with the unemployment rate dropping to an 18-year low of 3.8%, better than the forecasted 3.9%.

How to trade tweets

Other than the trading bot mentioned above, the next question now becomes how can we trade on these tweets. To keep things simple, let’s stick with the above tweet as our example case.

  1. The most obvious way to trade this would probably be to go long the US dollar against other major currencies like the Japanese yen or the euro. For example, anyone who bought USD/JPY right after Trump tweeted, could have made 0.40% by selling again within 2 hours.
  2. For those who prefer the stock market, going long the S&P500 would also be a natural choice. The problem here is that the numbers are released before the stock market opens in the morning, meaning prices have most likely already rallied by the time you are able to trade. One way around this would be to buy index futures on the S&P500 or a CFD (they are normally traded 24 hours) with the index as the underlying asset. On the day of this tweet, we saw a strong rally in index futures shortly after Trump’s tweet was published.
  3. Another strategy involving precious metals would be to go short gold, for example by shorting the popular GLD ETF or by shorting CFDs or futures tied to the gold price that are traded around the clock.

Since Trump’s tweets are public and for anyone to see, the trick here is to be prepared when numbers are expected to be released, and then act fast. Trump is a president who undeniably does things in a very different way from what most market participants are used to. As traders, our job is not to judge on how politicians do their job, but rather to take advantage of every single opportunity they hand us to make money from the market.

Featured image from Pixabay.

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.

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4.3 stars on average, based on 37 rated postsFredrik Vold is an entrepreneur, financial writer, and technical analysis enthusiast. He has been working and traveling in Asia for several years, and is currently based out of Beijing, China. He closely follows stocks, forex and cryptocurrencies, and is always looking for the next great alternative investment opportunity.




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Hacked Exclusive: “The algorithm knows something you don’t.” An Interview with One of the World’s Top Algorithmic Crypto Traders

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When Alexander Gordon-Brown first heard about Bitcoin back in 2010, he thought it sounded mathematically interesting — and financially impractical.

“It seemed like a passing craze”, he tells me, with no small sense of irony. Though his views weren’t uncommon at the time (or even today), Alex went on to change his outlook as completely as any person can.

In 2016, as he watched the cryptocurrency boom from his office at a proprietary trading firm in London, he realized his initial judgment had been mistaken. The math of crypto still fascinated him, just like the math at his day job — but now he saw it as an “unusual and extraordinary opportunity” to trade an asset with no historical precedent.

Alex wasn’t the first finance professional to go all-in on crypto. Bankers like Arthur Hayes have been exploring Bitcoin since well before the recent boom. Still, Alex had one skill that set him apart. He’d spent the last few years learning to create financial algorithms — code that watches the markets and generates trades to take advantage of every passing trend.

Alex is humble to a fault. Every word he says feels carefully calibrated to avoid exaggeration or self-aggrandizement. But the facts of his brief career in crypto speak for themselves. Though he started with a set of small, conservative bets, Alex’s accounts now log tens of millions of dollars in daily trades. He may be the single most prolific algorithmic trader in the markets — but he’s also the first to insist that the “most” in that title is impossible to prove.

Still, whether he’s first or second or third, this kind of success — built from thousands of tiny profitable trades, rather than a few lucky guesses — doesn’t come by chance. Alex describes his particular talent as follows:

“In terms of understanding how these markets fit together, and how opportunities arise, especially on short-term timescales — I suppose that I qualify as an expert.”

I’d go a bit further and call him a world-class trader: Someone who, time and time again, has managed to wrangle money-making rules from some of the world’s most chaotic markets.

Until now, he’s also been someone who never mentioned his success in public. But last week, he agreed to sit down with me and discuss his move from standard stock trading to the frontiers of finance.

Aaron Gertler: You majored in mathematics at Cambridge. What led you from math to your first job at a hedge fund?

Alexander Gordon-Brown: “I became interested in trading at university, because I thought it might cater well to my strengths. Building mathematical models comes naturally to me. But even more important for trading is quick analytical reasoning activity. It’s pretty similar to an intense strategy game, and I really enjoy those.”

AG: You were doing very well as a trader in your previous job. How did you decide to make such a dramatic switch, into an asset with which you had less experience?

AGB: “I had built up some savings from work, and I wanted more control and flexibility over my time, priorities, and the nature of my work as a whole. I was browsing Facebook one night, and someone had linked to an article about inefficiencies in the crypto market, so I decided to take a closer look. After that, I just tried out trading, first with money that I could afford to lose, then with larger amounts as I got more confident.”

AG: Did you start out well, or was there a steep learning curve before the trades began to work out?

AGB: “I started out with Bitcoin futures, nothing too complicated, and I think that my initial ideas were well-conceived. I generally profited from the beginning. That said, I did make quite a few mistakes starting out, which were more ‘missed opportunity’ than ‘losing money’. I expected to see certain efficiencies in crypto that would have existed in any other market, and later discovered that those didn’t yet exist.”

[Throughout his trading career, Alex has specialized in “market-making” — offering to buy and sell a wide range of assets, making a profit on the spread, and creating liquidity in markets, giving other participants greater flexibility with their own trades. Smaller markets have less liquidity, and therefore offer greater opportunity for market-makers like Alex to profit.]

AG: You probably won’t tell me, but I have to ask: What’s the secret to your success? How have you been able to scale up so quickly?

AGB: “I focus on doing a large volume of trades but keeping my positions small. Many of my trades make small amounts of money and make up for their size by sheer numbers. I don’t want one bad call on a larger position to overwhelm the upside from the many small trades.”

AG: What does a day in your work life look like, given that you manage algorithms rather than making trades yourself?

AGB: “It’s a continuous cycle. I spend some of my time keeping an eye on the positions I’m holding, to make sure the algorithms don’t run off and do something unreasonable. With automated trading, it’s easy for a small mistake to become a big mistake rather quickly.

“I also try to keep up with the wider world of crypto. It’s been a busy few months! A lot of the news that’s come out recently has had effects on pricing, so I find myself checking the news cycle continuously. At my previous job, I worked mostly when the London markets were open, but crypto markets are always open. The hard thing is finding the discipline to switch off for a while and stop working, since I know I’ll just have to catch up again.”

AG: When you’re checking in on your algorithms, how do you know when it’s time to tweak something?

AGB: “When a position starts to build up quickly for no apparent reason, or when an unusually large volume of small trades pops up — again, for an unknown reason. Whenever I see a major algorithmic decision, I need to try and match it to some change in the world. Usually, there’s a clear reason — a coin’s price has increased, for example — but if I can’t find the reason, that’s a sign something strange is going on.

“Fortunately, most instances of weirdness are actually false positives. It looks like something strange is going on, but the algorithm is justified, because it knows something you didn’t.”

AG: Do your algorithms mostly change themselves according to automated rules, or are you generally changing them by hand, in response to your own beliefs about the market?

AGB: “It’s closer to the latter. I try to write code so that the general structure is very flexible, and that I’m mostly just changing parameters. I’ve set things up so that I won’t have to write a lot of additional code every time the world changes.”

AG: And when the world does change, how do you choose what gets your attention? What kinds of news are most important to the way you work?

AGB: “I try to pay attention to the things I think other people will pay attention to. Those pieces of news usually signal times when trading will be particularly good, or when it might be a good idea to shift my sleep schedule so that I’m trading when there’s a lot of market activity. I may have my own beliefs as to which types of news and opinion are most reliable, but if lots of other people who trade decide the news is important, it will be an important day.”

AG: Given the huge boom in ICOs recently, how do you approach the release of new coins you might want to trade?

AGB: “I generally haven’t been too keen on trading newer cryptocurrencies in any big way. I want to stick to things I think are relatively well-established, and where I understand what’s going on. I won’t continue to totally ignore them forever, but right now, they’re not something I pay much attention to.”

AG: Algorithmic trading gets a lot of bad press from people who see it as unfair, or somehow taking advantage of human traders. But in an interview about your previous job, you mentioned that you see algorithmic trading as a positive thing, since it helps markets become more efficient. Do you think the same thing about crypto markets?

AGB: “I think that [arguments about efficiency] actually apply more strongly, since cryptocurrencies are even more inefficient. In crypto markets, I see both the opportunity for algorithmic traders and the value for other traders as being greater.

“Most people who want to trade Bitcoin don’t want to get set up on every exchange so that they can sell on whichever one gives the best price at any one time. They want to sell on any given exchange and get a reasonable price that isn’t too far out of line. And that’s what algorithmic trading allows them to do. Without it, you need a human to pick up every one of those trades.”

AG: Given that people with your background and talents are present in cryptocurrency markets, would amateurs be better off not trying to trade at all? How would you recommend someone approach the market if they don’t have the time or programming skill to follow your path?

AGB: “If you just want to invest in cryptocurrency for the long term, just buying some set of them and forgetting about it seems like the right plan.

“But if you do want to trade every day, focus on the things computers are bad at, and make sure you really understand what you’re doing before you stake any money that you can’t afford to lose.”

AG: What are computers bad at, when it comes to crypto trading?

AGB: “Algorithms are still fairly bad at processing news. You need to choose which stories to trust and how much to trust them, and that’s an area where algorithms struggle, even in stock markets that are much more mature.”

AG: Do you have any idea how common algorithmic trading is within crypto markets? Do you know of anyone else who operates similarly to you?

AGB: “I suspect that other people like me exist, but I don’t know anyone in particular. If you watch these markets behave, once you know what you’re looking for, you can see that other people are doing some amount of algorithmic trading.

“For example, you might see an order of an exact size being executed the same way every second. There might be someone sitting in a chair and pushing the same button very precisely, but… it’s probably a computer.”

AG: You’ve grown your trading to an impressive volume after a relatively short time. Are you still seeing rapid growth in how much you trade? Do you expect to hit a natural limit, as you pick most of the low-hanging fruit you can reach with the types of trades you make?

AGB: “It’s possible that I’m currently at a local peak, especially since some of the ‘frothy’ interest in cryptocurrencies from three months ago has disappeared, and overall trading volume has decreased.

“But a couple of exciting-looking events in the crypto world could raise volume a lot, as people come back to the markets. There have been other Bitcoin crashes, but that’s never been a permanent trend. I don’t expect it to be permanent this time, either.”

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.

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5 stars on average, based on 1 rated postsAaron Gertler is a freelance writer and cryptocurrency dabbler. When he's not writing, he spends his time advising philanthropists on their charitable donations and reading everything under the sun. You can find him on Twitter or on his personal website.




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