It is no doubt Grayscale’s booming popularity as a mainstream investment has caused a lot of community hullabaloo lately. As such, I felt it was worth making a FAQ regarding the topic. I’m looking to update this as needed and of course am open to suggestions / adding any questions. The goal is simply to have a thread we can link to anyone with questions on Grayscaleand its products. Instead of explaining the same thing 3 times a day, shoot those posters over to this thread.My hope is that these questions are answered in a fairly simple and easy to understand manner. I think as the sub grows it will be a nice reference point for newcomers. Disclaimer: I do NOT work for Grayscale and as such am basing all these answers on information that can be found on their website / reports. (Grayscale’s official FAQ can be found here). I also do NOT have a finance degree, I do NOT have a Series 6 / 7 / 140-whatever, and I do NOT work with investment products for my day job. I have an accounting background and work within the finance world so I have the general ‘business’ knowledge to put it all together, but this is all info determined in my best faith effort as a layman. The point being is this --- it is possible I may explain something wrong or missed the technical terms, and if that occurs I am more than happy to update anything that can be proven incorrect Everything below will be in reference to ETHE but will apply to GBTC as well.If those two segregate in any way, I will note that accordingly.
ETHE is essentially a stock that intends to loosely track the price of ETH. It does so by having each ETHE be backed by a specific amount of ETH that is held on chain. Initially, the newly minted ETHE can only be purchased by institutions and accredited investors directly from Grayscale. Once a year has passed (6 months for GBTC) it can then be listed on the OTCQX Best Market exchange for secondary trading. Once listed on OTCQX, anyone investor can purchase at this point. Additional information on ETHE can be found here.
So ETHE is an ETF?
No. For technical reasons beyond my personal understandings it is not labeled an ETF. I know it all flows back to the “Securities Act Rule 144”, but due to my limited knowledge on SEC regulations I don’t want to misspeak past that. If anyone is more knowledgeable on the subject I am happy to input their answer here.
How long has ETHE existed?
ETHE was formed 12/14/2017. GBTC was formed 9/25/2013.
How is ETHE created?
The trust will issue shares to “Authorized Participants” in groups of 100 shares (called baskets). Authorized Participants are the only persons that may place orders to create these baskets and they do it on behalf of the investor. Source: Creation and Redemption of Shares section on page 39 of the “Grayscale Ethereum Trust Annual Report (2019)” – Located Here Note – The way their reports word this makes it sound like there is an army of authorizers doing the dirty work, but in reality there is only one Authorized Participant. At this moment the “Genesis” company is the sole Authorized Participant. Genesis is owned by the “Digital Currency Group, Inc.” which is the parent company of Grayscale as well. (And to really go down the rabbit hole it looks like DCG is the parent company of CoinDesk and is “backing 150+ companies across 30 countries, including Coinbase, Ripple, and Chainalysis.”) Source: Digital Currency Group, Inc. informational section on page 77 of the “Grayscale Bitcoin Trust (BTC) Form 10-K (2019)” – Located Here Source: Barry E. Silbert informational section on page 75 of the “Grayscale Bitcoin Trust (BTC) Form 10-K (2019)” – Located Here
How does Grayscale acquire the ETH to collateralize the ETHE product?
An Investor may acquire ETHE by paying in cash or exchanging ETH already owned.
Cash: The investor pays the subscription amount in cash and the Authorized Participant will use that cash to purchase ETH.
ETH: The investor transfers the ETH to the Authorized Participant, which will contribute the ETH in-kind to the Trust.
Source: Creation and Redemption of Shares section on page 40 of the “Grayscale Ethereum Trust Annual Report (2019)” – Located Here
Where does Grayscale store their ETH? Does it have a specific wallet address we can follow?
ETH is stored with Coinbase Custody Trust Company, LLC. I am unaware of any specific address or set of addresses that can be used to verify the ETH is actually there. As an aside - I would actually love to see if anyone knows more about this as it’s something that’s sort of peaked my interest after being asked about it… I find it doubtful we can find that however. Source: Part C. Business Information, Item 8, subsection A. on page 16 of the “Grayscale Ethereum Trust Annual Report (2019)” – Located Here
Can ETHE be redeemed for ETH?
No, currently there is no way to give your shares of ETHE back to Grayscale to receive ETH back. The only method of getting back into ETH would be to sell your ETHE to someone else and then use those proceeds to buy ETH yourself. Source: Redemption Procedures on page 41 of the “Grayscale Ethereum Trust Annual Report (2019)” – Located Here
Why are they not redeeming shares?
I think the report summarizes it best:
Redemptions of Shares are currently not permitted and the Trust is unable to redeem Shares. Subject to receipt of regulatory approval from the SEC and approval by the Sponsor in its sole discretion, the Trust may in the future operate a redemption program. Because the Trust does not believe that the SEC would, at this time, entertain an application for the waiver of rules needed in order to operate an ongoing redemption program, the Trust currently has no intention of seeking regulatory approval from the SEC to operate an ongoing redemption program.
Source: Redemption Procedures on page 41 of the “Grayscale Ethereum Trust Annual Report (2019)” – Located Here
What is the fee structure?
ETHE has an annual fee of 2.5%. GBTC has an annual fee of 2.0%. Fees are paid by selling the underlying ETH / BTC collateralizing the asset. Source: ETHE’s informational page on Grayscale’s website - Located Here Source: Description of Trust on page 31 & 32 of the “Grayscale Ethereum Trust Annual Report (2019)” – Located Here
What is the ratio of ETH to ETHE?
At the time of posting (6/19/2020) each ETHE share is backed by .09391605 ETH. Each share of GBTC is backed by .00096038 BTC. ETHE & GBTC’s specific information page on Grayscale’s website updates the ratio daily – Located Here For a full historical look at this ratio, it can be found on the Grayscale home page on the upper right side if you go to Tax Documents > 2019 Tax Documents > Grayscale Ethereum Trust 2019 Tax Letter.
Why is the ratio not 1:1? Why is it always decreasing?
While I cannot say for certain why the initial distribution was not a 1:1 backing, it is more than likely to keep the price down and allow more investors a chance to purchase ETHE / GBTC. As noted above, fees are paid by selling off the ETH collateralizing ETHE. So this number will always be trending downward as time goes on. Source: Description of Trust on page 32 of the “Grayscale Ethereum Trust Annual Report (2019)” – Located Here
I keep hearing about how this is locked supply… explain?
As noted above, there is currently no redemption program for converting your ETHE back into ETH. This means that once an ETHE is issued, it will remain in circulation until a redemption program is formed --- something that doesn’t seem to be too urgent for the SEC or Grayscale at the moment. Tiny amounts will naturally be removed due to fees, but the bulk of the asset is in there for good. Knowing that ETHE cannot be taken back and destroyed at this time, the ETH collateralizing it will not be removed from the wallet for the foreseeable future. While it is not fully locked in the sense of say a totally lost key, it is not coming out any time soon. Per their annual statement:
The Trust’s ETH will be transferred out of the ETH Account only in the following circumstances: (i) transferred to pay the Sponsor’s Fee or any Additional Trust Expenses, (ii) distributed in connection with the redemption of Baskets (subject to the Trust’s obtaining regulatory approval from the SEC to operate an ongoing redemption program and the consent of the Sponsor), (iii) sold on an as-needed basis to pay Additional Trust Expenses or (iv) sold on behalf of the Trust in the event the Trust terminates and liquidates its assets or as otherwise required by law or regulation.
Source: Description of Trust on page 31 of the “Grayscale Ethereum Trust Annual Report (2019)” – Located Here
Grayscale now owns a huge chunk of both ETH and BTC’s supply… should we be worried about manipulation, a sell off to crash the market crash, a staking cartel?
First, it’s important to remember Grayscale is a lot more akin to an exchange then say an investment firm. Grayscale is working on behalf of its investors to create this product for investor control. Grayscale doesn’t ‘control’ the ETH it holds any more then Coinbase ‘controls’ the ETH in its hot wallet. (Note: There are likely some varying levels of control, but specific to this topic Grayscale cannot simply sell [legally, at least] the ETH by their own decision in the same manner Coinbase wouldn't be able to either.) That said, there shouldn’t be any worry in the short to medium time-frame. As noted above, Grayscale can’t really remove ETH other than for fees or termination of the product. At 2.5% a year, fees are noise in terms of volume. Grayscale seems to be the fastest growing product in the crypto space at the moment and termination of the product seems unlikely. IF redemptions were to happen tomorrow, it’s extremely unlikely we would see a mass exodus out of the product to redeem for ETH. And even if there was incentive to get back to ETH, the premium makes it so that it would be much more cost effective to just sell your ETHE on the secondary market and buy ETH yourself. Remember, any redemption is up to the investors and NOT something Grayscale has direct control over.
Yes, but what about [insert criminal act here]…
Alright, yes. Technically nothing is stopping Grayscale from selling all the ETH / BTC and running off to the Bahamas (Hawaii?). BUT there is no real reason for them to do so. Barry is an extremely public figure and it won’t be easy for him to get away with that. Grayscale’s Bitcoin Trust creates SEC reports weekly / bi-weekly and I’m sure given the sentiment towards crypto is being watched carefully. Plus, Grayscale is making tons of consistent revenue and thus has little to no incentive to give that up for a quick buck.
That’s a lot of ‘happy little feels’ Bob, is there even an independent audit or is this Tether 2.0?
Actually yes, an independent auditor report can be found in their annual reports. It is clearly aimed more towards the financial side and I doubt the auditors are crypto savants, but it is at least one extra set of eyes. Auditors are Friedman LLP – Auditor since 2015. Source: Independent Auditor Report starting on page 116 (of the PDF itself) of the “Grayscale Ethereum Trust Annual Report (2019)” – Located Here As mentioned by user TheCrpytosAndBloods (In Comments Below), a fun fact:
The company’s auditors Friedman LLP were also coincidentally TetheBitfinex’s auditors until They controversially parted ways in 2018 when the Tether controversy was at its height. I am not suggesting for one moment that there is anything shady about DCG - I just find it interesting it’s the same auditor.
“Grayscale sounds kind of lame” / “Not your keys not your crypto!” / “Why is anyone buying this, it sounds like a scam?”
Welp, for starters this honestly is not really a product aimed at the people likely to be reading this post. To each their own, but do remember just because something provides no value to you doesn’t mean it can’t provide value to someone else. That said some of the advertised benefits are as follows:
Access to trading within a tax advantaged retirement account
Institutions can easily and safely get exposure to crypto in a more legal-friendly manner
Ease of use for those who are not very technologically savvy
Ease of access for someone who doesn’t want to set up a Coinbase account
Perceived trust in institutional platforms over something like Coinbase or Kraken
Degen traders who just want access to the volatility ETHE provides that have no interest in crypto beyond that
So for example, I can set up an IRA at a brokerage account that has $0 trading fees. Then I can trade GBTC and ETHE all day without having to worry about tracking my taxes. All with the relative safety something like E-Trade provides over Binance. As for how it benefits the everyday ETH holder? I think the supply lock is a positive. I also think this product exposes the Ethereum ecosystem to people who otherwise wouldn’t know about it.
Why is there a premium? Why is ETHE’s premium so insanely high compared to GBTC’s premium?
There are a handful of theories of why a premium exists at all, some even mentioned in the annual report. The short list is as follows:
ETHE is NOT redeeming shares and as such doesn’t have an effective arbitrage mechanism
ETHE has a 1 year wait to be sold on the secondary market, again negating the ability to effectively arbitrage the premium
People may simply be willing to pay a premium for the benefits stated above.
Why is ETHE’s so much higher the GBTC’s? Again, a few thoughts:
ETHE hasn’t been around as long, so there is less secondary market supply to go around
ETHE was listed at an insanely high premium to begin with
ETHE might simply be more popular at the moment
Could just be sheer stupidity (investors think ETHE is a 1:1 ratio not 1:11)
Are there any other differences between ETHE and GBTC?
I touched on a few of the smaller differences, but one of the more interesting changes is GBTC is now a “SEC reporting company” as of January 2020. Which again goes beyond my scope of knowledge so I won’t comment on it too much… but the net result is GBTC is now putting out weekly / bi-weekly 8-K’s and annual 10-K’s. This means you can track GBTC that much easier at the moment as well as there is an extra layer of validity to the product IMO.
I’m looking for some statistics on ETHE… such as who is buying, how much is bought, etc?
There is a great Q1 2020 report I recommend you give a read that has a lot of cool graphs and data on the product. It’s a little GBTC centric, but there is some ETHE data as well. It can be found here hidden within the 8-K filings.Q1 2020 is the 4/16/2020 8-K filing. For those more into a GAAP style report see the 2019 annual 10-K of the same location.
Is Grayscale only just for BTC and ETH?
No, there are other products as well. In terms of a secondary market product, ETCG is the Ethereum Classic version of ETHE. Fun Fact – ETCG was actually put out to the secondary market first. It also has a 3% fee tied to it where 1% of it goes to some type of ETC development fund. In terms of institutional and accredited investors, there are a few ‘fan favorites’ such as Bitcoin Cash, Litcoin, Stellar, XRP, and Zcash. Something called Horizion (Backed by ZEN I guess? Idk to be honest what that is…). And a diversified Mutual Fund type fund that has a little bit of all of those. None of these products are available on the secondary market.
Are there alternatives to Grayscale?
I know they exist, but I don’t follow them. I’ll leave this as a “to be edited” section and will add as others comment on what they know. Per user Over-analyser (in comments below):
As asked by pegcity - Okay so I was under the impression you can just give them your own ETH and get ETHE, but do you get 11 ETHE per ETH or do you get the market value of ETH in USD worth of ETHE?
I have always understood that the ETHE issued directly through Grayscale is issued without the premium. As in, if I were to trade 1 ETH for ETHE I would get 11, not say only 2 or 3 because the secondary market premium is so high. And if I were paying cash only I would be paying the price to buy 1 ETH to get my 11 ETHE. Per page 39 of their annual statement, it reads as follows:
The Trust will issue Shares to Authorized Participants from time to time, but only in one or more Baskets (with a Basket being a block of 100 Shares). The Trust will not issue fractions of a Basket. The creation (and, should the Trust commence a redemption program, redemption) of Baskets will be made only in exchange for the delivery to the Trust, or the distribution by the Trust, of the number of whole and fractional ETH represented by each Basket being created (or, should the Trust commence a redemption program, redeemed), which is determined by dividing (x) the number of ETH owned by the Trust at 4:00 p.m., New York time, on the trade date of a creation or redemption order, after deducting the number of ETH representing the U.S. dollar value of accrued but unpaid fees and expenses of the Trust (converted using the ETH Index Price at such time, and carried to the eighth decimal place), by (y) the number of Shares outstanding at such time (with the quotient so obtained calculated to one one-hundred-millionth of one ETH (i.e., carried to the eighth decimal place)), and multiplying such quotient by 100 (the “Basket ETH Amount”). All questions as to the calculation of the Basket ETH Amount will be conclusively determined by the Sponsor and will be final and binding on all persons interested in the Trust. The Basket ETH Amount multiplied by the number of Baskets being created or redeemed is the “Total Basket ETH Amount.” The number of ETH represented by a Share will gradually decrease over time as the Trust’s ETH are used to pay the Trust’s expenses. Each Share represented approximately 0.0950 ETH and 0.0974 ETH as of December 31, 2019 and 2018, respectively.
﷽ The Federal Reserve and the United States government are pumping extreme amounts of money into the economy, already totaling over $484 billion. They are doing so because it already had a goal to inflate the United States Dollar (USD) so that the market can continue to all-time highs. It has always had this goal. They do not care how much inflation goes up by now as we are going into a depression with the potential to totally crash the US economy forever. They believe the only way to save the market from going to zero or negative values is to inflate it so much that it cannot possibly crash that low. Even if the market does not dip that low, inflation serves the interest of powerful people. The impending crash of the stock market has ramifications for Bitcoin, as, though there is no direct ongoing-correlation between the two, major movements in traditional markets will necessarily affect Bitcoin. According to the Blockchain Center’s Cryptocurrency Correlation Tool, Bitcoin is not correlated with the stock market. However, when major market movements occur, they send ripples throughout the financial ecosystem which necessary affect even ordinarily uncorrelated assets. Therefore, Bitcoin will reach X price on X date after crashing to a price of X by X date.
Stock Market Crash
The Federal Reserve has caused some serious consternation with their release of ridiculous amounts of money in an attempt to buoy the economy. At face value, it does not seem to have any rationale or logic behind it other than keeping the economy afloat long enough for individuals to profit financially and politically. However, there is an underlying basis to what is going on which is important to understand in order to profit financially. All markets are functionally price probing systems. They constantly undergo a price-discovery process. In a fiat system, money is an illusory and a fundamentally synthetic instrument with no intrinsic value – similar to Bitcoin. The primary difference between Bitcoin is the underlying technology which provides a slew of benefits that fiat does not. Fiat, however, has an advantage in being able to have the support of powerful nation-states which can use their might to insure the currency’s prosperity. Traditional stock markets are composed of indices (pl. of index). Indices are non-trading market instruments which are essentially summaries of business values which comprise them. They are continuously recalculated throughout a trading day, and sometimes reflected through tradable instruments such as Exchange Traded Funds or Futures. Indices are weighted by market capitalizations of various businesses. Price theory essentially states that when a market fails to take out a new low in a given range, it will have an objective to take out the high. When a market fails to take out a new high, it has an objective to make a new low. This is why price-time charts go up and down, as it does this on a second-by-second, minute-by-minute, day-by-day, and even century-by-century basis. Therefore, market indices will always return to some type of bull market as, once a true low is formed, the market will have a price objective to take out a new high outside of its’ given range – which is an all-time high. Instruments can only functionally fall to zero, whereas they can grow infinitely. So, why inflate the economy so much? Deflation is disastrous for central banks and markets as it raises the possibility of producing an overall price objective of zero or negative values. Therefore, under a fractional reserve system with a fiat currency managed by a central bank – the goal of the central bank is to depreciate the currency. The dollar is manipulated constantly with the intention of depreciating its’ value. Central banks have a goal of continued inflated fiat values. They tend to ordinarily contain it at less than ten percent (10%) per annum in order for the psyche of the general populace to slowly adjust price increases. As such, the markets are divorced from any other logic. Economic policy is the maintenance of human egos, not catering to fundamental analysis. Gross Domestic Product (GDP) growth is well-known not to be a measure of actual growth or output. It is a measure of increase in dollars processed. Banks seek to produce raising numbers which make society feel like it is growing economically, making people optimistic. To do so, the currency is inflated, though inflation itself does not actually increase growth. When society is optimistic, it spends and engages in business – resulting in actual growth. It also encourages people to take on credit and debts, creating more fictional fiat. Inflation is necessary for markets to continue to reach new heights, generating positive emotional responses from the populace, encouraging spending, encouraging debt intake, further inflating the currency, and increasing the sale of government bonds. The fiat system only survives by generating more imaginary money on a regular basis. Bitcoin investors may profit from this by realizing that stock investors as a whole always stand to profit from the market so long as it is managed by a central bank and does not collapse entirely. If those elements are filled, it has an unending price objective to raise to new heights. It also allows us to realize that this response indicates that the higher-ups believe that the economy could crash in entirety, and it may be wise for investors to have multiple well-thought-out exit strategies.
Economic Analysis of Bitcoin
The reason why the Fed is so aggressively inflating the economy is due to fears that it will collapse forever or never rebound. As such, coupled with a global depression, a huge demand will appear for a reserve currency which is fundamentally different than the previous system. Bitcoin, though a currency or asset, is also a market. It also undergoes a constant price-probing process. Unlike traditional markets, Bitcoin has the exact opposite goal. Bitcoin seeks to appreciate in value and not depreciate. This has a quite different affect in that Bitcoin could potentially become worthless and have a price objective of zero. Bitcoin was created in 2008 by a now famous mysterious figure known as Satoshi Nakamoto and its’ open source code was released in 2009. It was the first decentralized cryptocurrency to utilize a novel protocol known as the blockchain. Up to one megabyte of data may be sent with each transaction. It is decentralized, anonymous, transparent, easy to set-up, and provides myriad other benefits. Bitcoin is not backed up by anything other than its’ own technology. Bitcoin is can never be expected to collapse as a framework, even were it to become worthless. The stock market has the potential to collapse in entirety, whereas, as long as the internet exists, Bitcoin will be a functional system with a self-authenticating framework. That capacity to persist regardless of the actual price of Bitcoin and the deflationary nature of Bitcoin means that it has something which fiat does not – inherent value. Bitcoin is based on a distributed database known as the “blockchain.” Blockchains are essentially decentralized virtual ledger books, replete with pages known as “blocks.” Each page in a ledger is composed of paragraph entries, which are the actual transactions in the block. Blockchains store information in the form of numerical transactions, which are just numbers. We can consider these numbers digital assets, such as Bitcoin. The data in a blockchain is immutable and recorded only by consensus-based algorithms. Bitcoin is cryptographic and all transactions are direct, without intermediary, peer-to-peer. Bitcoin does not require trust in a central bank. It requires trust on the technology behind it, which is open-source and may be evaluated by anyone at any time. Furthermore, it is impossible to manipulate as doing so would require all of the nodes in the network to be hacked at once – unlike the stock market which is manipulated by the government and “Market Makers”. Bitcoin is also private in that, though the ledge is openly distributed, it is encrypted. Bitcoin’s blockchain has one of the greatest redundancy and information disaster recovery systems ever developed. Bitcoin has a distributed governance model in that it is controlled by its’ users. There is no need to trust a payment processor or bank, or even to pay fees to such entities. There are also no third-party fees for transaction processing. As the ledge is immutable and transparent it is never possible to change it – the data on the blockchain is permanent. The system is not easily susceptible to attacks as it is widely distributed. Furthermore, as users of Bitcoin have their private keys assigned to their transactions, they are virtually impossible to fake. No lengthy verification, reconciliation, nor clearing process exists with Bitcoin. Bitcoin is based on a proof-of-work algorithm. Every transaction on the network has an associated mathetical “puzzle”. Computers known as miners compete to solve the complex cryptographic hash algorithm that comprises that puzzle. The solution is proof that the miner engaged in sufficient work. The puzzle is known as a nonce, a number used only once. There is only one major nonce at a time and it issues 12.5 Bitcoin. Once it is solved, the fact that the nonce has been solved is made public. A block is mined on average of once every ten minutes. However, the blockchain checks every 2,016,000 minutes (approximately four years) if 201,600 blocks were mined. If it was faster, it increases difficulty by half, thereby deflating Bitcoin. If it was slower, it decreases, thereby inflating Bitcoin. It will continue to do this until zero Bitcoin are issued, projected at the year 2140. On the twelfth of May, 2020, the blockchain will halve the amount of Bitcoin issued when each nonce is guessed. When Bitcoin was first created, fifty were issued per block as a reward to miners. 6.25 BTC will be issued from that point on once each nonce is solved. Unlike fiat, Bitcoin is a deflationary currency. As BTC becomes scarcer, demand for it will increase, also raising the price. In this, BTC is similar to gold. It is predictable in its’ output, unlike the USD, as it is based on a programmed supply. We can predict BTC’s deflation and inflation almost exactly, if not exactly. Only 21 million BTC will ever be produced, unless the entire network concedes to change the protocol – which is highly unlikely. Some of the drawbacks to BTC include congestion. At peak congestion, it may take an entire day to process a Bitcoin transaction as only three to five transactions may be processed per second. Receiving priority on a payment may cost up to the equivalent of twenty dollars ($20). Bitcoin mining consumes enough energy in one day to power a single-family home for an entire week.
Trading or Investing?
The fundamental divide in trading revolves around the question of market structure. Many feel that the market operates totally randomly and its’ behavior cannot be predicted. For the purposes of this article, we will assume that the market has a structure, but that that structure is not perfect. That market structure naturally generates chart patterns as the market records prices in time. In order to determine when the stock market will crash, causing a major decline in BTC price, we will analyze an instrument, an exchange traded fund, which represents an index, as opposed to a particular stock. The price patterns of the various stocks in an index are effectively smoothed out. In doing so, a more technical picture arises. Perhaps the most popular of these is the SPDR S&P Standard and Poor 500 Exchange Traded Fund ($SPY). In trading, little to no concern is given about value of underlying asset. We are concerned primarily about liquidity and trading ranges, which are the amount of value fluctuating on a short-term basis, as measured by volatility-implied trading ranges. Fundamental analysis plays a role, however markets often do not react to real-world factors in a logical fashion. Therefore, fundamental analysis is more appropriate for long-term investing. The fundamental derivatives of a chart are time (x-axis) and price (y-axis). The primary technical indicator is price, as everything else is lagging in the past. Price represents current asking price and incorrectly implementing positions based on price is one of the biggest trading errors. Markets and currencies ordinarily have noise, their tendency to back-and-fill, which must be filtered out for true pattern recognition. That noise does have a utility, however, in allowing traders second chances to enter favorable positions at slightly less favorable entry points. When you have any market with enough liquidity for historical data to record a pattern, then a structure can be divined. The market probes prices as part of an ongoing price-discovery process. Market technicians must sometimes look outside of the technical realm and use visual inspection to ascertain the relevance of certain patterns, using a qualitative eye that recognizes the underlying quantitative nature Markets and instruments rise slower than they correct, however they rise much more than they fall. In the same vein, instruments can only fall to having no worth, whereas they could theoretically grow infinitely and have continued to grow over time. Money in a fiat system is illusory. It is a fundamentally synthetic instrument which has no intrinsic value. Hence, the recent seemingly illogical fluctuations in the market. According to trade theory, the unending purpose of a market or instrument is to create and break price ranges according to the laws of supply and demand. We must determine when to trade based on each market inflection point as defined in price and in time as opposed to abandoning the trend (as the contrarian trading in this sub often does). Time and Price symmetry must be used to be in accordance with the trend. When coupled with a favorable risk to reward ratio, the ability to stay in the market for most of the defined time period, and adherence to risk management rules; the trader has a solid methodology for achieving considerable gains. We will engage in a longer term market-oriented analysis to avoid any time-focused pressure. The Bitcoin market is open twenty-four-hours a day, so trading may be done when the individual is ready, without any pressing need to be constantly alert. Let alone, we can safely project months in advance with relatively high accuracy. Bitcoin is an asset which an individual can both trade and invest, however this article will be focused on trading due to the wide volatility in BTC prices over the short-term.
Technical Indicator Analysis of Bitcoin
Technical indicators are often considered self-fulfilling prophecies due to mass-market psychology gravitating towards certain common numbers yielded from them. They are also often discounted when it comes to BTC. That means a trader must be especially aware of these numbers as they can prognosticate market movements. Often, they are meaningless in the larger picture of things.
Volume – derived from the market itself, it is mostly irrelevant. The major problem with volume for stocks is that the US market open causes tremendous volume surges eradicating any intrinsic volume analysis. This does not occur with BTC, as it is open twenty-four-seven. At major highs and lows, the market is typically anemic. Most traders are not active at terminal discretes (peaks and troughs) because of levels of fear. Volume allows us confidence in time and price symmetry market inflection points, if we observe low volume at a foretold range of values. We can rationalize that an absolute discrete is usually only discovered and anticipated by very few traders. As the general market realizes it, a herd mentality will push the market in the direction favorable to defending it. Volume is also useful for swing trading, as chances for swing’s validity increases if an increase in volume is seen on and after the swing’s activation. Volume is steadily decreasing. Lows and highs are reached when volume is lower.
Therefore, due to the relatively high volume on the 12th of March, we can safely determine that a low for BTC was not reached.
VIX – Volatility Index, this technical indicator indicates level of fear by the amount of options-based “insurance” in portfolios. A low VIX environment, less than 20 for the S&P index, indicates a stable market with a possible uptrend. A high VIX, over 20, indicates a possible downtrend. VIX is essentially useless for BTC as BTC-based options do not exist. It allows us to predict the market low for $SPY, which will have an indirect impact on BTC in the short term, likely leading to the yearly low. However, it is equally important to see how VIX is changing over time, if it is decreasing or increasing, as that indicates increasing or decreasing fear. Low volatility allows high leverage without risk or rest. Occasionally, markets do rise with high VIX.
As VIX is unusually high, in the forties, we can be confident that a downtrend for the S&P 500 is imminent.
RSI (Relative Strength Index): The most important technical indicator, useful for determining highs and lows when time symmetry is not availing itself. Sometimes analysis of RSI can conflict in different time frames, easiest way to use it is when it is at extremes – either under 30 or over 70. Extremes can be used for filtering highs or lows based on time-and-price window calculations. Highly instructive as to major corrective clues and indicative of continued directional movement. Must determine if longer-term RSI values find support at same values as before. It is currently at 73.56.
Secondly, RSI may be used as a high or low filter, to observe the level that short-term RSI reaches in counter-trend corrections. Repetitions based on market movements based on RSI determine how long a trade should be held onto. Once a short term RSI reaches an extreme and stay there, the other RSI’s should gradually reach the same extremes. Once all RSI’s are at extreme highs, a trend confirmation should occur and RSI’s should drop to their midpoint.
Trend Definition Analysis of Bitcoin
Trend definition is highly powerful, cannot be understated. Knowledge of trend logic is enough to be a profitable trader, yet defining a trend is an arduous process. Multiple trends coexist across multiple time frames and across multiple market sectors. Like time structure, it makes the underlying price of the instrument irrelevant. Trend definitions cannot determine the validity of newly formed discretes. Trend becomes apparent when trades based in counter-trend inflection points continue to fail. Downtrends are defined as an instrument making lower lows and lower highs that are recurrent, additive, qualified swing setups. Downtrends for all instruments are similar, except forex. They are fast and complete much quicker than uptrends. An average downtrend is 18 months, something which we will return to. An uptrend inception occurs when an instrument reaches a point where it fails to make a new low, then that low will be tested. After that, the instrument will either have a deep range retracement or it may take out the low slightly, resulting in a double-bottom. A swing must eventually form. A simple way to roughly determine trend is to attempt to draw a line from three tops going upwards (uptrend) or a line from three bottoms going downwards (downtrend). It is not possible to correctly draw a downtrend line on the BTC chart, but it is possible to correctly draw an uptrend – indicating that the overall trend is downwards. The only mitigating factor is the impending stock market crash.
Time Symmetry Analysis of Bitcoin
Time is the movement from the past through the present into the future. It is a measurement in quantified intervals. In many ways, our perception of it is a human construct. It is more powerful than price as time may be utilized for a trade regardless of the market inflection point’s price. Were it possible to perfectly understand time, price would be totally irrelevant due to the predictive certainty time affords. Time structure is easier to learn than price, but much more difficult to apply with any accuracy. It is the hardest aspect of trading to learn, but also the most rewarding. Humans do not have the ability to recognize every time window, however the ability to define market inflection points in terms of time is the single most powerful trading edge. Regardless, price should not be abandoned for time alone. Time structure analysis It is inherently flawed, as such the markets have a fail-safe, which is Price Structure. Even though Time is much more powerful, Price Structure should never be completely ignored. Time is the qualifier for Price and vice versa. Time can fail by tricking traders into counter-trend trading. Time is a predestined trade quantifier, a filter to slow trades down, as it allows a trader to specifically focus on specific time windows and rest at others. It allows for quantitative measurements to reach deterministic values and is the primary qualifier for trends. Time structure should be utilized before price structure, and it is the primary trade criterion which requires support from price. We can see price structure on a chart, as areas of mathematical support or resistance, but we cannot see time structure. Time may be used to tell us an exact point in the future where the market will inflect, after Price Theory has been fulfilled. In the present, price objectives based on price theory added to possible future times for market inflection points give us the exact time of market inflection points and price. Time Structure is repetitions of time or inherent cycles of time, occurring in a methodical way to provide time windows which may be utilized for inflection points. They are not easily recognized and not easily defined by a price chart as measuring and observing time is very exact. Time structure is not a science, yet it does require precise measurements. Nothing is certain or definite. The critical question must be if a particular approach to time structure is currently lucrative or not. We will measure it in intervals of 180 bars. Our goal is to determine time windows, when the market will react and when we should pay the most attention. By using time repetitions, the fact that market inflection points occurred at some point in the past and should, therefore, reoccur at some point in the future, we should obtain confidence as to when SPY will reach a market inflection point. Time repetitions are essentially the market’s memory. However, simply measuring the time between two points then trying to extrapolate into the future does not work. Measuring time is not the same as defining time repetitions. We will evaluate past sessions for market inflection points, whether discretes, qualified swings, or intra-range. Then records the times that the market has made highs or lows in a comparable time period to the future one seeks to trade in. What follows is a time Histogram – A grouping of times which appear close together, then segregated based on that closeness. Time is aligned into combined histogram of repetitions and cycles, however cycles are irrelevant on a daily basis. If trading on an hourly basis, do not use hours.
Daily Lows Mode for those Months: 1, 1, 2, 4, 12, 17, 18, 24, 25, 28, 29, 30
Hourly Lows Mode for those Months (Military time): 0100, 0200, 0200, 0400, 0700, 0700, 0800, 1200, 1200, 1700, 2000, 2200
Minute Lows Mode for those Months: 00, 00, 00, 00, 00, 00, 09, 09, 59, 59, 59, 59
Day of the Week Lows (last twenty-six weeks):
Weighted Times are repetitions which appears multiple times within the same list, observed and accentuated once divided into relevant sections of the histogram. They are important in the presently defined trading time period and are similar to a mathematical mode with respect to a series. Phased times are essentially periodical patterns in histograms, though they do not guarantee inflection points Evaluating the yearly lows, we see that BTC tends to have its lows primarily at the beginning of every year, with a possibility of it being at the end of the year. Following the same methodology, we get the middle of the month as the likeliest day. However, evaluating the monthly lows for the past year, the beginning and end of the month are more likely for lows. Therefore, we have two primary dates from our histogram. 1/1/21, 1/15/21, and 1/29/21 2:00am, 8:00am, 12:00pm, or 10:00pm In fact, the high for this year was February the 14th, only thirty days off from our histogram calculations. The 8.6-Year Armstrong-Princeton Global Economic Confidence model states that 2.15 year intervals occur between corrections, relevant highs and lows. 2.15 years from the all-time peak discrete is February 9, 2020 – a reasonably accurate depiction of the low for this year (which was on 3/12/20). (Taking only the Armstrong model into account, the next high should be Saturday, April 23, 2022). Therefore, the Armstrong model indicates that we have actually bottomed out for the year! Bear markets cannot exist in perpetuity whereas bull markets can. Bear markets will eventually have price objectives of zero, whereas bull markets can increase to infinity. It can occur for individual market instruments, but not markets as a whole. Since bull markets are defined by low volatility, they also last longer. Once a bull market is indicated, the trader can remain in a long position until a new high is reached, then switch to shorts. The average bear market is eighteen months long, giving us a date of August 19th, 2021 for the end of this bear market – roughly speaking. They cannot be shorter than fifteen months for a central-bank controlled market, which does not apply to Bitcoin. (Otherwise, it would continue until Sunday, September 12, 2021.) However, we should expect Bitcoin to experience its’ exponential growth after the stock market re-enters a bull market. Terry Laundy’s T-Theory implemented by measuring the time of an indicator from peak to trough, then using that to define a future time window. It is similar to an head-and-shoulders pattern in that it is the process of forming the right side from a synthetic technical indicator. If the indicator is making continued lows, then time is recalculated for defining the right side of the T. The date of the market inflection point may be a price or indicator inflection date, so it is not always exactly useful. It is better to make us aware of possible market inflection points, clustered with other data. It gives us an RSI low of May, 9th 2020. The Bradley Cycle is coupled with volatility allows start dates for campaigns or put options as insurance in portfolios for stocks. However, it is also useful for predicting market moves instead of terminal dates for discretes. Using dates which correspond to discretes, we can see how those dates correspond with changes in VIX. Therefore, our timeline looks like:
2/14/20 – yearly high ($10372 USD)
3/12/20 – yearly low thus far ($3858 USD)
5/9/20 – T-Theory true yearly low (BTC between 4863 and 3569)
Perpetuals, Futures, and Options can present quite a steep learning curve, fear not though as we have an incredible collection of Google Sheets and Excel Spreadsheets to help both the basic as well as most advanced users! We can also strongly recommend reading our Educational and Market Research articles as many traders find them to be invaluable resources. One of our talented Community Managers, Cryptarbitrage, has created and maintains to the best of his ability a series of tools to both help Deribit users learn more about BTC & ETH Perpetuals, Futures, and Options as well support more advanced traders increasing technical needs. A short introduction by Cryptarbitrage: "Although I was aware of options beforehand I only started properly researching them in early 2018 after I discovered the Bitcoin options on Deribit. I do not need much encouragement to build a spreadsheet for something so quickly set about created an Excel sheet that would show me the profit and loss of any options position I entered. This was a great way to learn all the profit and loss formulas for each type of option as well as how different option combinations interacted with each other. As soon as this sheet was complete I was building positions I still didn’t even know the proper names for so was very much learning by doing. It was immediately obvious to me though that options were the type of instruments I wanted to trade. After a few months and once I’d done some more reading and was more confident I actually knew what I was talking about I began creating shareable versions in google sheets and sharing them with the Deribit community." Feel free to ask for some help or guidance in our English Telegram Community. Cryptarbitrage’s Twitter: https://twitter.com/cryptarbitrage Cryptarbitrage’s Telegram: u/Cryptarbitrage English Telegram Community: https://t.me/deribit Deribit's Position Builder Link: pb.deribit.com It is invaluable to be able to see the potential profit/loss, implied volatility of a single or multiple positions quickly, and adhoc. This allows you to check the results of either simulated positions, the live positions of your account, or a combination of these all across multiple instruments including Perpetuals, Futures, and Options at the same time. The Position Builder can be used to analyze the results of either existing or simulated results. As it uses market data from Deribit it provides a quick tool to check the results before adding positions into a portfolio. Development Credit to the core Deribit development team Scenario Risk Analysis “Maximum Pain” - Excel Spreadsheet Link: https://drive.google.com/file/d/1ANS1CgApJCDTX5ZjUwO_fegU7Z-QVSdt/view A resource to visualize the Open Interest at the present moment as well as the current price of maximum pain for option buyers.
Author: Gamals Ahmed, CoinEx Business Ambassador Financial risk management is one of the most controversial topics in trading. Traders want to reduce the risk and potential loss, but on the other hand, these traders also want at the same time to get the best profits. It is known that in order to obtain greater returns, you also need to take greater risks. Some may consider trading an entertaining and difficult pastime, but everyone should be aware that the most important aspect of trading is risk management.
What are the different risk management techniques used in trading?
Long-term trading Stock market traders use historical data to make long-term strategic business decisions. The long-term cryptocurrency strategy depends on current activity, and you will be more inclined towards hopeful information rather than reliable information and more suitable for cryptocurrencies. Short term trading Short-term traders benefit from the volatile cryptocurrency market by using swing trading when the price differs in short bursts of movement. Technical Analysis Technical analysis of cryptocurrencies requires research into project that affect the market based on price and volume data available through analytical technology. Fundamental analysis Traders often look to blogs and information sites and study the whitepaper for cryptocurrencies or cryptocurrency community forums. https://preview.redd.it/bcdhftsba0351.jpg?width=864&format=pjpg&auto=webp&s=4763c03a2d5ecaa082cfa78ed3693c0d7e1186e0
Why should you stick to risk management?
You can get a series of successful deals based on good luck. You can also get a series of bad deals that depend on luck and feel. It even happens to successful, experienced professional traders that they lose 10 trades in a row. Without risk management, this could result in your capital loss and final exit. The most important goal in trading is to stay in the market and preserve your capital. As long as you are in the market, you can recoup your losses. If you lose 10% of your capital, this means that you must make a profit of 11.1%. If your budget is $ 1,000 and you lose $ 100 ( ~ to 10%), you’ll have $ 900. $ 100 is 11.1% of that. This means that losses hurt more than profits of the same size. This becomes worse with more losses. If you lose 50% of your capital, you must double your money to offset the loss. The new trader’s rule for managing at most risk is 1% of the capital for each trade. If you lose 10 deals in a row (which is unlikely) and lose 1% each time, how much do you have left? Still 90%. If you risk 2%, what remains for you after losing 10 recurring deals is only 81% of the capital. You have to make 11% or 23% profit to make up for it. Even if you lose 100 deals in a row with a 1% risk management plan in hand, you still have 37%. A seasoned trader may use 2% occasionally. A trader who risks 10% disappears quickly. You might be wondering, if I decide to follow risk management with just 1% in the deal, does this mean that I can only invest 1% of the capital for each transaction? No. This is the ratio for determining the maximum acceptance of a loss from a single trade. Initial decisions I assume you know your total capital, no matter if it is $ 100 or $ 1 billion. The main point is to have a specific budget available. Do not use borrowed money, which you have to repay in a deadline. Do not use money you need in the future. If you are emotionally attached to this money, these emotions will make you feel stressed. You want to be a successful trader and not an emotional gambler. The next step is to find a deal. It does not matter if you do this daily and trade specific currencies or not. You have tools like fundamental and technical analysis to research deals. Immediately before entering into a trade, there is a basic calculation that must be performed: Determine the entry price, stop loss and the amount of risk. Well, the risk is easy. We already know that we will choose 1%. The entry price is also easy. It could be the current market price or the limit you set for your order. Now, stop loss: it is necessary to know and set the stop loss before entering a trade. Another rule is that you are not allowed to adjust your stop loss afterward to accept more losses. How to determine the stop loss? Technical analysis is the only method available regardless of the random selection of something. Perhaps you will use something like “beyond the next support level (or resistance)” or “the other side of the trend line we just broke”. Now we have the four components of risk management: budget size, entry price, stop-loss and risk-taking. The time to use the calculator. The size of the deal Now to find out how much money you are allowed to invest in this deal. Transaction Size = (Risk Size * Budget) / (Entry Price — Stop Loss) For example: If you have a budget $ 1,000 and want to buy bitcoin for $ 2,300 with a stop loss $ 2,200 and a risk 1%, then this means: The deal size is (1% * $ 1,000) / ($ 2,300 — $ 2,200) ) = $ 10 / $ 100 = 0.1. So in this example you are allowed to buy 0.1 Bitcoin units for this trade. You must make this account before every trade! Even if you do, you will encounter errors sometimes, but risk management will help you to preserve your capital. Courage will shout at you to take greater risks, because you are very sure of your prediction. But always remember, to succeed you must stick to your stop loss and strategy. Setting goals Before entering into a position, you must also have a target price in mind for sale. The risk must be doubled. If you risk 1% of your capital, the potential profit must be 2–3% of your capital. If the goal for profit is equal to stopping the loss, you must stay away from trading and ignore this deal. This does not mean that you will always reach or lose your goal. You are allowed to manually track stop loss or exit early. However, the goal should be possible given the volatility of the market you are in. Level of risk Well, I got away from the plan and ignored your strategy. The deal entered without due diligence. whatever. How much risk did you just take? You know your budget, entry price and deal size. You must quickly define the next stop loss. How much risk? Risk = (Trade Size * (Entry Point — Stop Loss)) / Budget For example, I bought 0.3 bitcoin at a price of $ 2,500 with a budget of $ 1,000. Stop loss is $ 2345. This means that the risk is (0.3 * 155 dollars) / 1000 dollars = 4.64%. Risk reduction Now for some good things that can’t be used practically, however, the concepts are sound. Why the reader may ask 1% risk? Is it just a rule? Is there an ideal ratio? In theory, yes there is. We can use the Kelly standard. The formula is simple: Risk = p-((1-p)/r Getting those variables P and R is difficult. You have to know your profit rate, which is the number of times your goals are reached. You also need a profit-to-loss ratio, which is the average profit per trade. For example, if you earn 47% of the time and 117% of your average capital, then the ideal risk is 1.7%. In practice you don’t really know this specifically or variables p and r, so I recommend sticking to 1% as the basis for risk management.
Risk Management Tips for Cryptocurrency Investment
1. You should never risk more than you can afford to lose. However, this error is very common, especially among Crypto traders who are just starting out. The Crypto market is very difficult to predict, so traders who want to invest more than they can actually put themselves at risk of market and losing their money. 2. Don’t trade by all of your capital at same time. Anything can affect the Crypto market. The smallest news can affect the price of a particular currency in a negative or positive way. Instead of trade with everything you own”, it is better to follow a more moderate path and trade reasonable amounts of your capital. 3. Improve your risk management performance Fortunately, there are several ways to help avoiding these mistakes and avoid loss. You must have a well-tested trading plan that includes all the details of managing financial risk in Crypto. The trading plan should be practical — and you should be able to follow its steps easily. Experts recommend that it is better to focus on high-probability deals. Crypto trading involves a high degree of risk, so it is essential that you be disciplined in all of your financial transactions. You should also be able to pay extra attention to your past mistakes, and practice trading activities in a demo account first. The time and effort you spend in creating a trading plan is often considered a major investment that helps you achieve a profit-able future. 4. Control your emotions and risk management As a Crypto trader, you need to be able to control your feelings and emotions towards your open, future, and closed positions as well! If you cannot control your feelings, you will not be able to reach a position where you can make the profits you want to trade. Market sentiment can often trap traders in volatile positions in the market. This is one of the most common market risk for Crypto trading. Those with stubborn nature tend not to do well in the Crypto market. These types of traders tend to wait too long to exit the trade. When a trader realizes his mistake, he must leave the market as soon as possible, to take the least possible loss. Waiting too long can cause you to lose a large portion of your capital. Once you exit the deal, you need to be patient and re-enter the market when it presents a real new opportunity. 5. Basic concepts in risk management To reduce the financial market risk for trading Cryptocurrency, you will need to remember some of the basic points mentioned below: The evaluation of money changes, and often affects companies and individuals participating in global stock exchanges. Liabilities, assets and fund flows are affected by changes in exchange rates. By trading small amounts of your capital and monitoring market movements, you will be able to see these concepts take hold throughout your daily trading sessions. 6. Important tips for developing a risk management plan model Below is a series of simple tips that you can consider and include in the financial risk management plan model when trading Crypto, which may help you reduce trading losses associated with market risks: 1. Stop losses Trading without a stop loss is like driving a car without braking at full speed — it won’t end well. Likewise, once your stop loss is set, you should never lower it. There is no point in having a safety net in place if you are not going to use it properly. The goal of stopping a loss is to limit the size of the potential loss in order to be able to in-crease your total profits, and what needs to be done on the other side is to set profit-taking orders as well! 2. Do not link all your investments in one place This applies to all types of investment, and Crypto is no exception. Crypto should be part of your portfolio, but not complete it. Another way that you can expand it is to invest or trade more than one crypto coin. 3. The general trend is your companion You may have made the decision to be a long-term trader, with plans to keep these deals for an extended period of time. However, regardless of the deal you ultimately decided to take, you should not resist current market trends or movements. There will always be strong players in the market, and the best way to keep up with them is to absorb such changes and follow the general trend, and change your strategies to reflect this. 4. Keep teaching yourself The best way to learn the financial risk management system in Crypto and become an efficient and successful Crypto trader is to know how the market works. However, as we mentioned earlier, the market is constantly changing, so if you want to stay ahead of your game, you have to be always ready to learn new things and update yourself about market changes. 5. Use the plug-in To advance in Crypto, you may want to use some trading software that can help you settle your choices. However, these systems are not ideal, so it is best to use them as a consulting tool, and something to refer to rather than use as a basis for making business decisions. 6. Limiting the use of leverage It can be very tempting to use leverage to make big profits. However, this can make it easy for you to lose a huge portion of your capital, too. So do not support the use of giant leverage. All it takes is one quick change in market direction, and you can easily delete your entire trading account. Crypto risk management is not difficult to understand and implement. But in order to invest in any financial instruments, whether it be bonds, exchange-traded funds, stocks, contracts for the difference in prices or cryptocurrencies, you need to acquire advanced knowledge in the field of risk management. The hard part is having enough self-discipline to adhere to the rules of this risk management plan as the market moves against your positions. The content is for opinion sharing only and should not be relied upon to make any investment decisions.
The Day Advances | Monthly FIRE Portfolio Update - January 2020
The day advanced as if to light some work of mine Thoreau, Walden This is my thirty-eighth portfolio update. I complete this update monthly to check my progress against my goal. Portfolio goal My objective is to reach a portfolio of $2 180 000 by 1 July 2021. This would produce a real annual income of about $87 000 (in 2020 dollars). This portfolio objective is based on an expected average real return of 3.99 per cent, or a nominal return of 6.49 per cent. Portfolio summary Vanguard Lifestrategy High Growth Fund – $813 282 Vanguard Lifestrategy Growth Fund – $45 802 Vanguard Lifestrategy Balanced Fund – $83 162 Vanguard Diversified Bonds Fund – $110 472 Vanguard Australian Shares ETF (VAS) – $178 121 Vanguard International Shares ETF (VGS) – $34 965 Betashares Australia 200 ETF (A200) – $272 399 Telstra shares (TLS) – $2 046 Insurance Australia Group shares (IAG) – $8 970 NIB Holdings shares (NHF) – $6 492 Gold ETF (GOLD.ASX) – $106 701 Secured physical gold – $17 252 Ratesetter (P2P lending) – $14 755 Bitcoin – $153 530 Raiz app (Aggressive portfolio) – $18 365 Spaceship Voyager app (Index portfolio) – $2 534 BrickX (P2P rental real estate) – $4 477 Total portfolio value: $1 873 325 (+$94 067) Asset allocation Australian shares – 42.8% (2.2% under) Global shares – 22.6% Emerging markets shares – 2.4% International small companies – 3.1% Total international shares – 28.1% (1.9% under) Total shares – 70.9% (4.1% under) Total property securities – 0.2% (0.2% over) Australian bonds – 4.5% International bonds – 9.5% Total bonds – 14.0% (1.0% under) Gold – 6.6% Bitcoin – 8.2% Gold and alternatives – 14.8% (4.8% over) Presented visually, below is a high-level view of the current asset allocation of the portfolio. Comments This month saw exceptional growth in the portfolio, with a net increase of $94 000 after a small fall last month. [Chart] This is the fastest growth in the past half year. It is also the second largest absolute increase in over three years of measurement. [Chart] As the histogram below - which counts the frequency of occurrences in a specified range of monthly value changes (with red denoting losses) - makes clear, this is one of the most positive outcomes in the three year record. [Chart] The sources of portfolio growth were generally buoyant global and Australian share markets. Just under half of the growth was also due to an increase in the price of both gold securities and Bitcoin. In addition, even bond holdings increased in value over the period. Distribution payments from the Vanguard retail funds, as well as the exchange-traded funds VAS, VGS and A200 were made through this month. These totalled around $14 000 and have begun to be gradually fed back into the portfolio. This is a process which will occur through to June - with new investments twice per month. So far this has led to additional purchases in Vanguard's Australian shares exchange-traded fund (VAS) to maintain the target allocation of Australian equities making up 60 per cent of all equity holdings. The bond allocation of the portfolio continues to be notionally under its target, but has not yet reached a position where further balancing investments are warranted. Fully excluding the value of Bitcoin, for example, it still sits on its target allocation of 15 per cent of the portfolio. If the same calculation is done for equities, they sit just above their target, at 77 per cent, and have drifted higher since early last year. Over the past months my position has been to take no portfolio balancing actions based purely on the volatile value of Bitcoin over time, and this remains my approach. There is no perfect answer to this issue - assigning no value to Bitcoin and ignoring it for asset allocation purposes is inconsistent with its role in the portfolio. Pushing either equity or bond allocations sharply out of target boundaries merely due to short-term Bitcoin movements is also not warranted. Taking a backcast 'moving average' approach might be one statistical solution, but I am not yet convinced it would do more than moderate the appearance of the issue. While expenditure has been higher over the holiday period, on average the gap between the rolling three-year average of distributions and credit card expenditure continues to close, and sits at just over a $300 per month gap at present. Flags of convenience - estimating hedging in the portfolio This month, out of a curiosity carried over from my recent review of my bond holdings, I have found the time to review of the overall currency hedging position of the portfolio. There are some excellent online research papers (pdf) and blog pieces, such as this one from Passive Investing Australia, for those interested in learning more about some of the associated issues. Currency risks have never previously been an object of much detailed thought on the journey. Rather, I had tracked a basic measure of broader exposure to foreign assets (including foreign equities, property securities, gold and more recently Bitcoin). The additional issue of whether my exposure to these assets was unhedged (meaning exposure to gains and losses from the relative movement in the Australian dollar and the foreign currencies) or hedged was not really front of mind. I suppose I had a dim awareness that some elements of the Vanguard retail funds that have until recently dominated the portfolio were hedged (for example, around 30 per cent of the Vanguard High Growth Diversified funds equity position is currency hedged), and judged that there was likely a well-considered rationale behind the amount of this hedging. The first step to understanding where any exposures exist is to understand and measure the current state of affairs. As of today, this is broadly as set out below:
Around 35 per cent of all portfolio assets are effectively unhedged - This includes Bitcoin, unhedged gold holdings, and unhedged international equities and bonds. All other things being equal, if the Australian dollar falls, the value of this part of the portfolio rises in relative terms.
The remaining 65 per cent of assets are either hedged or Australian-held assets - This includes Australian equities, Australian bonds, as well as international equities and bonds hedged back to the Australian dollar.
International equities are partially hedged - The portfolio has around $525 000 in international equities currently. Of this, around $140 000 is hedged back into Australian dollars - a hedging position of 27 per cent.
International bonds are nearly fully hedged - consistent with their portfolio role and discussed here.
The decision to invest in Vanguard's International Shares ETF (VGS), which is unhedged, is a significant event in this regard. The chart below shows the overall level of currency hedging in the international equity portfolio. Investments in VGS commenced from July 2019, and have started to affect the level of hedging. [Chart] As future contributions flow into VGS - absent any other action - a historically quite stable level of hedging will continue to fall. So far this is just a trend I am monitoring, until I have completed more research and thinking on the best approach in this area. There are many complicated, and some unknowable, issues to consider and balance in hedging decisions, such as the likely denomination of future costs, and the historical and future relationships between domestic currencies and equity markets. None avail themselves of short or easy answers. Until I have thought my way through them more fully, I remain hesitant to make any definitive decisions. Progress Progress against the objective, and the additional measures I have reached is set out below. Measure Portfolio All Assets Portfolio Objective – $2 180 000 (or $87 000 pa) 85.2% 115.9% Credit card purchases – $71 000 pa 103.9% 141.4% Total expenses – $89 000 pa 83.3% 113.3% Summary This month has seen rapid progress, propelling the portfolio closer to both old and new goals. The portfolio gains this month have already closed nearly half of the additional distance created by increasing my portfolio target at the beginning of the year. The psychological forward push from distributions performance across 2019 (including, pleasingly, seeing it recognised here) has added to this sense of momentum. Additionally, this month I have also crossed the threshold to the target portfolio size needed to achieve 'credit card FI', a long-standing measure I have tracked. The long summer break that has just ended in some ways seemed like a foretaste of what some versions of financial independence could feel like. With the minimum of planning there was time to read, rest, exercise and write largely as I pleased. Returning to work following this has been infused with an unusual sense of being a temporary visitor in a new workplace. There is a greater philosophical detachment, in observing its rituals and rhythms, and less of a desire to seek to shape or resist its minutiae. Rather, what I have focused on is seeking to more deliberately make use of the freedoms it does not constrain, and pursue the best and most interesting use of the time that is outside of work hours. Through these recent strong Australian and US equity markets, this article has been a useful reminder of the 'survivorship' risks of focusing a FI target too narrowly on past performance. This excellent recent piece from Aussie HIFIRE has also, from another direction, usefully focused on separating out the decisions that do, and do not, materially matter in planning and executing on a passive indexing strategy over the long-term. For a challenging and entirely heterodox view on the potential long-term movement of equity markets upwards from here, this article has been thought-provoking. Finally, this month I have been discovering the Jolly Swagman podcast, which has long and fascinating interviews with the ex-head of the Reserve Bank of Australia, and Nobel Prize winning US economist Robert Shiller speaking on bubbles and narrative economics. During the long restful hours of summer break, the day has advanced. Though clouds may come in time, as the year starts - at least - the way forward looks bright. The post, links and full charts can be seen here.
Greetings from MCS (MyCoinStory), the derivatives trading platform where traders ALWAYS come first. Who would have guessed that a phrase from the 19th century is the best description of the world in the 21st century? Herbert Spencer “The Survival of the Fittest”, the phrase first used by Herbert Spencer in his Principles of Biology in 1864, may be the best depiction to describe the current situation of the Bitcoin miners. Whether you are interested in Bitcoin or not, you must have heard from the media about the recent “Bitcoin Halving” that took place on the 12th of May when the 630,000th block was mined. Just in case you are really new to the world of cryptocurrency, let us briefly take a look at the “Bitcoin Halving”.
WHAT IS THE “BITCOIN HALVING”?
Source: Shutterstock.com Bitcoin, the world’s most popular cryptocurrency, has been and still is the most trendy keyword recently. In the last month, Google Trend showed a chart with the skyrocketed graph for searching the keyword “Bitcoin Halving” from Google. The halving was first designed to effectively maintain the value of Bitcoin by mechanically dropping the supply, which is in contrast to the 'quantitative easing' used by many central banks to increase liquidity through the purchase of government bonds. The first and the second halving worked beautifully and brought the price from $15 in 2012 to approximately $20,000 in 2017. Nevertheless, people are expecting a different outcome for the upcoming halving by studying recent patterns of other cryptocurrencies’ halvings.
NOW THAT WE ALL KNOW WHAT THE “BITCOIN HALVING” IS, WHY “THE SURVIVAL OF THE FITTEST”?
Source: Shutterstock.com Shortly after the third halving, according to the date shown on Blockchain.com, the hash rate (the Bitcoin mining power in simple terms) has dropped significantly. Source: Blockchain.com This rapid drop indicates that the ‘inefficient’ miners who cannot sustain their businesses under the new return of 6.25 BTC were forced to shut down their mining machines. Those with legacy machines like Antminer S9 are already losing money. According to a calculator provided by Poolin, operating S9s at $13,760 is still making a loss. This proves that the halving had a ‘real impact’ on the Bitcoin mining industry. Nevertheless, the ‘fittest’ will prevail. The miners with higher efficiency will survive and continue their works to mine more Bitcoin blocks since the price of Bitcoin is expected to rise and even if the return of BTC is halved, its converted value may become higher. Historically, after the occurrence of each capitulation, there had been price surges afterward. We do not know how long it will take until the peak though.
SO, ALL WE HAVE TO DO IS WAIT FOR THE PRICE TO GO UP?
Source: Photo by Austin Distel on Unsplash The answer is “No”. As mentioned before, no one can tell the time till the next peak. The increase in the price of Bitcoin could lead to another bull cryptocurrency market, but those miners who could not generate profits will sell their Bitcoins in the market causing price fluctuations along the way, and experts are anticipating some big fluctuations. This is the time where people had to act wisely and diversify your investment strategies. For traditional spot traders, there is no way to profit when the price goes down. However, cryptocurrency derivatives exchanges such as MCS (MyCoinStory.com) shine in this volatile market since one can hedge by short selling to profit in any market condition. Only those who can adapt to the changing environment can survive. That is the essence of “the Survival of the Fittest”. Let’s all survive through the price volatility and make some profit along the way. Traders ALWAYS come first on MCS Thank you. MCS Website:https://mycoinstory.com/MCS Official Twitter:https://twitter.com/mycoinstory_mcsMCS Official Facebook:https://www.facebook.com/MyCoinStory.officialMCS Telegram Chat:https://t.me/mycoinstory_ENMCS Official Blog :https://blog.mycoinstory.com
Set and Drift | Analysis - Estimating Future Income from the FIRE Portfolio
Cultivate an asset which the passing of time itself improves. – Seneca, Letters XV Overview The focus of the voyage to financial independence so far has been designing the portfolio, and measuring the distance still to travel. There is more basic question to be asked as the journey progresses - will the portfolio produce the income targets set for it, or will something need to change? Currently, the income estimates from the portfolio targets - $67 000 from a short-term target of around $1.6 million and $83 000 from a target of around $2.0 million in several years - are set on an assumption of a total portfolio return of 4.19 per cent. That does not mean, however, that the portfolio will simply automatically produce an income of that level. Just pointing the ship in the direction of travel is not enough. This is because the total return assumes both capital growth and distributions or interest. This analysis examines what income the portfolio is likely to produce when the targets are achieved, and assesses whether or not selling down or changing the portfolio in other ways to meet the income goals may be necessary. To answer this question, history and three different methods of estimating the potential income produced by the portfolio are reviewed. Approach #1 - Navigation by landmarks The first approach is to simply use what is already known to establish one’s position. Previous analyses have discussed the overall trends in portfolio distributions, and reached some approximate estimates of the likely underlying level of distributions. These estimates differ according to the precise method chosen, and time period considered. So far, these analyses have established that the portfolio appears to be generating between:
$5 000 per month or $60 000 per year, if an approach where the moving average of the past three years of distributions is used; or
$3 800 per month or $45 000 per year, if a conservative approach of an average of the past four years of distributions is applied.
This is healthy progress, however, both of these figures are short of the Objective #1 income requirement of $67 000 per year (or $5600 per month), and even further from the projection of $83 000 (or $6 900 per month) under Objective #2. Will the future look like the past? These historical figures are useful because they are real data based on holdings in the actual portfolio. Their disadvantages are that they are backward-looking. This has two possible impacts. First, the growth of more than 50 per cent in the total portfolio size over even the past three years means that the level of historical distributions will underestimate the income generation potential from the now larger portfolio. In short, this is like trying to estimate interest from a bank account by looking at your balance three years ago. Second, the distributions of three or four years ago will reflect past asset allocations, and investment products. As an example of this, two years ago the portfolio contained over $55 000 invested in Ratesetter’s peer to peer lending platform. This was earning an average income return of 9.1 per cent. Today, Ratesetter is less than half of this size, due to a slow asset reallocation process and withdrawals as loans mature. This suggests a purely backward view of the actual achieved distributions may be incomplete and misleading. Taking an average distribution rate approach The other potential way of estimating the income return of the portfolio is to use the average distribution rate of the portfolio in the past. The rate is calculated as total distributions over a defined period divided by the average portfolio level over the same period. This eliminates any errors from the first impact discussed above of growing portfolio growth size, as it is a rate rather than a level measure. It does not eliminate the second impact. For example, higher interest rates meant that cash holdings in 2013-14 could make up over third of total distributions, a position not likely to reoccur in the short or even medium term. Yet it still may be an approximate guide because while overall portfolio asset allocation has shifted in the past two and half years, it has remained within some broad bounds. As an example, total equity holdings were at 70% of the portfolio both 5 and 10 years ago. Additionally, using a median long-term average of 4.4 per cent will tend to reduce the impact of one-off changes and outlier data points. [Chart] As established in Wind in the Sails the average distribution rate over the past two decades has been around 4.4 per cent. This implies that the portfolio would produce: -$5 900 per month or $70 300 per annum income when the portfolio is at Objective #1 (e.g. this suggests that the target income at Objective #1 would be met, with around $3 000 to ‘spare’). - $7 300 per month or $87 100 per annum income when the portfolio is at Objective #2 (e.g. as above it suggests meeting Objective #2 would produce around $4 000 more income than actually targeted). An interesting implication of this is that the portfolio has been producing distributions (at 4.4 per cent) at a rate that is higher than the overall rate of assumed long-term total return (around 4.2 per cent). This is consistent with the fact that the Vanguard funds, and to some extent shares and other ETFs have been realising and distributing capital growth, not just income. This means that if I truly believe my long-term total return forecast is more accurate than the distributions estimate, I would need to re-invest the difference, to ensure I was not drawing down the portfolio at a higher rate than intended. Approach #2 - Navigation by 'dead reckoning' A different approach to reaching an income estimate from the portfolio is to forget about the actual history of the portfolio, and look to what the record shows about the average distribution rate from the asset classes themselves. That is, to construct an hypothetical estimate of what the portfolio should produce, based on external historical data on average income from the individual portfolio components of Australian shares, international shares, and fixed interest. To do this, estimates of the long term income generated by each of the asset classes in the portfolio are needed. For this ‘dead reckoning approach’ I have used the following estimates. Table 1 - Asset class and portfolio income assumptions Asset class Allocation Estimated income Source Australian shares 45% 4.0% RBA, 1995-2019, May Chart Pack International shares 30% 2.0% RBA, 1995-2019, May Chart Pack Bonds 15% 1.0% Dimson, Marsh and Staunton Triumph of the Optimists 101 Years of Global Investment Returns, Table 6.1 Gold/Bitcoin 10% 0% N/A Total portfolio 100% 2.55% This analysis suggests that at the target allocation for the portfolio, based on long-term historical data, it should produce a income return of around 2.6%. This equates to:
$3 400 per month or $40 700 per year when the portfolio is at Objective #1
$4 200 per month or $50 500 per year when the portfolio is at Objective #2
These figures are also well short of the income needs set, and so imply a need to sell down assets significantly to capture some of the portfolio's capital growth. Abstractions and obstructions Of course these figures are highly averaged and make some simplifications. Year to year management will not benefit from such stylised and smooth average returns. Income will be subject to large variations in distribution levels and capital growth will vary across asset classes and individual holdings. Another simplification is that is analysis does not include the value of franking credits. If it is assumed that Australian equities continued to pay out their historical level of dividends, and the franking credit rate remains at the historical average of around 70 per cent then Australian shares dividends should yield closer to 5.2 per cent, lifting the total income return of the portfolio to around 3.1 per cent. In turn, this would marginally reduce the capital sell-down required. Adjusting for this impact means the portfolio income would be $4100 per month at Objective #1, and $5100 per month Objective #2 Yet these assumptions can be challenged. It is possible that the overall dividend yield of the Australian market will fall and converge with other markets. This would be particularly likely to happen if further changes to dividend imputations or the treatment franking credits to occur. It could also occur due to a maturing and deepening of Australian equity markets and domestic investment opportunities available to Australian firms. Shorter term, uncertainty around the future ability of shareholders to fully benefit from franking credits could encourage a payout of credits currently held by Australian firms. Approach #3 - Cross-checking the coordinates Due to these simplifications and assumptions, it is appropriate to cross-check the results of one method with other available data. An alternative to either a purely historical approach using distributions received, or the stylised hypothetical above discussed in Approach #2, is relying on tax data. Specifically, taxable investment income can be estimated as the sum of the return items for partnerships and trusts, foreign source income and franking credits (i.e. items 13, 20 and 24) in a tax return.This has been previously discussed here. Using this data is - of course - not independent of my own records of distributions. It's benefit is that it strictly relies on verified data provided in tax calculations. This will include income distributions and realised capital gains from within Vanguard funds, for example, but will not pick up unrealised capital gains. As with Approach #1, as the portfolio has changed in size and composition the absolute historical levels of taxable will not necessarily produce the best estimate of the expected level of distributions looking forward. For example, because it is drawing on a period in which the portfolio was smaller, a five year average of investment income would suggest future annual investment income of $32 300 or $2 700 per month. So instead an 'average rate' approach can be used to overcome this. Over of the past five years, the portfolio has produced an annual taxable investment income of around 3.5 per cent of the value of portfolio. This in turn implies an average taxable investment income of:
$4700 per month or $56 000 per year when the portfolio is at Objective #1; and
$5800 per month or $69 000 per year when the portfolio is at Objective #2
Once again, these estimates imply the existence of a significant income gap remaining at reaching both portfolio objectives. Summary of results So far historical data from the portfolio and three different approaches have been set out to seek to answer the question: how much income is the portfolio likely to produce? Comparing estimates and income requirements These individual estimates (blue) and the average of all estimates (green) are summarised in the charts below, and compared to the monthly income requirements (red) of both of the portfolio objectives. The chart below sets out the estimates for Objective #1. [Chart] The following chart sets out the same data and projections for the portfolio when it reaches Objective #2 (a portfolio total of $1 980 000). [Chart] The analysis shows that:
Portfolio income is likely to be below target at reaching Objective #1 - Using the approaches and history as a guide the portfolio should on average produce an income of around $57 000 per annum at Objective #1
And also below target at Objective #2 - When Objective #2 is reached portfolio income should on average be around $71 000
Therefore an income gap does exist to solve - Under most estimation approaches there will be a significant income shortfall at reaching both Objective #1 and #2
The gap is significant, but not disastrous - Assuming an equal weighting to the three approaches and actual historical distributions over the past three years the size of the income gap will be around $900 per month at Objective #1 (or $10 200 per annum) and greater, around $1000 per month at Objective #2 (or $12 000 per annum)
Only one estimation approach doesn't identify a gap - Only if the 'average distribution rate' approach under Approach #1 is accurate will there be no income shortfall.
This implies that at the $1.6 million target of Objective #1, a small portion of any portfolio gains (around 0.6% of the value of the total portfolio) would need to be sold each year to meet this income gap. An identical result applies at the Objective #2, around 0.6% of value of the total portfolio would need to be sold annually. Another intriguing implication of the reaching the average estimates is that it allows for an approximation of the required portfolio level to rely entirely on portfolio income, and avoid any sale of assets. At both portfolio Objectives the average of all estimation approaches indicate portfolio income of around 3.5 per cent. Reversing this figure for the target portfolio income (e.g. for $67 000 at Objective #1 is 0.035/67000) implies a portfolio need of $1.91 million. For the higher target income for Objective #2, the implied portfolio required to not draw down capital is close to $2.4 million. This would require many additional years of future paid work to achieve. Trailing clouds of vagueness There are many caveats, inexactitudes and simplifications that should loom large in interpreting these results. The level of future returns as well as their income and capital components are unknowable and volatile. In particular, the volatility of returns introduces key sequence of return risks that are simplified away by the reliance on deceptively stable historical estimates or averages. Particularly sharp movement in asset prices could change the asset allocation. Legislative or market changes could change the balance of income and capital appreciation targeted by Australian firms. For these reasons, the analysis does not make me consider any particular remedial action. It indicates that under a range of assumptions and average outcomes, there will need to be a sale of some investments to meet the portfolio incomes targeted. The same analysis shows that the superficially attractive choice to live only off portfolio income would in reality mean aiming for a target around 20 per cent higher - needing an extra $300 000 to $400 000 - potentially adding many years to the journey. The relatively small scale of the required sales is the most surprising outcome of this analysis. Selling around 0.6 per cent of the portfolio annually does not on its face appear to be a high drawdown in most market conditions. Another potential issue to consider is what this result means for asset allocation. There is no doubt that history would suggest that the income gap could be reduced by either reducing the bond allocation, or lower yielding international shares. To give a sense of the magnitudes of this - using the 'dead reckoning' Approach #2 set out above - allocating 100 per cent of the equity portfolio to Australian shares would produce around $900 per month (or $10 300 per year) additional distributions at the Objective #1 portfolio of $1.6 million. In theory, this domestic shares only option would all but close the income gap. Yet the benefits of diversification and risk reduction bonds and international shares offer make this a trade-off to consider, not a clear choice. At present, my plan would be to revisit this issue at my annual review of the portfolio asset allocation. In the meantime, having produced these estimates has helped starting to think in more concrete terms about the draw down phase, its challenges and mechanics. In a small way, this seems to clear some of the clouds away, and enable me to glimpse some possible futures more clearly. The post and graphs can be viewed here. Note: The historical average estimate for this purpose has been proportionally adjusted to increase based on the increased size of the portfolio between now and reaching Objective #2
STATUS: Majority of questions have been answered. If yours got missed, please feel free to post it again. Introduction All, Based on the rapid increase in popularity and price of bitcoin and other crypto currencies (particularly over the past year), I expect that lots of people have questions about how crypto currency will impact their taxes. This thread attempts to address several common issues. I'm posting similar versions of it here, in several major crypto subs, and eventually in the weekly "tax help" threads personalfinance runs. I'd like to thank the /personalfinance mod team and the /tax community for their help with this thread and especially for reading earlier versions and offering several valuable suggestions/corrections. This thread is NOT an endorsement of crypto currency as an investing strategy. There is a time and a place to debate the appropriateness of crypto as part of a diversified portfolio - but that time is not now and that place is not here. If you are interested in the general consensus of this sub on investing, I would urge you to consult the wiki while keeping in mind the general flowchart outlining basic steps to get your finances in order. Finally, please note that this thread attempts to provide information about your tax obligations as defined by United States law (and interpreted by the IRS under the direction of the Treasury Department). I understand that a certain portion of the crypto community tends to view crypto as "tax free" due to the (actual and perceived) difficulty for the IRS to "know" about the transactions involved. I will not discuss unlawfully concealing crypto gains here nor will I suggest illegal tax avoidance activities. The Basics This section is best for people that don't understand much about taxes. It covers some very basic tax principles. It also assumes that all you did during the year was buy/sell a single crypto currency. Fundamentally, the IRS treats crypto not as money, but as an asset (investment). While there are a few specific "twists" when it comes to crypto, when in doubt replace the word "crypto" with the word "stock" and you will get a pretty good idea how you should report and pay tax on crypto. The first thing you should know is that the majority of this discussion applies to the taxes you are currently working on (2017 taxes). The tax bill that just passed applies to 2018 taxes (with a few very tiny exceptions), which most people will file in early 2019. In general, you don't have to report or pay taxes on crypto currency holdings until you "cash out" all or part of your holdings. For now, I'm going to assume that you cash out by selling them for USD; however, other forms of cashing out will be covered later. When you sell crypto, you report the difference between your basis (purchase price) and proceeds (sale price) on Schedule D. Your purchase price is commonly referred to as your basis; while the two terms don't mean exactly the same thing, they are pretty close to one another (in particular, there are three two ways to calculate your basis - your average cost, a first-in, first-out method, and a "specific identification" method. See more about these here and here). EDIT - you may not use average cost method with crypto - see here. If you sell at a gain, this gain increases your tax liability; if you sell at a loss, this loss decreases your tax liability (in most cases). If you sell multiple times during the year, you report each transaction separately (bad news if you trade often) but get to lump all your gains/losses together when determining how the trades impact your income. One important thing to remember is that there are two different types of gains/losses from investments - short term gains (if you held an asset for one year or less) and long term gains (over one year; i.e. one year and one day). Short term gains are taxed at your marginal income rate (basically, just like if you had earned that money at a job) while long term gains are taxed at lower rates. For most people, long term capital gains are taxed at 15%. However, if you are in the 10% or 15% tax bracket, congrats - your gains (up to the maximum amount of "unused space" in your bracket) are tax free! If you are in the 25%, 28%, 33%, or 35% bracket, long term gains are taxed at 15%. If you are in the 39.6% bracket, long term gains are taxed at 20%. Additionally, there is an "extra" 3.8% tax that applies to gains for those above $200,000/$250,000 (single/married). The exact computation of this tax is a little complicated, but if you are close to the $200,000 level, just know that it exists. Finally, you should know that I'm assuming that you should treat your crypto gains/losses as investment gains/losses. I'm sure some people will try and argue that they are really "day traders" of crypto and trade as a full time job. While this is possible, the vast majority of people don't qualify for this status and you should really think several times before deciding you want to try that approach on the IRS. "Cashing Out" - Trading Crypto for Goods/Services I realize that not everyone that "cashes out" of crypto does so by selling it for USD. In fact, I understand that some in the crypto community view the necessity of cashing out itself as a type of myth. In this section, I discuss what happens if you trade your crypto for basically anything that isn't cash (minor sidenote - see next section for a special discussion on trading crypto for crypto; i.e. buying altcoins with crypto). The IRS views trading crypto for something of value as a type of bartering that must be included in income. From the IRS's perspective, it doesn't matter if you sold crypto for cash and bought a car with that cash or if you just traded crypto directly for the car - in both cases, the IRS views you as having sold your crypto. This approach isn't unique to crypto - it works the same way if you trade stock for something. This means that if you do trade your crypto for "stuff", you have to report every exchange as a sale of your crypto and calculate the gain/loss on that sale, just as if you had sold the crypto for cash. Finally, there is one important exception to this rule. If you give your crypto away to charity (one recognized by the IRS; like a 501(c)(3) organization), the IRS doesn't make you report/pay any capital gains on the transaction. Additionally, you still get to deduct the value of your donation on the date it was made. Now, from a "selfish" point of view, you will always end up with more money if you sell the crypto, pay the tax, and keep the rest. But, if you are going to make a donation anyway, especially a large one, giving crypto where you have a big unrealized/untaxed gain is a very efficient way of doing so. "Alt Coins" - Buying Crypto with Crypto The previous section discusses what happens when you trade crypto for stuff. However, one thing that surprises many people is that trading crypto for crypto is also a taxable event, just like trading crypto for a car. Whether you agree with this position or not, it makes a lot of sense once you realize that the IRS doesn't view crypto as money, but instead as an asset. So to the IRS, trading bitcoin for ripple isn't like trading dollars for euros, but it is instead like trading shares of Apple stock for shares of Tesla stock. Practically, what this means is that if you trade one crypto for another crypto (say BTC for XRP just to illustrate the point), the IRS views you as doing the following:
Selling for cash the amount of BTC you actually traded for XRP.
Owing capital gains/losses on the BTC based on its selling price (the fair market value at the moment of the exchange) and your purchase price (basis).
Buying a new investment (XRP) with a cost basis equal to the amount the BTC was worth when you exchanged them.
This means that if you "time" your trade wrong and the value of XRP goes down after you make the exchange, you still owe tax on your BTC gain even though you subsequently lost money. The one good piece of news in this is that when/if you sell your XRP (or change it back to BTC), you will get a capital loss for the value that XRP dropped. There is one final point worth discussing in this section - the so called "like kind exchange" rules (aka section 1031 exchange). At a high level, these rules say that you can "swap" property with someone else without having to pay taxes on the exchange as long as you get property in return that is "like kind". Typically, these rules are used in real estate transactions. However, they can also apply to other types of transactions as well. While the idea is simple (and makes it sound like crypto for crypto should qualify), the exact rules/details of this exception are very fact specific. Most experts (including myself, but certainly not calling myself an expert) believe that a crypto for crypto swap is not a like kind exchange. The recently passed tax bill also explicitly clarifies this issue - starting in 2018, only real estate qualifies for like kind exchange treatment. So, basically, the vast majority of evidence suggests that you can't use this "loophole" for 2017; however, there is a small minority view/some small amount of belief that this treatment would work for 2017 taxes and it is worth noting that I'm unaware of any court cases directly testing this approach. Dealing with "Forks" Perhaps another unpleasant surprise for crypto holders is that "forks" to create a new crypto also very likely generate a taxable event. The IRS has long (since at least the 1960s) held that "found" money is a taxable event. This approach has been litigated in court and courts have consistently upheld this position; it even has its own cool nerdy tax name - the "treasure trove" doctrine. Practically, what this means is that if you owned BTC and it "forked" to create BCH, then the fair market value of the BCH you received is considered a "treasure trove" that must be reported as income (ordinary income - no capital gain rates). This is true whether or not you sold your BCH; if you got BCH from a fork, that is a taxable event (note - I'll continue using BTC forking to BCH in this section as an example, but the logic applies to all forks). While everything I've discussed up to this point is pretty clearly established tax law, forks are really where things get messy with taxes. Thus, the remainder of this section contains more speculation than elsewhere in this post - the truth is that while the idea is simple (fork = free money = taxable), the details are messy and other kinds of tax treatment might apply to forks. One basic practical problem with forks is that the new currency doesn't necessarily start trading immediately. Thus, you may have received BCH before there was a clear price or market for it. Basically, you owe tax on the value of BCH when you received it, but it isn't completely clear what that value was. There are several ways you can handle this; I'll list them in order from most accurate to least accurate (but note that this is just my personal view and there is ongoing disagreement on this issue with little/no authoritative guidance).
Use a futures market to determine the value of the BCH - if reliable sources published realistic estimates of what BCH will trade for in the future once trading begins, use this estimate as the value of your BCH. Pros/cons - futures markets are, in theory, pretty accurate. However, if they are volatile/subject to manipulation, they may provide an incorrect estimate of the true value of BCH. It would suck to use the first futures value published only to have that value plummet shortly thereafter, leaving you to pay ordinary income tax but only have an unrealized capital loss.
Wait until an exchange starts trading BCH; use the actual ("spot" price) as the value. Pros/cons - spot prices certainly reflect what you could have sold BCH for; however, it is possible that the true value of the coin was highelower when you received it as compared to when it started trading on the exchange. Thus this method seems less accurate to me than a futures based approach, but it is still certainly fairly reasonable.
Assume that the value is $0. This is my least preferred option, but there is still a case to be made for it. If you receive something that you didn't want, can't access, can't sell, and might fail, does it have any value? I believe the answer is yes (maybe not value it perfectly, but value it somewhat accurately), but if you honestly think the answer is no, then the correct tax answer would be to report $0 in income from the fork. The IRS would be most likely to disagree with this approach, especially since it results in the least amount of income reported for the current year (and the most favorable rates going forward). Accordingly, if you go this route, make extra sure you understand what it entails.
Note, once you've decided what to report as taxable income, this amount also becomes your cost basis in the new crypto (BCH). Thus, when you ultimately sell your BCH (or trade it for something else as described above), you calculate your gain/loss based on what you included in taxable income from the fork. Finally, there is one more approach to dealing with forks worth mentioning. A fork "feels" a lot like a dividend - because you held BTC, you get BCH. In a stock world, if I get a cash dividend because I own the stock, that money is not treated as a "treasure trove" and subject to ordinary income rates - in most cases, it is a qualified dividend and subject to capital gain rates; in some cases, some types of stock dividends are completely non taxable. This article discusses this idea in slightly more detail and generally concludes that forks should not be treated as a dividend. Still, I would note that I'm unaware of any court cases directly testing this theory. Ultimately, this post is supposed to be practical, so let me make sure to leave you with two key thoughts about the taxation of forks. First, I believe that the majority of evidence suggests that forks should be treated as a "treasure trove" and reported as ordinary income based on their value at creation and that this is certainly the "safest" option. Second, out of everything discussed in this post, I also believe that the correct taxation of forks is the murkiest and most "up for debate" area. If you are interested in a more detailed discussion of forks, see this thread for a previous version of this post discussing it at even more length and the comments for a discussion of this with the tax community. Mining Crypto Successfully mining crypto coins is a taxable event. Depending on the amount of effort you put into mining, it is either considered a hobby or a self-employment (business) activity. The IRS provides the following list of questions to help decide the correct classification:
The manner in which the taxpayer carries on the activity.
The expertise of the taxpayer or his advisors.
The time and effort expended by the taxpayer in carrying on the activity.
Expectation that assets used in activity may appreciate in value.
The success of the taxpayer in carrying on other similar or dissimilar activities.
The taxpayer’s history of income or losses with respect to the activity.
The amount of occasional profits, if any, which are earned.
If this still sounds complicated, that's because the distinction is subject to some amount of interpretation. As a rule of thumb, randomly mining crypto on an old computer is probably a hobby; mining full time on a custom rig is probably a business. In either event, you must include in income the fair market value of any coins you successfully mine. These are ordinary income and your basis in these coins is their fair market value on the date they were mined. If your mining is a hobby, they go on line 21 (other income) and any expenses directly associated with mining go on schedule A (miscellaneous subject to 2% of AGI limitation). If your mining is a business, income and expenses go on schedule C. Both approaches have pros and cons - hobby income isn't subject to the 15.3% self-employment tax, only normal income tax, but you get fewer deductions against your income and the deductions you get are less valuable. Business income has more deductions available, but you have to pay payroll (self-employment) tax of about 15.3% in addition to normal income tax. What if I didn't keep good records? Do I really have to report every transaction? One nice thing about the IRS treating crypto as an asset is that we can look at how the IRS treats people that "day trade" stock and often don't keep great records/have lots of transactions. While you need to be as accurate as possible, it is ok to estimate a little bit if you don't have exact records (especially concerning your cost basis). You need to put in some effort (research historical prices, etc...) and be reasonable, but the IRS would much rather you do a little bit of reasonable estimation as opposed to just not reporting anything. Sure, they might decide to audit you/disagree with some specifics, but you earn yourself a lot of credit if you can show that you honestly did the best you reasonably could and are making efforts to improve going forward. However, concerning reporting every transaction - yes, sorry, it is clear that you have to do this, even if you made hundreds or thousands of them. Stock traders have had to go through this for many decades, and there is absolutely no reason to believe that the IRS would accept anything less from the crypto community. If you have the records or have any reasonable way of obtaining records/estimating them, you must report every transaction. What if I don't trust you? Well, first let me say that I can't believe you made it all the way down here to this section. Thanks for giving me an honest hearing. I would strongly encourage you to go read other well-written, honest guides. I'll link to some I like (both more technical IRS type guides and more crypto community driven guides). While a certain portion of the crypto community seems to view one of the benefits of crypto as avoiding all government regulation (including taxes), I've been pleasantly surprised to find that many crypto forums contain well reasoned, accurate tax guides. While I may not agree with 100% of their conclusions, that likely reflects true uncertainty around tax law that is fundamentally complex rather than an attempt on either end to help individuals unlawfully avoid taxes. IRS guides
The mining reward for the leading cryptocurrency, Bitcoin, will be halving around May 12th. This is the third time this will have happened. The reward started at 50 Bitcoin and dropped to 25 in 2012, 12.5 in 2016, and now to 6.25 BTC. These halving events, in turn, has caused Bitcoin value to increase historically. Price during the first halving was $12 per BTC and 150 days later it had gone up to $127. In 2016 the halving price was at $650 and now in 2020. Bitcoin will continue to be extremely volatile and even more so as we have this perfect storm of events from money printing, halving, and the worldwide lockdown. A few weeks ago we were at lows of $3800 or so and now highs of $9000. The speculation in the stock-to-flow model has BTC heading into the $100,000 area in this next 4-year cycle. It seems unreal but so did today's current value in 2012 and 2016, yet here we are. So if you want to speculate, there is always time to see if 10x returns are available. Though when you speculate you can also lose substantial amounts. We will be expanding the MadCapX tier levels sometime this month. Tier levels will be number-based and no longer have names. For existing members, you will be transferred to the matching new tier at the corresponding reward level. You may ask how many tier levels there will be... but that is a secret that can only be found out by leveling up. We are also changing it so that you will no longer hold multiple tier levels, but instead have just one which is automatically calculated and checked every day from the total in your vault and listed holdings. You will be able to list external holding wallet addresses with at least 1000 MADX or higher. Rewards will continue to be given out on the first of every month. During the month, do not worry if the panel stops working and you see the message "MadcapX is currently down for maintenance." as that just means we have temporarily turned off functionality for members while system changes are being performed. We will probably be taking the system down multiple times for varying time spans. If you come across any issues, please inform us via our contact form or in Discord. Happy investing, Madbyte team
Casting Shadows Before | Monthly FIRE Portfolio Update - October 2019
And coming events cast their shadows before. Thomas Campbell, Loichiel’s Warning (1802) This is my thirty-fifth portfolio update. I complete this update monthly to check my progress against my goals. Portfolio goals My objectives are to reach a portfolio of:
$1 598 000 by 31 December 2020. This should produce a passive income of about $67 000 (Objective #1) - Achieved
$1 980 000 by 31 July 2023, to produce a passive income equivalent to $83 000 (Objective #2)
Both of these are based on an expected average real return of 4.19 per cent, or a nominal return of 7.19 per cent, and are expressed in 2018 dollars. Portfolio summary Vanguard Lifestrategy High Growth Fund – $773 028 Vanguard Lifestrategy Growth Fund – $44 094 Vanguard Lifestrategy Balanced Fund – $80 383 Vanguard Diversified Bonds Fund – $108 964 Vanguard Australian Shares ETF (VAS) – $139 698 Vanguard International Shares ETF (VGS) – $27 138 Betashares Australia 200 ETF (A200) – $259 380 Telstra shares (TLS) – $1 860 Insurance Australia Group shares (IAG) – $13 847 NIB Holdings shares (NHF) – $8 412 Gold ETF (GOLD.ASX) – $98 755 Secured physical gold – $15 979 Ratesetter* (P2P lending) – $17 791 Bitcoin – $147 130 Raiz* app (Aggressive portfolio) – $16 931 Spaceship Voyager* app (Index portfolio) – $2 240 BrickX (P2P rental real estate) – $4 410 Total value: $1 760 040 (+$30 378) Asset allocation Australian shares – 42.0% (3.0% under) Global shares – 22.6% Emerging markets shares – 2.4% International small companies – 3.1% Total international shares – 28.1% (1.9% under) Total shares – 70.1% (4.9% under) Total property securities – 0.3% (0.3% over) Australian bonds – 4.8% International bonds – 9.9% Total bonds – 14.7% (0.3% under) Gold – 6.5% Bitcoin – 8.4% Gold and alternatives – 14.9% (4.9% over) Presented visually, below is a high-level view of the current asset allocation of the portfolio. [Chart] Comments This month the portfolio grew by just over $30 000 in total, building on the previous month of growth. [Chart] The equity component of the portfolio has grown, including through new contributions and another part of the June distributions being 'averaged into' equity markets. The only other major changes in the monthly value of the portfolio have been the result of gains in the value of equity holdings and a sharp upward movement in the price of Bitcoin. [Chart] This month marks the notional passing of one of the additional FI benchmarks set at the beginning of the year - 'Credit card FI'. This benchmark is estimated on the basis of reaching a portfolio value where the annual assumed real return of 4.19 per cent could in theory fully meet average annual credit card expenses of $73 000. This benchmark is notionally met in that sense, and it is also close to being met on a far more practical and tangible basis also. The actual gap between a trailing average of distributions paid and card expenses has now fallen to less than $300 per month. [Chart] Even so, it is important to note that this narrow gap could stabilise or modestly rise once forthcoming December distributions form part of the average, replacing a higher placeholder assumption based on June's figures. Quarterly distributions from Betashare's A200 ETF and Vanguard's Australian shares ETF (VAS) were paid this month. These distributions, in addition to another staggered reinvestment of June distributions were invested in the market. They have been mostly placed into VAS, to obtain the benefit of accessing a slightly wider range of holdings at a comparable fee, as well as to reduce any (admittedly small) risk and volatility in future returns and payout levels between A200 and VAS. To maintain the target balance for international (40 per cent) and domestic equities (40 per cent), a smaller additional investment was also made into Vanguard's International shares ETF (VGS). Sighting harbours and early arrivals - revising the FI target date A focus of thought in the two months ahead will be the expected timing of reaching my FI Objective #2. This goal is current set to July 2023. In setting this original target timeframe I used approximate and conservative estimates, based on previous average total portfolio increases over the past five years. This method effectively ignored extra contributions arising from any above average portfolio distributions, or any return impacts, given the relatively short time until both targets. As such, it represented a clear simplification of reality. Achievement of the target - I reasoned at the time - would inevitably be impacted by market fluctuations and this meant constructing spuriously exact yearly forecasts of the impacts of average returns would not be worthwhile. What has become clear since meeting Objective #1 more than 18 months earlier than expected is that more rapid progress was also being made towards Objective #2. To understand and explore this progress further I have applied a few estimation techniques to start understanding possible revised trajectories. These estimate approaches included:
simple extrapolation from past progress over a long time period
using the median monthly progress since 2017; and
assuming no investment returns at all, and reliance just on contributions.
The results of the different estimation approaches being applied were broadly consistent, with projections of Objective #2 being reached at least two years ahead of schedule. A further interesting fact was that average assumed investment returns alone would be sufficient to carry the portfolio to the original target level by mid-2023. Indeed, even if the portfolio suffered a one-off 33 per cent fall in equity values tomorrow - as is quite possible - modelling suggested the target would still be likely to be met early. With two months to go until a full portfolio review, this indicates that it may be useful to reset this target to an estimate that more closely aligns with progress to date, whilst still retaining a respectful regard for the critical role that market variations can have in this phase of the journey. Casting the shadow before - a better approach for estimating distributions? At this time of year December distributions begin to cast their shadow forward, as the previous July distributions recede. Seeking to estimate the approximate level of future distributions has been an ongoing interest, and has been looked at previously in both the Set and Drift and Wind in the Sails posts. The level of distributions is a solid and important marker of how far the journey has progressed. This month I found time to fully develop an expanded data set to allow a better estimate of likely distributions. From the website of the relevant Vanguard retail funds, as well as the sites for the ETFs VAS, VGS and A200 I was able to download the available histories of distributions. These stretched back a decade for some funds, and five years for VAS and VGS, but substantially shorter for A200. This enables the estimation of average payouts (in cents per unit) to be reached. In turn, this allows an estimate to be made of the level and components of the December distributions, using average values. This is set out below. [Chart] There are significant boundaries of uncertainty around this estimate, and some simplifications. For example, it excludes Ratesetter and smaller individual shareholdings (which represent about 10 per cent of the holdings). It also assumes for simplicity equal ETF payments through the year. With these caveats and using this approach, the total December distributions are estimated to be around $19 500, out of an annual forecast distributions of $49 800. Progress Progress against the objectives, and the additional measures I have reached is set out below. Measure Portfolio All Assets Objective #1 – $1 598 000 (or $67 000 pa) 110.1% 150.0% Objective #2 – $1 980 000 (or $83 000 pa) 88.9% 121.1% Credit card purchases - $73 000 pa 101.1% 137.7% Total expenses - $89 000 pa 82.9% 112.9% Summary Coming events do cast their shadows before them. Even an initial review of progress towards my remaining financial objective has left me with a sense of time foreshortening, and the shadow reaching out towards the present. At some point this shadow will start inevitably and undeniably reaching into and touching my daily life. At the same time as this sense grows, markets feel delicately poised, with risks of bubbles, and unusual events such as required US Federal Reserve support for the inter-bank market, and a rare failure of a recent tender of short term Australian Treasury notes to reach its target issuance. Despite these types of events and historically low bond rates globally surveyed investor equity expectations remain at elevated levels. It often pays dividends at times such as this to look to the past. This is an opportunity provided by listening to Yale University's Robert Shiller in this recent podcast as well as by reading his new work Narrative Economics focused around the historical and continuing role of stories in markets and finance. Stories - such as a 'clear' link between a countries' economic growth and share market performance - can often be plausible, commonly held, and incorrect. Another informative podcast was an interview with the Head of Product Strategy for Vanguard Australia by Equity Mates. Further interesting insights into the development of modern portfolio theory and efficient markets theory can be accessed in these Youtube videos with interviews of Markowitz and Eugene Fama. The latter makes the point that the growth in indexing is likely to lead to active managers facing higher competition from more skilled investors, as the less skilled depart, making outperformance tougher rather than easier. This month I was pleased to be mentioned in this short but practical piece on Australian FI seekers, alongside Aussie HIFIRE and Aussie Firebug. For a striking visual tool around planning for FI and safe withdrawal rates, this US-based calculator also occupied some of my time. It gives a unique and simple demonstration of the different probabilities and tradeoffs that can be embedded in reaching FI. Ordinary Dollar here in Australia has some similar calculators. Without seeing coming events, they represent a useful way to look further over the horizon. The post, links and full charts can be seen here.
Well, it’s supposed to be an optimistic article about most promising mining cryptos, but then something happened. No one was too naive to believe that the events unfolded around the COVID-19 pandemic will not affect global markets, but the turbulence that occurred was very significant and, what is most sad, it is still very difficult to say how soon the situation will stabilize. https://preview.redd.it/9xxheofluzp41.png?width=1024&format=png&auto=webp&s=cd8ca033faddf57ea041e82ceadee1037b8587f1 Many people were already bothered that crypto mining is becoming less profitable in 2020 and will be meaningless very soon, but even though big companies having bigger resources took over most of the industry, cryptocurrency mining using video cards remains available to common users and still has potential. Despite, the volatility of the cryptocurrency market hashrate of the Bitcoin blockchain network yet remains almost at the same level and that is a quite positive sign. At the moment, the most reliable option seems to be to leave mining to large ASIC-farms and return when the stock panic subsides and the prospects will be clearer. Although Bitcoin is still the most popular cryptocurrency on the market, every year the complexity of operations necessary for its production increases, and rewards fall (after halving in May 2020, we will talk about 6.25 BTC per block). For mining many altcoins, the threshold for entry is much lower, therefore it makes sense to look for a more profitable option among them. But first, let’s try to understand a little what conditions we need for profitable mining. There are several crucial aspects that determine how profitable mining will be. These are such obvious things as the price of the currency or the amount of reward for the generated block. And this is the reason it is now very difficult to calculate the possible income. One way or another, the market price of altcoins depends on the position of bitcoin, which is experiencing bad times. For several months, the world of crypto mining has been preparing for the May halving, because the reduced supply led to a significant increase in prices. This time should not have been an exception, but now when bitcoin does not rise above $5500 and risks falling below $3500, we can only make vague guesses about its potential price in May. Many analysts tend to believe that closer to the middle of April, the negative effect of the crisis should be reduced, and positive expectations from halving and a large amount of cash from investors should have a positive impact on the price of bitcoin. Altcoins, as a rule, repeat the dynamics of the first cryptocurrency and will also continue their growth to historical highs in the year’s future. Next, you should also pay attention to the complexity of mining because it affects the time and energy spent on generating the block. Do not forget about the cost of electricity in your region, as one extra-large bill can negate all your efforts to earn money on currency mining. Do not forget about expenses on a mining rig and it’s amortisation. In addition to the above, you should find out how practical the chosen currency is: whether it can be exchanged for fiat or more popular coins, what fees are charged by exchanges that work with it, and what reputation it has in general. In order to avoid unpleasant mistakes, it is easier and more reliable to check the possible profit in one of the many calculators.
Best altcoins to mine in 2020
Monero is the currency with the highest anonymity rates, which stays attractive to many users and remains one of the strongest altcoins. The specific proof-of-work hashing algorithm does not allow ASIC-miners, so it is relatively easy to mine using personal computer’s processors and graphics cards. AMD graphic cards are preferable for this task, but NVidia suits as well. The current block reward is 2.47 XMR. Litecoin is one of the oldest Bitcoin forks, but unlike it uses a different “Script” PoW algorithm which allows less powerful GPUs to mine coins. Litecoin is on the most popular, and successful Bitcoin forks and considered one of the most stable cryptocurrencies. Block mining reward is 12.5 LTC. Ravencoin is another Bitcoin hardfork, and like Monero’s its X16R algorithm is practically unavailable for ASIC machines. Raven keeps gaining popularity for many reasons – it has faster block time, higher mining reward (5,000 RVN at the moment) and secure messaging system. Dogecoin is not a joke anymore. Hard to believe, but this currency once made for fun, became one of the most valuable ones. Like Litecoin it uses Scrypt algorithm and great for mining with GPUs. One more Bitcoin fork Bitcoin Gold was made specifically to kick out ASICs and clear the road for GPUs. It may not be the fastest-growing currency, but it is definitely one of the most stable. That’s all for today. Stay safe, cause health is our most important asset. Follow us onMedium,Twitter,Facebook, andRedditto getStealthEX.ioupdates and the latest news about the crypto world. For all requests message us via [[email protected]](mailto:[email protected])
These are measures of historical volatility based on past Bitcoin and Litecoin prices. bitvol.info used the CoinDesk API for querying historical Bitcoin data used in the volatility calculation. Furthermore, it uses the BitStamp API for querying the current price of both Bitcoin and Litecoin. Both sources may change in the future. It is highly likely that you're viewing an outdated version of ... Stock volatility is just a numerical indication of how variable the price of a specific stock is. However, stock volatility is often misunderstood. Some think it refers to risk involved in owning a particular company's stock. Some assume it refers to the uncertainty inherent in owning a stock. Neither is the case. For investors it represents an ... Historical Bitcoin volatility. Thinking of historical Bitcoin volatility, it’s no big news that it was going through the roof. However, what does deserve attention is how it evolved. Since volatility is calculated as an arithmetic average, single observations have a high influence on the outcome. Therefore we need to put special emphasis on the most extreme moves. Had I asked “when did the ... This calculation is repeated everyday using a shifting 30 day window, to derive a time series of rolling historical volatility. The BNC Bitcoin Liquid Index (BLX) represents the fair value of ... Bitcoin Historical Volatility — Why the Calculation Method Matters. Sacha Ghebali. Follow. May 8 · 7 min read. By Sacha Ghebali and Olivier Mammet. Introduction. All Bitcoin traders and holders are well attuned to frequent, and at times violent, price swings. Let’s say a new buyer experiences a 10% overnight price jump — good news! But the next day, the price falls 16%. This buyer may ...
BITCOIN TO 12,200 OR 6,500 ?!? HISTORIC VOLATILITY SHOWS ...
The historic volatility is showing us that we may see a huge move in the price of Bitcoin in the near future. I want to have a look at which levels I'm watch... This video is unavailable. Watch Queue Queue. Watch Queue Queue Join us in the discussion on InformedTrades: http://www.informedtrades.com/816542-how-find-historical-volatility-standard-deviation-asset-step-step.html In t... Options traders typically focus on implied volatility, as it forecasts the future price range of a stock (based on the stock's option prices). Historical vol... How you can value a Bitcoin easily, measure it's market value, understand and deal with price volatility and make decisions on when to invest.