Author Archives: MarkRM

Bitcoin signals and stats in mainstream media

There has been a lot of news lately surrounding a certain study funded by a third party. The study attempted an analysis of the Bitcoin blockchain for a number of purposes and came up with a few startling numbers that a lot of the “mainstream media” (if Bitcoin has such a thing as mainstream media) have been running wild with. The most commonly cited is that 78% of all coins are supposedly being stashed under the digital mattress. I think, however, that it’s fair to qualify the condition of that 78 % of coins as a bit more complicated than all that. The study fails to account for the fact that a huge portion of all coins ever mined was mined back when they were essentially worthless. 10,000 BTC bought a pizza, once upon a time, and CPU mining was the norm. Back then, losing several thousand coins to a hard disk failure or otherwise losing a wallet was like a $5 bill going missing from your wallet – annoying but not worth losing sleep over. So how many of that 78 % of coins are actually spendable but sitting idle and how many are lost to time? Like so many things with Bitcoin, the real problem is: we just don’t know.

People forget when dealing with Bitcoin that while it was designed with a certain kind of transparency in mind and it is infinitely more open and study-able than traditional currencies, it was also built with privacy in mind and to that end it’s very hard to get certain kinds of information about crypto signals and Bitcoin transactions. Of that 78%, we can certainly say that some are lost, some are savings and some are likely the cold storage accounts of large exchanges or merchant service companies – but we don’t know (and for the most part can’t know) which. All those stale coins are like Binion’s silver, clever financial analysis can certainly indicate that something’s missing, but the very nature of a thing being missing means we haven’t a clue where it actually is.

It goes beyond the design of Bitcoin, too. Bitcoiners themselves are often elusive beasts, difficult to track. Allow me to share a personal anecdote.

To understand my surprise, you must understand the difference between log analyzers like AWStats and client-side tracking like Google Analytics. Google Analytics is a little snippet of JavaScript that’s embedded into each page on your site and when someone views your site their computer runs that JavaScript and hands over all kinds of useful information like what kind of browser they’re using, how big their screen is, whether they’re on a mobile device and much more. The wealth of data gathered by Analytics can be quite valuable, but the method is flawed. Not every browser runs JavaScript the same way and some people disable JavaScript or otherwise block such tracking attempts, so some percentage of visitors to a given site simply won’t be counted – you can usually assume that your Google Analytics numbers are a bit on the low side. Log analyzers, on the other hand, dig through your web server’s logs, counting each and every time the server says it delivered a page to someone. Server side logs usually have far less useful information, but the information they do have tends to be more accurate. Armed with this knowledge, let me explain why my jaw hit the floor: Google Analytics said that I’d served up a bit over 60,000 pages in the month of September – AWStats was reporting just over 250,000.

Now my example may be a bit long-winded and I apologize for that, but it does go a long way toward making my point: Bitcoiners, you are some of the hardest people to gather information about I’ve ever met. If I can’t even get a solid number to tell my sponsors how many of you are viewing my stuff in a given month, I find it unlikely that any analysis of this community or our behavior will even be close to accurate.

But this can work both ways – sometimes a lack of data is just as telling as an abundance of it. I would also posit that this could make an interesting metric by which to judge Bitcoin adoption: Analytics parity. As more individuals outside of the highly-technical JavaScript-disabling community adopt Bitcoin, the percentage of you that remain uncounted should begin to decrease. Gather enough data points across enough Bitcoin sites with some non-Bitcoin sites as control and compare the percentage who go uncounted. If my site alone is anything to judge by, we’ve got a long long way to go.

Bitcoin bubbles

It seems like financial analysts, and reporters have gotten pretty comfortable rewriting the same articles about the Bitcoin bubbles inevitable burst. To be honest from their standpoint cynicism makes sense, Bitcoin is new and confusing; embedded into the most esoteric reaches of programming and the web, how could it be anything but a bubble? After all, if there’s one those four years in a state university taught them its how to tell when two graphs look the same, and it’s undeniable that this notoriously spammable general market bubble graph and the one-day interval graph look awfully similar.

In the end, calling Bitcoin a bubble is the safe bet. In most cases new promising technologies few people understand often are bubbles, statistically speaking you’d be more likely to be right just randomly calling everything a bubble, and as a financial analyst being right counts. Even if your predictions were made with a complete lack of analysis and out of total ignorance.

And Any Market That Acts Like Bitcoin Just Ends Up a Bubble. Right?

Well, I’ve got a test for all of you financial analyst and speculators, those of you with a particularly violent “bubble” phobia may want to opt out, and just skip to the answers. Below are some stock charts for a few bubbling companies, which ones do you think popped, and which eventually just leveled off.

Look at these closely, and compare them against the Bitcoin pricing chart, and the general market bubble chart, compare similarities and differences and based just on that information, the same information analysts have determined Bitcoin is a bubble from, write down which of these three you think are bubbles. The answer is none of them;

Do you feel stupid yet? You should, based on the same information most “experts” are using right now to call Bitcoin a bubble three of the largest technology companies of our time were just bubbles, bound to pop. For your average investor, this mistake is forgivable and actually expected. For an expert, this is blatant laziness if not full on trolling.

The Problem is…

Technology cannot be valued using traditional metrics, otherwise, it all looks like tulips. In the past, the value of a market was determined by simply summing the value of the assets with the total value of the goods that can be produced and subtracting the costs of operation. Any valuation above the price calculated was just considered speculative pricing. But what assets do companies like Google, Facebook, and Instagram really have? The truth is very little, they don’t actually produce anything, they require very little equipment and property to operate by traditional metrics there worthless.
The truth isn’t so simple when we value technologies we have taken into consideration the value of the actual idea. Which for obvious reasons isn’t easy, but general market sentiment is a fairly good indicator, and the sentiment as of now is Bitcoin isn’t going anywhere. Its a truly novel invention, and is hardly a newborn in the life cycle of economics.

A Vision for the Future of Bitcoin and Crypto

I’m a believer, I have been since the moment I first heard about Bitcoin and the concept of cryptocurrency. To me, cryptocurrency is like the internet was in the ’90s; it makes sense, it’s here to stay and it’s only a matter of time before the whole world is going to have to get used to it. But as we move into the future all the Bitcoin believers have been talking about the last couple of years our vision of tomorrow is becoming a bit clearer.

New cryptocurrencies are sprouting up every day, each with their own advantages and disadvantages, so what makes Bitcoin so great? Well nothing, Bitcoin is starting to look like old technology. Transactions are slow, energy costs of mining are high, ASIC and FPGA devices have pretty much made it impossible for your “everyman” to mine effectively, and moving into the future I’m not entirely sure Bitcoin will be around forever. Bitcoin was our prototype, a beautiful and innovative proof-of-concept, and its descendants are equally as promising. Litecoin boasts a solution to the discrepancy between FPGA miners and regular GPU/CPU miners, and Worldcoin takes it a step further mixing in mega-fast transactions. Peercoin presents an entirely new energy efficient encryption system altogether, so which one is the currency of the future?

Well the reality of cryptocurrency I’m just now starting to piece together is cryptocurrency isn’t really a currency at all. It’s not really a commodity either though. By traditional metrics, cryptocurrency has 0 potential value as a commodity and infinite value as currency except for one inconvenient fact. Cryptocurrency is a technology, and technology has little to no permanent value. Incorporating cryptocurrency on the world stage will require we change the way we think about economics, government, and currency. I foresee crypto taking on the role of a hybrid trading commodity. A pathway for consumers to bypass national restrictions and operate on a supranational level.

Imagine gold in the ‘olden days’

A universally accepted commodity, but because of this inherent liquidity gold couldn’t quite be considered a commodity economically it played more of a currency role. “Experts” will try to tell you gold can operate in this fashion because it holds some inherent value, but prior to the 20th-century technology revolution what inherent value can anyone say gold really had? Can you hunt with gold, can you fish with gold, can you farm with gold? No, gold has not utilitarian value the truth is it’s pretty and useless. In addition, gold has limited application as purely a currency, its cumbersome and easy to steal.

And so we enter the birth of fiat money, “trade notes.” As just about every cryptocurrency fan knows most fiat currencies used to be backed by gold, in the earliest days of fiat money prototypes traveling merchants used “trade notes” a piece of paper that could be taken directly to the associated banking institution and exchanged for the promised gold. Later governments decided gold backing of legal tender was no longer necessary and trade notes were abstracted into fiat money.

Currency whose only real value is its legal backing and perceived liquidity. This leads us to cryptocurrency, fiat money has now unintentionally become the 21st century’s proof of concept that all currency must have in order to have value is perceived liquidity. The legal backing of fiat money has become the same burden to currency as gold backing was to trade notes. Legal backing places an implied restriction of nationality, limiting liquidity. Cryptocurrency lifts the restrictions of nationality and allows for theoretical liquidity achievable by no currency or commodity before, it is the second logical abstraction of currency. Unfortunately, as a technology cryptocurrency is amorphous, I see a future of many cryptocurrencies each with a niche purpose. Large corporations, and banking institutions opting for more secure currencies requiring many confirmations for a transaction. Everyday markets and individuals using currencies with instant less secure transactions and a higher level of anonymity. Currencies meant for more public endeavors like political fundraising and corporate mergers with digital signature openly accessible to the public. The applications are endless, and I refuse to even debate the merits of cryptocurrency with naysayers anymore. Cryptocurrency is the future of currency, the only question which cryptocurrency will you use?

Anatomy of a Pump

Pump & Dump

Pump and dumps are famous in all kinds of markets, however, they differ from real world to crypto coin markets. Because cryptocurrency value is almost 100% speculation and very rarely based on news, traditional pump and dumps are a lot less common. In the real world, someone can start a pump by simply spreading around some fake good news, this news will then draw in speculators and usually push up the price. In the crypto market, things are a lot different.

The first main type of crypto coin pump is commonly seen being pulled off by the btc-e trader known as “fontas”. Someone with a large online following can pump a coin by simply announcing the coin will be pumped. As soon as the pump time is given, new or gullible traders will try to get in before the given time, unbeknown to them that they are the pump. As traders try to get in before the pump this will cause the price to shoot up, usually dragging in newbies (who think the recent rise in price means the coin is a good buy). Before long the price is skyrocketing and when the “pumper” sees that the price is high enough for his satisfaction, he will dump all his coins onto the wall of newbies who lie below. Although it is possible to make money in this type of pump, the majority of traders (skilled or otherwise) will end up with the pumper’s overpriced coins, which they will then have to sell at a loss. On the charts, this pump will generally be a huge quick rise, followed by a quick fall of equal or more distance.

 

The second type of pump is performed by manipulators with deep pockets, instead of tricking people into buying in order to push up the price, they physically move the market themselves, drawing in speculators. The pumpers rarely ever dump their coins all at once but prefer to slowly offload them onto new buyers, allowing the rise to continue. With these types of pumps, the price rarely drops back to what it was before the pump, it’s also not uncommon for it to continue rising even after the pump stop.
This type of pump is what I’ll explain in the rest of the article.

Moving The Market

Market Orders
Obviously, this is what actually moves the price upwards. Pumpers issue market buy orders to cause the price to move upwards. A single large market order would clearly be the doing of a  manipulator, so the pumpers will place lots of smaller market orders of random size, in order to give off the impression that lots of people are buying. On exchanges which do not support market orders, the pumpers will use bots to automatically fill corresponding sell orders, like an exchange’s order matching system would.

Support Walls
If the pumper just goes crazy buying coins, it’s easy for the price to fall back down unless there are limit orders to support it. The pumper will use a bot, place a collection of larger limited buy orders (walls) a small distance from the current price. The limited orders farthest from the price will be the biggest (usually in the $8k to $80k range), closer to the current price will be a collection of smaller walls (usually a few $k each). The general idea of the walls is to A: give the illusion of lots of people wanting to buy. B: prevent the price from falling back down. The walls will usually appear before the pump begins and disappear at the end. Because the pumper is looking to hold up the current price and not actually buy coins: the limited orders will generally be moved up automatically by bots, however, remain a small distance from the price. By placing large walls at a small distance from the price, impatient traders will see a lot of “people” wishing to buy the coin, they will then place their buy orders in front of the large walls, so they will be executed quicker. By getting traders to jump in front of the pumper’s walls, the pumper achieves two things: They add more support for the current price and they use other people to absorb some of the sell orders (so that not too much of the pumper’s limited buy orders get filled). It is not uncommon for less determined pumpers to use “fake” walls, these are largely limited buy orders that are automatically removed or moved down by bots as soon as they start getting filled.

Leash
Although market orders and Support walls a pretty much essential for any pump, this component is somewhat optional. Sometimes a pumper will place large limited sell orders using coins they already own. The limited sell orders serve many purposes: Preventing the price from moving up before the pump, pushing down the price to shake some of the weakly handed sellers, build up buying pressure, and allow the pumper to buy more coins without moving the price too much. Often when the pump starts and the leash walls are removed, it may give the appearance that the current trend is over and that the market is likely to move upwards due to the apparently diminishing resistance.

Consolidation Period
There is always going to be people wanting to sell during a pump and it’s best to get rid of as many sellers as possible early on. A pumper will usually stop pumping for periods of time and move back their walls, this allows the legitimate buyers to absorb any sell orders. It’s common that the price will drop quickly during this period, causing weakly handed traders to sell. Once this round of sellers has been shaken, the pumper can continue pushing up the price.

Conclusion

This type of pump is a great way to make money if you plan your exit, instead of holding until it’s too late. As a day trader I don’t mind people doing manipulation like this, not only does it provide the large rallies that we love, but it doesn’t come without risk. The pumper puts their funds on the line and always risks meeting a dump of equal size. It’s definitely a lot better than watching noobs losing their savings to fontas and his crew, thinking that he is going to push the price up and make them rich.

China Cracks Down on Bitcoin, is Crypto Sunk?

As of Wednesday, December 18th, it seems the Chinese government has taken the first steps on a crackdown against cryptocurrency.  The Chinese government has officially ordered the countries payment processors to stop transactions involving the countries Bitcoin exchanges.  Although this doesn’t stop current Bitcoin holders from trading and even selling the coins they currently have this does stifle any additional funds from entering the market.The bottom line, the Chinese will not be buying any more Bitcoins.

So what does this mean? Quite a bit, unfortunately, according to bitcoincharts btcnCNY accounted for approximately 46% of the total exchange volume in the Bitcoin marketplace.  In addition, Chinese investments were largely credited as the catalyst for the nearly 1000% rise in Bitcoin prices that peaked on November 29 at over 1000 USD per Bitcoin. Although markets in other countries have grown significantly since China’s initial interest in Bitcoin losing the Chinese markets will undoubtedly pose a major setback to Bitcoin and transitively all other crypto-currencies.

So is this the End?

Nope, despite what you may have read from panicked investors and forum doomsayers this is not the end.  Bitcoin, unsurprisingly, seems to have attracted a large following of the same kind of apocalyptic thinkers that have fueled such doomsday scenarios as the Y2k Bug, Mayan Calendar Apocalypse, and the May 2013 Rapture.
Although the comparison may seem unfair, I think those contemplating the effects of losing the Chinese markets need to remember what happened after the Silk Road bust.   At the time the Silk Road was seized by the FBI an estimated 75% of Bitcoin-related transactions were done on the Silk Road, a much larger market share than China’s 46%, and a comparably popular doomsday scenario for the cryptocurrency.  Although the market saw in excess of 40% losses the day of the bust, only a few days after markets stabilized at only a 10% loss.
What does this prove?  Bitcoin is more than the sum of its parts, and it has a lot of growing to do still.

Cryptocurrency doesn’t owe its recent growth to China, it owes it to an increased worldwide awareness and with only an estimated 60,000 users in the US and much less in many other countries we’re just now scratching the surface.