In 2018, we have seen the cryptocurrency market cap go from all-time highs in January to falling over 80 percent by December, despite little changing in the context of the technological fundamentals.
If little has changed with the fundamentals, then there must be other factors driving the manic buying and panic selling cycles present in these markets? A persistent pattern I have observed in the context of investors and projects in the space is one of information asymmetry.
This information asymmetry manifests itself in various contexts, e.g. either being a very informed or a very uninformed investor, the ability to determine if a project has overpromised on its technological deliverables or not. Another way of viewing this asymmetry is that it arises from hidden complexity, whether we’re talking about perceiving the value in an asset or implementing a new piece of software.
While I can describe bitcoin in a single phrase as “gamification of time-stamping,” describing and delivering a working system that implements that concept is a serious technical challenge.
With Decred, we experienced this hidden complexity firsthand while building Politeia, a time-ordered filesystem, for use as our proposal system. Making cryptocurrency markets less volatile and projects more substantive is a matter of doing what we can to eliminate the information asymmetry that arises from technological complexity, both with investors and software alike.
Complexity for Investors
I have observed a very bimodal distribution when it comes to the extent to which cryptocurrency investors are informed. There is a minority that is incredibly well informed and a majority who are quite uninformed.
This knowledge gap often benefits the well-informed at the direct expense of the uninformed, so the former are incentivized to maintain this arrangement. Similar to many other markets, the less-informed chase the carrot of easy profits dangled in front of them by the better-informed. When this herd-like behavior is combined with relatively thinly traded markets, it creates serious volatility, which has much in common with over-the-counter (“OTC”) stocks.
The perception of value drives investor decision-making, so the collective psychological state of investors determines the value of an asset. Unlike many other assets, cryptocurrency fundamentals do not change substantially as a function of time. This constancy of fundamentals is a major driver for using cryptocurrencies as a store-of-value (“SoV”) over longer timescales.
It is this SoV property that separates cryptocurrencies from OTC stocks, and it drives a longer timescale periodicity that is not present in most OTC stocks. Many uninformed investors are keen to buy low and sell high, capturing a profit in fiat terms, whereas well-informed investors understand the SoV property is a longer term play, which incentivizes them to buy low and avoid liquidating their positions.
Informed investors using cryptocurrencies as a SoV fuel these longer term boom-bust cycles, so episodic spikes in valuation occur without the value crashing to zero after each manic buying phase.
Complexity for Projects
After managing several software projects over the past decade, I can say that, even as someone who participates on a technical level, it is easy to overpromise on deliverables.
The main driver of this disconnect between promises and quality working code is the hidden complexity of the cryptocurrency development process. Over the past few years, I have seen many projects make massive promises and raise staggering amounts of capital in ICOs and similar processes, only to not deliver, deliver incredibly late or deliver barely-working software.
Similar to the situation for investors, projects have a bimodal distribution of technical ability: a minority that keeps their promises roughly in line with what they can realistically deliver and a majority that grossly overpromises on a regular basis. Overpromising on software deliverables is often the result of a combination of underestimating the complexity of cryptocurrency software and conscious overstatement on part of project leads.
Because the domain of cryptocurrency software is still rather new and complex, there are correspondingly few people who are well-suited to understand what can and cannot be achieved in a particular amount of time, on a technical basis. So, a project may make some really impressive claims about what it will achieve, but when there are so few people who are capable of realistically assessing how feasible the claims are, it incentivizes malicious actors to bait-and-switch investors.
Numerous projects that have been funded on a bait-and-switch basis have seen their valuations collapse throughout 2017 and 2018 once investors become aware they are unlikely to deliver on their claims.
Complexity in Practice
As the Project Lead for Decred, I am familiar with the process of dealing with complexity from a technical and management standpoint, and our off-chain time-ordered filesystem, Politeia, serves as a good example for how hidden complexity can delay even seasoned development teams in the space.
Our goal was to have Politeia in production as our proposal system in roughly 12 months from the start of the project in April 2017, and we didn’t go into production until six months after the projected date in October 2018. Despite building on top of a working versioned filesystem, git and attempting to avoid complexity, it still took several additional months to get the metadata formats just right and have the frontend perform suitably.
Politeia is based on a pretty simple idea “create an off-chain store of data where you can demonstrate who said what when using cryptography and an existing blockchain.”
Once you split this apart into its components, it doesn’t seem very difficult:
- Make episodic self-contained timestamps using the Decred blockchain
- User identities correspond to keypairs in a PKI system
- User messages are all signed by the corresponding identity private key
- Up and down votes are a special form of user message
- Tracking user ticket votes based on snapshots of the Decred ticket pool
This list is pretty short and each component is relatively simple, but handling the edge and corner cases that arise between these components quickly becomes non-trivial. Despite the final working implementation being complex, it can be described as a handful of simple components that even less-informed market participants can understand.
Simplicity for Investors
There are myriad ways to become a well-informed cryptocurrency investor, but after making my own missteps, I have a few simple policies that can help cut through some of the complexity:
- Stay skeptical – When someone makes extraordinary claims, they need to supply extraordinary evidence. If any claim made by a project sounds too good to be true, see what someone external to that project has to say about it, and attempt to understand more about how they will deliver on their claim.
- Do your own research – There is no substitute for doing some self-directed research about a project before investing in it. Even in my case, as someone who has been working in the space for almost six years, it still takes me several hours to do a good job footprinting another project and understanding their value proposition in some detail. Are there other projects that serve a similar niche? What makes this project better than others in the same niche?
- Dollar-cost averaging – Not everyone has the ability to dictate the schedule on which they acquire cryptocurrency, but I recommend considering a dollar-cost averaging approach, where you make regular purchases over a longer time period. It is challenging to buy at a local minimum price, so rather than load up at single price, you purchase regularly over a wide range of prices. This way, you are not beholden to the psychology of having bought everything at a single price, and you can lower your average acquisition cost by buying as prices drop.
- Psychological periodicity – As discussed above, there is a periodicity present in cryptocurrency markets that is not present in other similar markets. Before investing, consider that you may have to wait several years for the market to cycle to a point where you have made a good investment. 2018 has had a lot of similarity to 2014 in that all-time highs occurred near the start of the year and markets have sold off in stages throughout the year. For much of 2015, BTC/USD was in the 200s and this was an excellent time to acquire Bitcoin. I suspect 2019 will be similar to 2015, where valuations stay depressed and the market consolidates throughout the year.
Simplicity for Projects
Overcoming the complexity barrier between promises and implementation for cryptocurrency projects is challenging. Here are some policies that have served me well:
- Avoid overpromising – It is easy to be coerced or otherwise convinced that you need to make huge promises to generate interest in your project, financial or otherwise. If you care about not looking like a doofus later on, make a point to reflect on whether or not your promises can be delivered on before making them publicly. In my case, this has meant not publishing projected completion dates for work because I am often wrong about when it ends up being done, e.g. Politeia. Managing expectations matters.
- Avoid complexity – Once you have some established promises or have otherwise chosen a path forward to address a technical problem, do what you can to avoid complexity and still achieve your goal. Cryptocurrency software is often, as a function of the domain, quite complex, so it especially important to keep things as simple as possible. Less complexity means you are more likely to deliver your software sooner.
By working together to increase our collective comprehension, participants in the cryptocurrency ecosystem can take many steps to help reduce market volatility, create more substantive technology, and efficiently educate newcomers.
If 2019 is anything like 2015, the cryptocurrency market is in a consolidation phase, and the next several months will continue to shake out underperforming projects. Very little has changed with the fundamentals of the space, despite the pullback in valuations, so I expect a continued and bright future for cryptocurrencies in 2019 and beyond.
Have an opinionated take on 2018? CoinDesk is seeking submissions for our 2018 in Review. Email news [at]to learn how to get involved.
Crypto Market Update: Stellar (XLM), Bitcoin Cash, Tron (TRX), ADA Price Analysis
- The total crypto market cap failed to hold gains above $120.00B and declined to $115.00B.
- Stellar (XLM) price is holding the $0.1000 support very well and it could gain traction.
- Bitcoin cash price may correct lower towards the $125 support level.
- Tron (TRX) declined below $0.0250 and it could find support near the $0.0240 level.
- Cardano (ADA) price is trading nicely above the $0.0420 and $0.0440 support levels.
The crypto market failed to hold gains and declined followingEthereum’s slide. Bitcoin, BCH, ETH, XRP, Stellar (XLM), Tron (TRX) and Cardano (ADA) also corrected lower.
Bitcoin Cash Price Analysis
After a decent upward move, there was a bearish reaction from the $135 resistance in bitcoin cash against the US Dollar. BCH/USD declined below $130 and it is currently consolidating losses. An initial support is at $125, below which it could revisit the $120 support.
On the upside, a close above the $132 and $135 resistance levels is must for an upside acceleration towards $140 and $145 in the near term.
Stellar (XLM), Tron (TRX) and ADA Price Analysis
Stellar price retreated from well above $0.1150 and declined below the $0.1100 support. However, XLM is still well supported above the $0.1050 and $0.1000 support levels, and it may soon bounce back.
Tron price started a downside correction below the $0.0280 support and tested the $0.0230 support. TRX is currently consolidating near $0.0240 and it may slowly climb above $0.0250 and $0.0262 in the near term.
Cardano price tested the $0.0400 support recently and bounced back. ADA is currently trading near $0.0440 and it may continue to rise towards the $0.0450 and $0.0472 in the coming sessions. On the downside, the main supports are $0.0432 and $0.0420.
Looking at the total cryptocurrency market cap hourly chart, there was a bearish reaction from the $120.00B-121.00B resistance zone. The market cap declined and tested the $115.00B support. It is currently correcting higher, but there are many hurdles on the upside near the $118.00B, $119.00B and $120.00B levels. Therefore, it seems like upsides might be capped in the short term, and bitcoin (BTC), Ethereum, EOS, stellar, LTC, ripple, TRX and other altcoins may continue to consolidate.
How do Bitcoin transactions work – A Brief Explanation!
Bitcoin is a cryptocurrency – meaning digital form of cash. Since its inception, Bitcoin has intrigued users for its peer-to-peer technology without any involvement of the bank. The formation of the blockchain here makes the process authentic, and genuine.
To put across simply the buying and selling of the bitcoin happens online with the help of a p2p portal. Here is how it happens!
The initial listing!
If a seller to sell bitcoin the seller needs to publish the intention for the nodes to scan the bitcoin network. Here the authenticity of the seller is established as nodes check –
Validity of the bitcoin that the seller wants to sell, and
If the bitcoin is genuine or has been sold already!
After the scanning has been done, a block is created which attaches to the previous block of transactions done. Thus there is created a network called blockchain. These blocks are unique and cannot be tampered with so the players can play slots without depositing!
The public key and private key!
Every seller or buyer on the bitcoin network has a public key and a private key. Public key is a string of 34 characters made of numbers and letters. This is the official address of the person on the network. This public key holds information like transaction done, balance in the account etc.
The public key has a corresponding private key which is much like a password of 64 characters. Here too the characters include numbers and letters. While these two keys are connected, the private key needs to be kept secured as it provides for a login and authentication for the person to make transactions.
To authenticate a transaction, a public key should be signed with a private key with the help of a computer software or mobile phone. At all times the private key stays a secret to the users. So when someone signs digitally to authenticate the transaction, it’s only the public key that is available to the world. Much clever technology!
The blockchain hash and virtual tampering!
Hash is complex mathematical function related to a blockchain. The hash function is unique and is created when a user publishes intention to sell or buy bitcoin. As and when a change is made in the transaction, a new and unique hash function is created. This set of 64 characters long string of numbers and letters tells the users of the changes and tampering made on any transaction.
Blockchain, therefore, keeps in authenticity of the transactions with the users by each time creating a new hash function for the block – related to the transaction. Virtually it’s a boon as every sort of tampering is easy to catch!
Bitcoin and blockchain world
The trading of bitcoin happens through blockchain procedure which is a full-proof play of technology. You can sit at your desk and check the transactions working live on the network.
Access the primary websites and lay your hands on the most fascinating currency trading system that has ever been developed!
Crypto Arbitrage Today: BTC, ETH, TRX, XRP, XLM, DOGE
Another day dawns upon the cryptocurrency industry. While most markets are moving up slowly, the number of arbitrage opportunities continues to increase accordingly. A lot of good money can be made today by flipping the following altcoinsbetween the associated exchanges. Depending on how all markets evolve, there will be further gains waiting on the horizon.
Ethereum (Gate / KuCoin / EXMO)
A fair few price differences can be noted where Ethereum is concerned. It would appear the value per ETH on EXMO is slightly higher compared to exchanges such as OKEx, HitBTC, KuCoin, Poloniex, Gate, Bittrex, and Binance. An acceptable 1% profit can be achieved by moving ETH between these platforms. There is also an opportunity involving Bitfinex, as its ETH price is higher compared to Koinim, BtcTurk, Koineks, Bittrex, Bitstamp, and Paribu. These profits are near the 1% mark on average, yet can rise to 1.79%.
Bitcoin (OKEX / Poloniex / Livecoin)
Finding two relatively big exchanges with an identical Bitcoin price may prove to be somewhat challenging today. In terms of arbitrage trading, that is rather good news. Buying Bitcoin on Poloniex, Gate, HitBTC, OKEx, Binance, KuCoin, Bittrex, or Binance and selling it on EXMO, Livecoin, Bitexen, Sistemkoin, or Bitfinex will yield a profit. The Bitcoin-related price gaps can be as big as nearly 3%, although the average profit will be closer to 1.3%.
XRP (Bitstamp / Vebitcoin / Bitfinex)
There are numerous arbitrage opportunities involving XRP today. The more straightforward option is to sell XRP on Bitfinex after buying on Bitstamp, Vebitcoin, or Bittrex for a profit of up to 2.8%. Users can also buy on Binance, KuCoin, HitBTC, OKEx, Poloniex, or Gate to sell on EXMO for an average profit of 1.4%. Buying on Bittrex, or Binance and selling XRP on Sistemkoin can also yield a 1% profit today.
Stellar Lumens (KuCoin / Gate / EXMO)
As has been the case for several days now, EXMO has become the go-to arbitrage exchange once more. Its XLM value is higher compared to KuCoin, HitBTC, Gate, and Binance. As such, traders can achieve a profit of up to 1.8%. There is also an option to buy on KuCoin, Binance or Kraken to sell XLM on Bitexen for a profit of nearly 3% per trade. All of these options heavily depend on the trading volume between these exchanges.
Dogecoin (HitBTC / Gate / LiveCoin)
It is always good to see a Dogecoin price gap emerge between different trading platforms. After all, Dogecoin remains one of the more popular currencies in the industry as a whole. Its price on both HitBTC and Gate is lower compared to LiveCoin, resulting in a potential profit of 2.15%. Given how popular Dogecoin is, such a price gap should never be overlooked whatsoever.
Tron (Paribu / Koineks / Bitfinex)
A rare TRX-oriented arbitrage opportunity presents itself today. That is always interesting, as Tron usually maintains a fairly stable price between all major exchanges. For today, the TRX value on Paribu and Koineks is lower compared to Bitfinex. Depending on which option one prefers to explore, the potential profit sits between 1.8% and 2.4%. Another good money-making opportunity in the cryptocurrency world.Disclaimer: This is not trading or investment advice. The above article is for entertainment and education purposes only. Please do your own research before purchasing or investing into any cryptocurrency.