Why trade crypto-currencies?

As I write this post I am 1 day away from sitting an exam entitled “foreign exchange hedging strategies using forwards and options”. For someone who already grinds away trading FX the subject has been rather dry and pointless. Old world financial education rarely has much to do with the day-to-day realities of trading but I thought it would be an interesting topic to study. It will probably be 50 years until Cryptocurrencies trading hits the dusty shelves of economics academia.


A lot of people are calling a top on the most recent rally in Cryptocurrencies like Bitcoin and Ethereum, and labeling it a bubble. I think they may be right, eventually. But when you look at bubbles of the past like the dot-com bubble and those of the present like Australia’s housing bubble; they tend to go on much longer than people expect possible, even once they are labeled a bubble by outsiders. No one knows how long they can go on, especially when propped up by governments who have unlimited printing presses.

Those on the inside tend to believe their bubble will go on forever which is also a dangerous delusion. It will be important when trading Cryptocurrencies to listen carefully to the hype but not get overly swept-up in it.

The late, great Ace Greenberg of Bear Stearns

An interview I saw a while back with the great Ace Greenberg, ex CEO of Bear Stearns, struck me when thinking about this trend. And it’s helped me decide to focus my efforts where there is something good to “ride”.

In the interview with Charlie Rose he said:

You take losses and you go forward, and you get lucky and catch something that’s good and you ride it. I never want to take profits, I let them ride. If anything I like to buy on the way up. That’s how you make real money. You catch something good and keep buying on the way up. The opposite of dollar (cost)averaging. It’s dollar upping I guess you’d call it. — Ace Greenberg

Everyone in finance knows that central bankers have begun to lose their mojo lately and in the US there is some nervousness while they await the next inevitable round of QE. The current temporary pause of QE while the FED pretends to raise interest rates has slowed down their stock market bubble somewhat. The usual hedge for central banker folly, Gold, is not rising quite as fast as Bitcoin but people are moving now to hedge their exposure against the impending global pension crisis. For more on what’s coming I recommend a read of Danielle DiMartino Booth’s blog.

So as someone who is watching financial markets closely, the lack of a frenzied flight to Gold has been puzzling. Most decent financial analysts are currently recommending some allocation to it. Experts like Sprott Global say the market is suppressed in various ways through hidden central bank selling and manipulation. If true, that can’t continue forever.

Perhaps only the rich read enough history to see the value in Gold? But I think at least some of that money is, and will continue to, make its way to Bitcoin. Because for younger people Gold holds no allure, especially to those who are tech savvy and their natural inclination would be towards electronic forms of money. I think BOTH the Crypto-”punks” and Gold hoarders may soon have their day, even if it is short lived.

The rise of Bitcoin and Altcoins may be at the beginning or it could be near the end. But for now as a self directed trader I must trade the vehicle with the most volatility and Cryptocurrencies are currently where the movement is. There will be many crashes, dips and pumps along the way much like the epic pump and dumps of the dot-com bubble so it will be risky.

As I turn my attentions back to Cryptocurrencies after a 2 year hiatus I am encountering cat-memed characters new and old, sophisticated players and teenagers alike, all riding the waves.

“Bitcoin Dood”, just one of the great faces of Crypto

Here are just some of the benefits of trading Cryptocurrencies and Bitcoin over stocks, bonds and FX:

  • Researching new currencies is fun, no more parsing Yellen or Draghi’s speak.
  • Less leverage required than in FX thanks to higher volatility.
  • Smaller account size required compared to stocks thanks to higher volatility.
  • Requires as much technical knowledge/language as it does economics.
  • Less efficient market. traders thrive on inefficiencies.
  • Ready access to volume/depth data.
  • Arbitrage opportunities
Bitfinex Order Book

At the end of all this I doubt many of the altcoins themselves, or even Bitcoin, will necessarily survive. But there will be many technical breakthroughs and contributions to the way we use and think about money. Fortunes will be made and lost. And the government will be eagerly sitting by the sidelines, taking notes on the technological breakthroughs that they can appropriate into their plans for a cashless confiscatory future of infinite taxation.

Until then its going to be a wild ride!

I trade using Coinigy: https://www.coinigy.com/?r=f9527b0d

***Full Disclosure: I currently hold $BTC $XVG $ARK $UBQ $ETH $DGB $LSK $XLM $FCT $XMR. Trading cryptocurrencies is extremely risky and you may lose everything. Nothing I say is meant as financial advice. Please consult a financial professional before you invest.