Glossary for Coin-op

Coin-op Glossary


Crypto developers love to smother their activities in impenetrable gobbledegook. The more impenetrable this is however the more suspicious you might be about a crypto's actual usefulness and worth. This is a shame because some of this technology is very interesting and will be very important in the future and it will be ordinary non-tech individuals and politicians who ultimately get to decide on this.


As far as Coin-op is concerned most of this waffle can be ignored; this is a trading site. Either the cryptos trade successfully or they don't. But Coin-op also has jargon of its own which hopefully is much easier to understand.

Here we examine some of the more obvious questions; just click on one of the headings below to go to the topic.

Firstly, a fairly large selection of 'What are..?' questions followed by some 'How to ...' answers.

Links and FAQs

And then a varied selection of miniblogs, articles and definitions.

How does Coin-op use moving averages?

How do Coin-op signals work?

How do you use Coin-op Buy and Sell signals?

Does crypto financial analysis work?

Crypto trading: is it investment or gambling?

The Crypto Index and how it works

Trading with the Crypto Index

Trading with the Crypto Index Moving Average

Leveraged crypto trading

What is volatilty and how does it affect cryptos?

What is relative value?

What does 'flatrun' or momentum strength mean?

How to use Bitcoin (BTC) futures

What are stablecoins?

Moving averages

Coin-op uses moving averages a lot. They are simple to understand and can easily be extended to all sorts of data sets. Coin-op's main algorithms use an exclusive variant of the principle to manage its trading signals.

How do moving averages work?

Basically moving averages are formed by calculating an average of a crypto's current value and all the other daily values for a total of, say, 30 days into the past. Tomorrow a new value will be added and the last value, now 31 days old, will be dropped off. That is what is meant by 'moving'. You can easily do this for yourself in a spreadsheet.

There are several points to notice. By definition you will be establishing a trend line which tracks the crypto's value. As an average it will be much smoother than the crypto's daily movements so you can see more clearly what is going on.

And if the crypto changes direction it will pass through this trend line and this can act as a signal. For instance if a crypto has been rising every day for 4 weeks its current value will probably be well above its 30 day moving average which is made up of 30 lower daily values. If the crypto's value then starts dropping it will eventually fall below the latest 30 day moving average value. If it keeps on falling the 30 moving average itself will then follow it setting up a new downward trend. All this can act as trading information. Do you sell when the crypto falls through the moving average or do you wait for the moving average trend to change confirming the position?

You can see this in the chart below of Bitcoin (BTC) and its smoother moving average both of which rise strongly until the end of June when the BTC value falls eventually taking its moving average with it. Selling when BTC fell through the moving average or when the average started falling would have both produced good gains if BTC had been bought in February. After another couple of months of hesitancy both BTC and the moving average continue falling.

You can also change the number of days in the moving average to give you shorter or longer term trends. If you change the number, say, to 10 days you can get a much faster reacting trend line which might be useful for short-term trading. Or if you prefer the slow long term approach you can set the moving average to 100 days or above. However cryptos are strange volatile beasts; because they do nothing for weeks at a time and then burst into life both up and down longer-term approaches would be less appropriate.

You can see all sorts of moving averages at work in the Coin-op charts on other pages.


Coin-op signals

Coin-op algos process large amounts of crypto data every day in order to arrive at different types of trading signals and the data that these signals turn out.

There are several parts to Coin-op signals; here's a run down on how you can use them.

Early Warning: Coin-op is really only suitable for medium-term (5 - 50 day) trading, not short-term or day trading. Principally this is because price data is only collected and processed once a day.

There are principally four types of Coin-op signal. They are based on the interaction of a variety of moving averages of varying day lengths which give you a range of signals of varying speeds. They mainly relate to the Buy or Sell (BS) signal value. You can see all these at work on the accompanying chart.

Short term signals

The first signal is when the daily crypto price crosses the BS. Imagine the price of a crypto has been rising for, say, 10 days: if the value falls through the BS indicating a market change you might choose to sell at that point. The problem with this is that the crypto might turn round and head on upwards again. But if you have made a profit; no-one will criticize you for taking it.

The second signal is the one Coin-op uses for all its signals and resulting data. In the example above imagine the price has fallen through the BS and is followed a day or two later by the 7 day moving average (MA). If both are below the BS at the same time then that is a Coin-op Sell. If however when the 7 day MA falls below the BS the crypto value is now back up above it then either the signal does not change or a 'Change?' warning may be issued instead. Using the value together with the MA is a much more certain signal. If both the value and 7 day moving average are falling then it reasonable to assume there has been a change in the market and you should be responding accordingly.

Longer term views

The third stage is a longer term signal. If you look at Coin-op crypto charts you will also see a 30 day moving average line shown. On many occasions when the crypto value moves up or down through this moving average this might indicate a change in the market and can act as a good signal for a longer term trade. But again the problem is, if the crossover is just a temporary thing, you might get caught out as the crypto returns to its earlier track.

The fourth signal is a solid longer term signal. If the crypto falls though its moving average and keeps on going it is fair to say something has changed. If the moving average then turns and follows the crypto then you have a confirmation that that is so. In this case you would trade on the moving average turn. These signals are usually very accurate but they do tend to lag the market by many days and this can lead to a lot of lost opportunity in a market as volatile as the crypto market.

Their singular advantage however is that they can confirm for a trader which direction the market is likely to follow in the next few weeks and months. If the moving average is heading down, for instance, a trader should be wary of staying in a temporarily rising market for too long. Take a profit when it is made and then step back onto the sidelines. With a rising moving average allowing a trade to run on is much safer.

Which signal to use?

Which Coin-op signal you use is down to your own needs, personality and resources. For some people shorter term signals satisfy a need to be continually trading in a market; for others with a more cautious longer term perspective using moving averages will be preferable. Ideally you would use a combination, usually linked to the goings-on in the Crypto Index. It may take some effort but you will quickly get the hang of weighing up the options.

However be warned: because the crypto market is not based on economic or financial fundamentals it is extremely unpredictable with periods of wild swings often followed by months of torpor. As a result crypto trading is not as safe as, say, equity trading. It is also a non-stop environment which means you are in the market 24 hours a day, every day. But Coin-op's algo signals are designed to do all they can to get you through this volatile environment and help you make profitable trading decisions.


How do you use Coin-op Buy and Sell signals?

This may seem a rather strange question but the answer is not quite as simple and obvious as it appears. For instance, what does Buy (20) mean?

We'll look at how to use these signals more closely below.

Let's look at Bitcoin (BTC) first. Every now and again Coin-op will issue a Buy or a Sell signal. Its algorithms will have been keeping watch on Bitcoin's daily movements and will have decided that it is time for a change and will signal a Buy or a Sell.

So a Buy signal is really an event at that moment in time and, if you are going to invest, then you should do so fairly quickly to maximize your gains; in other words within a few days.

If on the other hand, when you look, the Bitcoin (BTC) signal is showing Buy (20) this means the Buy signal has been in place for 20 days and you need to be more cautious; a Sell might not be too far away.

Why is that? It is a curious fact that when you study long periods of Coin-op Buy - Sell signals you will find they occur in cycles roughly every 32 – 36 days.

If the crypto market has been trending upward for some months the ratio could be biased towards Buy; so maybe 18 days on average for Buy periods before Sell signals occur and 14 days for average Sell periods before Buy signals occur. On long downward trends the opposite will be true.

This effect is especially the case with the Coin-op Crypto Index. Here we find in 2019 – 2020, for instance, Buy periods were above 20 days only three out of 10 times before Sell signals kicked in, averaging 20 days for Buys and 16 days for Sells.

In short when you see a Coin-op signal, check to see how many days it has been in place. If it has just changed then that is the time to act but if you see that the signal occurred many days ago be cautious, a Sell may be just around the corner.

Remember if you miss one there will always be another signal later.


Does crypto financial analysis work?

In short: not really. There are two main types of analysis: fundamental financial analysis and market trading technical analysis.

They are very different and we'll look at both below.

Financial analysis of an equity before investing would involve looking at revenues, margins, debts, cash-flows, growth trends and so on as well as checking out companies in the same market sector. Eventually you might be able to come up with reasonably accurate equity value and work out whether to buy or leave alone.

None of this is possible for cryptos; there is no underlying value to study. There might have been a lot of guff at the time of an ICO (Initial Coin Offering) but an ICO is generally just tapping into yield-free crowd-funding without any share ownership. The issuer will be owned by separate shareholders and even if it goes on to become another Microsoft there is no reason for its crypto to reflect this. Neither is there usually any responsibility for the issuer to re-pay the funding; it is neither a regulated loan nor equity investment.

So why do people flock to buy them? The same reason people spend billions a year on horse racing and lotteries. Excitement and the potential of high capital gain as the crypto market tosses their values around.

So what about market technical analysis?

If a successful form of technical analysis had been invented you would have seen two things: first, all the other types of analysis would have become redundant. And second all market activities would have been so warped by its 'success' that market trading would have been rendered useless as everyone used exactly the same tool.

Does that mean there are no successful analytical tools?

In the public domain, no, for the above reasons. That does not mean all of them are useless, just they have a lot of hard work to do to break even let alone make good gains.

Experiments show that people are twice as unhappy about losing their hard-earned money as they are happy about making more money. But this influences the way markets work and why technical analysis struggles with it.

If a popular Company X announces a 10% rise in net earnings you might expect a rise in equity price of, say, 10% in response. But if instead Company X announces a 10% drop in earnings the company's future prospects have suddenly become unclear and you may now see an immediate 20% drop in equity price. Experienced market traders understand these lop-sided responses but technical analysis has a problem coping with them.

So a tool may manage a 55% success rate in terms of correct predictions but the falls in the 45% 'wrong' periods could be far more sudden and severe than the rises in the 'correct' periods. Technical analysis has come up with a decent strike ratio but the results are still loss making.

Another major problem for technical analysis is when a trend flattens and then throws up unclear signals. Traders hate flat periods of market indecision; it is where most of their losses occur.

Isn't Coin-op another form of technical analysis?

Yes and no. Coin-op has two ways of working. The first uses algorithms applied to individual cryptos based on their moving averages which are simple to use and understand. On the whole they work well but as with other tools struggle with flat markets (although they do tell you when that is happening).

But Coin-op's unique ability is to also examine what is happening in the whole Coin-op market. It does this by aggregating all the individual signals and extracting short-to-medium term general trends from that analysis. This has the benefit of smoothing over individual crypto anomalies.

These algorithms determine when one market trend has finished and the next has begun. The choice of which individual cryptos to trade within a Buy trend is largely left to the investor, who may use the individual Coin-op signals and data values for extra guidance. There may only be a two or three of such Buy trend periods within a year lasting maybe two months or so at a time but the gains from these can be very substantial.

As a general rule

Coin-op analysis is not suitable for short term day traders nor for long term traders who want to invest and forget. An ideal Coin-op market Buy trading period might be around 30 - 60 days, after which, other than regularly keeping in touch with Coin-op, the investor can go off to do something more interesting until the market turns positive again.


Cryptos trading: is it investment or gambling?

You are going to into serious trouble with crypto purists if you compare crypto investing / trading to gambling but there are some similarities.

You decide for yourself

Cryptos don't fit easily into normal financial categories such as currencies, assets or even gambling. On the one hand they are too volatile to use as currencies and too unpredictable to hold on to for a long time as an asset but on the other they don't fit the 'loser loses all' mode of gaming and betting. Maybe crypto trading fits somewhere in between - a controllable bet. This is an interesting idea

The point of an equity or commodity or currency is that there is always some underlying support value; the capital of a company or the supply and demand for a mineral or the backing of a central bank. But cryptos don't have any of this. There is almost no way to accurately value a crypto using normal accounting methods but they obviously do have value because people keep trading and holding them. What's going on?

We mentioned gambling above; so let's take a diversion.

In financial terms gambling can be crudely boiled down to two counter-parties putting money on the result of a binary event. The turn of a card or a roulette wheel, a lottery win, a winner in a horse race, a football match result. In each case, winner takes all.

But if the gambling industry is to make money the winnings have got to be a lot less than the bets placed. This means that over time a punter will only ever get a fraction of all his bets back as winnings; say on average $6 for every $10 horse racing bet. And the winnings decline with the potential payout. A major lottery can pay out only $2 for a $10 ticket because punters view the multi-million payout as worth the losses.

Given the poor return why do they do it? Psychology. Some have to prove they are right; some love the buzz of reward over risk, some believe their financial troubles can be solved; some find it good fun socially and so on. Ultimately gambling is attractive because of the size of the reward relative to the outlay; when their luck's in a $10 bet can bring in a $100, $200 or $500 winner. This overcomes the reality that nearly all will be losers in the long run.

So how does this compare with cryptos?

As we saw cryptos do not really fit in any normal asset class mainly because they don't have underlying security values. In this respect they are like gambling. Most gambling is designed so there can be no underlying value to influence the odds which are set by the betting companies.

And like gambling cryptos can often have very high rewards. Not in the 1000% plus category admittedly but certainly in the 200% plus.

But the two do differ in two major areas: one is in timescale; a bet can be over and done with in minutes with the gambler either rueing his choice or on a dopamine high. On the other hand crypto gains might take weeks to develop.

The other difference is crucial: once a bet on a horse is made it can't be changed or cancelled after the race starts and a losing bet means the loser loses all.

A crypto however can be bought and traded as often as necessary and sold whenever the trader thinks fit. Even a losing crypto trade can still keep most of its value and crypto trading even has tools such as stoploss limits to prevent losses getting too bad anyway.

So where are we?

Cryptos have a lot in common equities in terms of trading characteristics: markets are available 24/7 to handle them; buying, selling and trading are very similar with tools such as stop and limit trading and some even have a range of derivatives to go with them.

But like all betting, cryptos have no underlying values and are not affected by economic or financial fundamentals; their open values are powered simply by the internal workings of the market. Also they also have the potential for very high gains because of their volatility. But unlike betting they can be controlled right through the trading process.

Whether crypto supporters like the idea of cryptos being compared to betting is a moot point. They have an idealized view of their functions but there is no doubt that cryptos do have characteristics of both equity trading and gambling, both of which have spawned huge industries, respected in most of the world.

At Coin-op our job is to combine the best of each and make them work successfully.


The Crypto Index

Indexes are usually very useful things. They can condense a lot of market data into a relatively simple format which gives traders a good idea where a market is heading. This is particularly true for the crypto market.

Why is the Crypto Index so useful?

As we have said before the crypto market is totally dependent on herd sentiment. There are no recognized financial or economic forces which affect crypto values. If the market breaks out after months in the doldrums support can be sudden and massive. In the two months from early May to the end of June 2019, for instance, the average gain for all Coin-op cryptos was over 70%; only one crypto made a loss in this period. This level of gain in two months is more than most equity markets can manage in years.

As important is the fact that the crypto market then collapsed over 50% in the next few months when sentiment turned sour. If a trader could not see this general picture then they would have experienced a real caning entering the market at the wrong point.

It is this high degree of correlation which makes the Crypto Index so powerful. Equity markets often have 25% or more of equities which are moving against the current index trend; with cryptos it is less than 10%. In other words if the Crypto Index is rising so are the values of the great majority of cryptos. This means we can use the index as a signal bearer.

By signal bearer we mean two things: one, a signal from the Crypto Index combined with a similar signal from a chosen crypto gives a trader extra confidence that a subsequent trade will go well. And, two, it is possible to use the Index signals alone as trading signals.

At first sight this may seem bizarre but only if you do not appreciate the degree of correlation in crypto trading. What causes this correlation? The same as in all markets: market maker activity. Given the lack of other financial forces cryptos are at the mercy of market maker manipulation. If market makers notice a breeze in the markets they will try to turn it into a storm. Some times it works, some time not. But that's OK – as long as you are trading on the right side of the wind.

Just to show you what we mean here are two charts of the Crypto Index relative to Ethereum (ETH) and Litecoin (LTC).

In the case of Ethereum the match is almost exact on a day to day basis.

For the Litecoin chart the match is different but look at the points when the Index changes direction and check those points relative to Litecoin – the same within days or even hours. Using the Crypto index signals would have been as good as the individual crypto signals themselves, maybe better because the index evens out small individual daily movements making signals easier to see.

So always make sure you look at the Crypto Index before trading. Knowing how the general market is behaving can be very handy.


Trading with the Crypto Index

The Coin-op Crypto Index is a great tool for seeing how the overall market is trending. As we say time and again trading long in a falling market is a fool's game; wait for the market to start rising first. But Index movements can also be used as trading signals for ordinary cryptos.

This may seem a little bizarre at first but we'll explain how below.

At Coin-op we only use around 30 - 40 cryptos to study; most of the others are too small and erratic to trade effectively on a day to day basis. The advantage of concentrating on these bigger cryptos is that they nearly all respond to the same movements in the markets. And the Coin-op Crypto Index, which is an unweighted average of this group of cryptos, reflects these trends and can smooth out the variances in individual crypto day-to-day movements.

Inevitably Buy and Sell signals in the index will reflect the direction the market is going next and because of the inherent volatility of the crypto market the movements of the market can be quite extreme especially when compared with equities, commodities and currencies.

Each day within an Index Buy signal period, Coin-op also calculates the average gain (or loss) of an imaginary 'fund' of all Coin-op cryptos until the following Index Sell signal.

Coin-op then aggregates these average Buy and Sell trade positions over 12 months and because of crypto market volatility these 12 month results can be impressive. For instance an imaginary 'fund' trading all Coin-op cryptos on Index Buy and Sell signals between January 2019 and January 2020 the average gains were over 180%. This was mainly the result of smaller cryptos such as Chainlink (LINK), DASH (DASH) , Bitcoin SV (BSV), Crypto.com Coin (CRO) recording 12 month gains of more than 300%; Bitcoin SV (BSV) gains alone came in at over 800%.

But that is the whole point of trading cryptos rather than other assets.

So if you are unsure which to trade of the many cryptos Coin-op covers or when to trade or would like to spread your trading over, say, 10 or more cryptos at a time then instead of following their individual Buy and Sell signals just use the Coin-op Crypto Index signals as guidance. At least then you will automatically be following the main market direction.


Trading using the Crypto Index Moving Average

We have had a look at using the ordinary Crypto Index signals for short term trading but what about using the signals generated by the Index's 30 day moving average for longer term crypto trading.

Here's a short explanation of how to do it.

The Coin-op Index is reset every day and each day its latest 30 day average is calculated. If the Index has been moving up for a few days the moving average will start to follow it. If the general movement of the index carries on for longer, the moving average will form a rising trend line. This rising trend can last for weeks.

Eventually the market will weaken and the Index will fall down through its moving average line. If this continues for a while the moving average will start to turn down into a down trend. So far so obvious.

Coin-op algorithms are always tracking this trend and will signal any change. The main point about Coin-op is that it is market oriented and a change in Index trend will be reflected in nearly all the other cryptos.

So if the Index moving average turns up that will be construed as a longer term buy signal for almost any crypto and similarly a turn down will represent a longer term sell signal.

You can see this in the chart below up to 31 May 2020

In this chart Coin-op signalled a turn up in the Index moving average on the 13 April 2020. By 31 May 2020, Bitcoin (BTC) was showing 40% gain, Ethereum (ETH) 52% gain. The best performer was Cardano (ADA) at 148% and the worst was Bitcoin Gold (BTG) at -5%. The average over all 35 Coin-up cryptos was 35%.

Up to that point the market had been rising for 48 days. In time the index moving average would turn down and signal a Sell but even at these levels selling would bring good gains.


Leveraged crypto trading

This is a difficult topic. Basically with most securities there are possibilities to trade leveraged derivative products such as futures, options, CFDs and spread betting which allow you to put up just a small percentage of the full capital when you make a trade. At first this seems a great idea but there are snags, particularly with cryptos.

Here are a few.

Obviously the first one is: if you are only putting up say 5% towards a trade who is putting up the 95%? The answer usually is the dealer / market maker who will charge you daily to 'borrow' the rest.

Something which new traders often do not understand is that you may have put up just 5% but you are in the market for the full 100%. So a $1,000 5% margin trade is actually a $20,000 trade. So what happens if that trade falls 10%? That is not a loss of 10% of $1,000 but 10% of $20,000. You have lost your $1,000 and owe a $1,000 to the dealer. You will get what is called a 'margin call'; the dealer will want you to make good the difference from the funds you have lodged with them. If you do not have enough then you'll need to find more and there's no more trading in the meantime.

The dealer makes good

Trades are usually carried out with a spread between the current buy and sell prices; traders pay the higher amount when they buy and get the lower amount when they sell. The dealer gets the difference. Depending on the derivative, trades may be in daily positions which means the trader will have to pay roll-over fees to the dealer to carry the trade over days and weeks.

Things are looking good for the dealer but stacking up against the trader. So do things improve with cryptos?

No, there are even more problems. Crypto trading is 'open' virtually 24 hours a day, 365 days a year. No nights, weekends or holidays off; you are in the market full time. And cryptos are often very volatile. A movement up of 5% in the day time which sends you happily to bed might be followed by a 10% fall in the night. Keeping tabs on a leveraged trade in conditions like this can be a nightmare, especially if you like to sleep now and then. There could be a lot of margin calls.

But do you really need derivative crypto trading?

There are two main reasons for using derivatives: to gear up actual gains going long and to capitalize on falling markets by going short. But cryptos by their nature are volatile and when in the mood can make gains of 50% or much more in the space of weeks or months. They scarcely need any gearing.

But going short is quite interesting. There is a rough rule of thumb in equity markets that a security will fall twice as fast as it rises and one thing that is obvious about cryptos is that they fall often and a long way and as a result it may make sense for traders to check out ways to go short.

One obvious thing to do is to look at the Coin-op Crypto Index to see which way it is headed. If it is falling then nearly all cryptos will be going with it and some may offer good short propositions. If you are new to this just try it out with small sums to get a feel of the market. And be patient; cryptos are going to volatile for many years to come.


Volatility

If you had jumped into trading Bitcoin (BTC) in early May 2019 and jumped out again two months later at the end of June you would have made a gain of around 120%. If instead you had invested in Chainlink (LINK) you would have made around 600%.

Why the big difference?

Every crypto has a volatility level which is based on such things as current popularity - Chainlink's smart contract API linkage system was all the rage in 2019 - and crypto value and capitalization. It takes a lot of money moving Bitcoin (BTC)'s value around but a small popular crypto is always going to have high response values.

Traders can use this volatility level to decide which cryptos to invest in when the crypto market turns positive. For example Bitcoin (BTC) and Ethereum (ETH) usually have volatilities of around 10 whilst BitCoin SV (BSV) and Chainlink (Link) have volatilities around 20 and 17 respectively. Both had much bigger gains than BTC and ETH in May / June 2019.

Of course any cryptos with very high levels of volatility (25 +) can mean extreme sudden swings both up and down so handle carefully.


Relative Value

This is simply a measure showing where a crypto's current value sits relative to its last 12 month high and its last 12 month low. A value of 50% means it is half way between those points; 100% means it is at a new 12 month high and 0% means a new 12 month low has been established. It is basically a simple measure of what the market currently thinks of the crypto.

So what is the point of this?

Because some people are optimists and some are pessimists. Optimists will assume that a crypto, currently down on its knees, will recover to new heights making them rich while pessimists will assume there is a good reason for the low value and avoid it. Instead they will be more attracted to those cryptos with high relative values which are currently doing well. Who is to say which strategy is right?


Flatrun / Momentum Strength

Coin-op's job is to come up with buy and sell signals in various market conditions. The most irritating condition for investors in any type of securities is when markets run flat and trendless. Most trading losses usually occur in these market conditions.

So how this can be avoided?

Coin-op's Flatrun / Strength indicator has values from 1 (implying a flat, lifeless market) up to 5 (an extremely active market). Buy and sell signals at a value of 1 or 2 need to be treated with caution; the market could still change direction. At 4 or 5, a trend in one direction, even if short-term, has been established and trading can be done with more confidence.

So when you see a buy or sell signal check out the crypto's momentum strength first before jumping in or out of the market.


Bitcoin futures

Futures are one of many types on 'derivative' securities used by financial markets as ways to insure and protect their financial positions.

What are they and how do you trade them?

If you make a $1,000 bet on a horse at 20-1 with a bookmaker the first thing he will do after you are gone is lay the bet off with other bookmakers – he doesn't want to risk being hit for $20,000 if his judgement is wrong. This behaviour is not limited to bookmakers; some of the most important workings of global financial markets are where market makers try to cover their financial positions against a fickle future.

And given that crypto markets are far more volatile than most it might be useful if such a facility existed there too. In a way it does in the form of Bitcoin futures which were introduced in regulated form in late 2017.

A futures contract is an agreement to buy or sell an asset at a particular price at some determined future date. It might be essential for a manufacturer to know how much they will be paying for copper in 12 months time for instance.

But futures can be traded before their expiry date. As the price of copper changes over the 12 months so does the re-sale value of the futures contract. If after 6 months the copper price has risen significantly the manufacturer might decide to sell the contract early, bank the profits and buy copper at the 'spot' price later hoping by that time its price may have fallen. If the price hasn't fallen he still has the profit to pay for it. If the price keeps rising he will be out of pocket. It's a balance of risk and judgement.

Bitcoin futures are the same; you can buy and sell them until they expire and the contract price will vary along with the value of Bitcoin (BTC) itself.

Trading Bitcoin futures have the simple advantage of not needing to hold Bitcoins themselves; they are a separate security all together. This can be very useful if investors live in areas where Bitcoin trading is forbidden. It also means you are not risking holding BTC coins in exchanges which can be hacked.

The other major advantage of using futures over actual Bitcoins is that you can go 'short'; in other words you can bet the price of BTC will fall in the future. This may seem contrary but is useful if you want to protect the value of any actual Bitcoins you may hold. For instance as the price of BTC falls, the value of a 'short' futures contract will rise, offsetting the loss on the coins themselves. Of course you can do this even if you hold no Bitcoins at all.

However like all derivatives BTC futures can be difficult for beginners to trade especially on the 'margin' where a trader is only required to put a small percentage of the total cost up front. They tend not to realize that even if only asked to put 5% margin up front they are in the market for the whole 100% so can get caught out in a volatile market – such as the crypto market. Another problem here is that a crypto trader's exposure is over 24 hours 7 days a week not just for 5 days as in the BTC futures market. This can result in 'gapping' problems where say the value of Bitcoins has seriously fallen overnight or the weekend before the futures exchange has opened. Learning how to deal with this can be painful.

But cryptos are slowly coming out of the cold and attracting more institutional interest. For instance, Bakkt introduced in 2019 by the owners of the NY Stock Exchange provides the opportunity for institutions to buy, sell and store digital assets under US federal regulation. It is hoped eventually that all aspects of market trading, both assets and derivatives, will apply to cryptos. This includes option trading and even ETFs. Only when these exist will financial institutions really become involved; like the bookmaker they won't play unless they can protect their positions. And only when the institutions are involved will cryptos become successful.

So bit by bit cryptos are getting there but how the future will ultimately play out is at the moment anybody's guess.


Stablecoins

This takes an old concept – linking a currency which is intrinsically worthless to a valuable asset thereby transferring value to the currency – and gives it a modern twist.

What are stablecoins and how do they work?

The British Empire was mainly a trading empire and was formed initially at the time when gold was the main trading medium. From the dawn of time it had been realized that moving gold about when buying and selling was a risky business and the further round the world the British traded the risk of loss grew dramatically.

The solution in medieval Europe had been for a merchant to deposit his gold at a local goldsmith with an excellent reputation in return for a bill of exchange which he could then use for purchases wherever he travelled. The British developed this concept further so that the Bank of England issued bank notes linked to the value of the gold which was held in its vaults. Each pound Sterling note could be redeemed at the Bank for an exact weight of gold. Eventually no-one bothered because pound notes were so much easier to use. This became known as the 'gold standard' and formed the basis of 19th and early 20th century trading.

Why the history lesson? Because stablecoins are the modern digital version of the 'gold standard'. Cryptos are intrinsically worthless. But if you can link them to an asset with value then they can take on this value for themselves and be useful as a digital buying and selling medium. But what should be used as an asset?

How about gold again? Digix gold tokens (DGX) fit the bill here and they are backed by real assets which are stable in price and have a liquid market. But are they really crypto? They would have to be organized centrally, as with a bank, and the stock and value of gold would have to be continually monitored.

So what about linking them to a currency? Tether (USDT) is closely linked to movements in the USD. It is also very popular but not for trading. In times of great volatility crypto traders move into Tether because it is much easier to do than convert holdings into regular currency. In principle this stablecoin option is simple, liquid and stable but as with gold-linked cryptos it would have to be organized centrally and, if used on a large scale, would almost certainly run into regulatory problems with central banks.

What next? How about linking a coin to another crypto or a basket of other cryptos? Maker (MKR and DAI) has done this and is quite popular. It is decentralized, which is the main point of crypto, efficient and transparent. But to work it needs users to lock away other cryptos – Ether tokens with DAI - as collateral. This is OK as long as Ether stays above certain thresholds. Below them the DAI tokens are immediately liquidated, which is hopeless if you want to pay for something. Inevitably the whole set-up is complex and even the biggest cryptos are very volatile as you can see in our Coin-op pages.

There is another esoteric alternative called seignorage-style stablecoin. Here there is no underlying value; algorithms do all the balancing. Basis is an example which meets a lot of crypto requirements, constantly monitoring its value by matching supply and demand. But it is extremely complex and more a prototype than a realistic crypto currency.

Clearly if a crypto currency is ever going to become acceptable for universal buying and selling it cannot be as volatile as the current offerings so some sort of stabilizing mechanism will be necessary. Stablecoins are still in their infancy but a currency based on one or more of the options we have discussed will probably one day be used and accepted by millions.

A thorough guide to how stablecoin technology works


Disintermediation

The blockchain dream. To separate the movement of money away from the intermediary banking system which has controlled the process so far.

Defi - Decentralized Finance

Projects which attempt to disintermediate traditional financial institutions. .

How are these different from the current crypto market?

So far digital currencies and their underlying blockchain technologies have mainly been used for speculative trading. But DeFi start-ups are trying to build an alternative financial system based on cryptocurrencies, offering a range of peer-to-peer lending and derivative products without middlemen

Lending is mainly based on stablecoins (see above) tied to fiats such as the USD. Savers store their coins usually in an Ethereum-based smart contract environment and borrowers are charged at interest rates set by supply and demand. How these blockchain projects can handle financial transactions at scale and details such as dealing with fraud prevention, bad debts and regulations are still unknown and some way off.


Links and FAQs

What is?' and 'How do I?' are the most common questions that people ask particularly those who are new to something. Cryptos need more explanation than most modern tech because they can be complicated and unfortunately crypto developers love the esoteric sound of their own voices. Rather than rehash even more articles on cryptos we have included some links to Coindesk and Coincentral which are excellent general sources of crypto information.

Some links under the 'What is ..?' category:

What is blockchain technology?

What is a 'distributed ledger'?

What are the issues and limitations of blockchains?

What is Bitcoin (BTC)?

What is Bitcoin Cash (BCH)?

What is Ethereum (ETH)?

What is Litecoin (LTC)?

What is the difference between Bitcoin (BTC) and Litecoin (LTC)?

What is Ripple?

What is Dash (DASH)?

What is Stellar (XLM)?

What is EOS (EOS)?

What is Cardano (ADA)?

What is BinanceCoin (BNB)?

What is Ethereum Classic (ETC)?

What is Libra?

What is Bakkt?


And once you know what they are how do you use them?

Some links under the 'How to ..' and 'How do I ..?' categories:

How can I buy Bitcoins (BTC)?

How do I store my Bitcoins?

How do I sell my Bitcoins?

How do I accept Bitcoins in my store?

How do Bitcoin transactions work?

How does cloud Bitcoin mining work?

How to use Ethereum (ETH)?

How does Ethereum (ETH) work?

How does Ethereum mining work?


Other articles to look at:

A beginners introduction to crypto trading

A comprehensive guide to crypto investing.

Cryptos explained in plain English

The basics of blockchain technology explained

A pictorial guide to blockchain technology

Chart: Current Buy and Sell positions
Chart: Coin-op Index vs Nasdaq 100 Index
Crypto Index : 522.93
22/06/2024
Sell on 11/06/2024- Down -1.39%
Rel Val: 76.17% - Strength: 4
Vol: 2.21% - MA: Down 2 days
Status: Buys: 6 Sells: 32
Last 3 days: Buys: 1 Sells: 1
Click here to see more ...
Sell on 11/06/2024- Down -4.85%
Rel Val: 77.51% - Strength: 5
Vol: 1.94% - MA: Down 3 days
Buy on 07/06/2024- Up 0.57%
Rel Val: 98.14% - Strength: 3
Vol: 0.51% - MA: Up 43 days
Nasdaq 100 Index: 19700.430
Buy on 07/06/2024- Up 3.19%
Rel Val: 96.07% - Strength: 4
Vol: 1.67% - MA: Up 42 days
Buy on 05/06/2024- Up 4.40%
Rel Val: 61.03% - Strength: 4
Vol: 1.08% - MA: Down 27 days
USD Maker (MKR): 2475.850
Buy on 21/06/2024- Up 1.68%
Rel Val: 43.45% - Strength: 4
Vol: 6.29% - MA: Down 61 days
Change?- on 15/06/2024- Up 0.03%
Rel Val: 43.48% - Strength: 2
Vol: 0.01% - MA: Down 40 days
Sell on 22/06/2024- No Change
Rel Val: 87.57% - Strength: 1
Vol: 3.73% - MA: Up 40 days
Buy on 16/06/2024- Down -0.27%
Rel Val: 30.55% - Strength: 5
Vol: 9.70% - MA: Up 29 days
Sell on 14/06/2024- Down -1.49%
Rel Val: 76.12% - Strength: 5
Vol: 1.34% - MA: Down 1 days
Buy on 19/06/2024- Down -1.92%
Rel Val: 6.64% - Strength: 3
Vol: 3.47% - MA: Down 18 days
Sell on 13/06/2024- Down -3.74%
Rel Val: 81.45% - Strength: 5
Vol: 1.12% - MA: Down 4 days
Sell on 13/06/2024- Down -4.01%
Rel Val: 80.31% - Strength: 5
Vol: 1.34% - MA: Down 4 days
Sell on 08/06/2024- Down -5.07%
Rel Val: 77.54% - Strength: 4
Vol: 1.51% - MA: Down 10 days
Sell on 19/06/2024- Down -5.40%
Rel Val: 75.78% - Strength: 4
Vol: 5.35% - MA: Up 41 days
Sell on 03/06/2024- Down -7.34%
Rel Val: 78.24% - Strength: 4
Vol: 3.14% - MA: Up 33 days
Sell on 31/05/2024- Down -10.68%
Rel Val: 28.96% - Strength: 5
Vol: 3.03% - MA: Down 12 days
Sell on 08/06/2024- Down -11.32%
Rel Val: 27.11% - Strength: 5
Vol: 3.40% - MA: Down 21 days
Sell on 08/06/2024- Down -13.15%
Rel Val: 7.67% - Strength: 5
Vol: 5.86% - MA: Down 19 days
Sell on 08/06/2024- Down -13.49%
Rel Val: 46.26% - Strength: 5
Vol: 7.14% - MA: Down 5 days
Sell on 31/05/2024- Down -13.64%
Rel Val: 4.21% - Strength: 5
Vol: 3.97% - MA: Down 80 days
Sell on 12/06/2024- Down -14.95%
Rel Val: 37.68% - Strength: 5
Vol: 2.92% - MA: Down 7 days
Sell on 08/06/2024- Down -16.92%
Rel Val: 29.89% - Strength: 5
Vol: 6.76% - MA: Down 59 days
Sell on 31/05/2024- Down -17.01%
Rel Val: 27.30% - Strength: 5
Vol: 5.32% - MA: Down 17 days
Sell on 01/06/2024- Down -18.16%
Rel Val: 17.13% - Strength: 5
Vol: 6.30% - MA: Down 18 days
Sell on 13/06/2024- Down -18.82%
Rel Val: 15.48% - Strength: 5
Vol: 2.90% - MA: Down 8 days
Sell on 08/06/2024- Down -19.31%
Rel Val: 15.55% - Strength: 5
Vol: 8.29% - MA: Down 18 days
Sell on 30/05/2024- Down -19.64%
Rel Val: 8.62% - Strength: 5
Vol: 6.35% - MA: Down 19 days
Sell on 31/05/2024- Down -20.87%
Rel Val: 41.20% - Strength: 5
Vol: 6.09% - MA: Down 10 days
Sell on 29/05/2024- Down -20.96%
Rel Val: 64.14% - Strength: 5
Vol: 4.83% - MA: Down 7 days
Sell on 30/05/2024- Down -22.78%
Rel Val: 36.95% - Strength: 5
Vol: 6.25% - MA: Down 11 days
Sell on 03/06/2024- Down -22.94%
Rel Val: 15.16% - Strength: 5
Vol: 6.17% - MA: Down 12 days
Sell on 08/06/2024- Down -24.43%
Rel Val: 32.27% - Strength: 5
Vol: 8.68% - MA: Down 34 days
Sell on 28/05/2024- Down -26.55%
Rel Val: 30.13% - Strength: 5
Vol: 6.33% - MA: Down 45 days
Sell on 03/06/2024- Down -26.96%
Rel Val: 21.10% - Strength: 5
Vol: 7.49% - MA: Down 18 days
Sell on 24/05/2024- Down -27.50%
Rel Val: 36.26% - Strength: 5
Vol: 6.60% - MA: Down 20 days
Sell on 31/05/2024- Down -28.37%
Rel Val: 6.78% - Strength: 5
Vol: 8.19% - MA: Down 18 days
Sell on 06/05/2024- Down -28.63%
Rel Val: 36.77% - Strength: 5
Vol: 4.08% - MA: Down 78 days
Sell on 30/05/2024- Down -29.63%
Rel Val: 32.09% - Strength: 5
Vol: 6.37% - MA: Down 17 days

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