Tuesday, December 24, 2019
Friday, December 13, 2019
IEO Frauds are Waiting to Happen
The week began on a very negative note for the cryptocurrency industry.
Matic, one of the first tokens issued via Binance Launchpad, witnessed one of the harshest crypto crashes. It plunged by up to 70 percent within a matter of two hours. The wild downswing led social media to scream price manipulation, with noted market analyst Alex Krüger comparing the event to a nightmare.
The native asset of Matic Network came into existence after Binance, one of the leading cryptocurrency exchange, approved to issue it on its newly launched Binance Chain. The integration further allowed the Matic team to list their token on Binance’s global trading platform. It exposed the cryptocurrency to hundreds of thousands of traders at once.
The process, commonly known as Initial Exchange Offering (or IEOs), offered the Matic Network a shortcut to fame. Signing up with a popular – and arguably trustworthy exchange gave them a concrete platform to sell Matic for hard capital. As usual, traders flocked at the opportunity to purchase the token at a discounted price.
They also invested in Matic because of their blind trust in Binance. The exchange took a reputational risk by promoting the token among its clients. Nevertheless, Matic skipped a vital regulatory check that could protect its investors from getting clipped by unforeseeable price crashes.
Allegations on Matic Team
People were quick to notice the involvement of the Matic team in the said price crash. One social media influencer highlighted transfers of over 1.4 billion Matic tokens to a Binance wallet. He alleged that the Matic founders were behind the large crypto shipments, adding that they are the ones that pushed the price down after flying them to all-time highs.
Matic’s COO, Sandeep Nailwal, pleaded innocence. Binance co-founder and CEO Chanpeng Zhao also defended the founder team, adding that they would launch an investigation into the Matic pump-and-dump.
The Bigger Problem is IEOs Themselves
Matic ended up being yet another case study of extreme price manipulations in the cryptocurrency industry.
As one of the first IEOs, the token proposed to be a better version of an initial coin offering. But under no proper oversight for the Matic Network, as well as on Binance, the project could never guarantee that selling a token via an established exchange will change anything for investors.
Certainly, IEOs do not solve the problems that infected the ICOs. On the contrary, they give more control to largely unregulated cryptocurrency exchanges. Some of these trading platforms have earlier been hacked or have been found guilty of posting fake trading activities.
Michael Conn, a managing partner at Quail Creek Ventures in Los Angeles, had discussed with WSJ about how frauds are just waiting to happen in the IEO space. He said that “a lot of people got burned in ICO land,” and “a lot of people are going to get burned in IEOs land” as well.
The opinion editorial is penned by guest contributor Yashu Gola. He has written for major cryptocurrency outlets, including CCN, NewsBTC, and Bitcoinist, in his career span of five years as a journalist.
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Thursday, December 12, 2019
How to Short Bitcoin in 2020 (Top 6 Ways)
There’s no denying that Bitcoin is one of the most volatile assets in the world. While volatility may turn more risk-averse investors away, it means there’s room to profit in both bullish and bearish markets if you know how to properly short the asset. Here’s how to short Bitcoin in 2020 and beyond.
First things first, what does it mean to “short” an asset?
Short selling is an investment method for making money when you expect an asset’s price to drop.
George Soros is famous for his short investment against the British pound. Now, Soros is sometimes referred to as the “Man Who Broke the Bank of England.”
In all reality, he did not break the bank but rather joined others who were heavily shorting the currency as they saw the British government hike up inflation rates into the teens during the days leading up to Black Wednesday.
Those who shorted the currency anticipated that the price of the currency would go down. As a result of their actions, the currency had to be pulled from the European Exchange Rate Mechanism.
Short = Borrowing Money from a Broker
Shorting Bitcoin means that you are simply borrowing money from a broker (usually a company but sometimes an individual) to purchase a stock. More specifically, when you are taking a short position, you are taking from the exchange’s internal supply with the expectation that you will return the same number of Bitcoin, stock, or what-have-you back to the exchange.
Here is another example:
Imagine you short sell 20 Bitcoin when the price of Bitcoin is $10,000. You sell them and this brings you $200,000 while leaving you 20 Bitcoin short. Bitcoin’s price drops from $10K to $8,000.00. Now, you see your chance to rebuy the Bitcoin at a lower price and gain $40,000 in total for your efforts. See, it’s not so hard to imagine an answer to the question “how to short bitcoin?”
Trading Bitcoin: Short vs. Long
A short position is obviously a direct distinction from longing a stock. When you long a stock, you are anticipating that the price of an asset will go up over time. This is what most people traditionally do when they invest.
For example, the traditional investor will develop an investment thesis, then go out and buy X shares of Peloton with the forecast that Peloton will go up to Y amount in Z time.
But how is it done in the cryptocurrency world?
Six Different Ways to Short Bitcoin
There is more than one way to short Bitcoin. Depending on your aptitude for risk, your level of patience, and the initial amount of money you’re willing to spend, you can find a short-position investment strategy that you mesh with.
From the more traditional bet on Nasdaq with the Bitcoin Investment Trust, to a binary trading option on an exchange like Kraken, there are many options to choose from (pun intended).
For the record, this is not financial advice. Do your own research!
Margin Trading
When you margin trade, you’re using borrowed money to open a larger position than you would have otherwise been able to do with your own funds.
For example, Kraken will directly lend money to a trader. The trader will open a position with that cash, then once the position is closed, the trader will repay the short back to Kraken.
Here are some of the best places to Margin Trade Bitcoin:
Prediction Markets
Prediction markets are a newer way for executing options on how to short Bitcoin, but the platforms are quickly growing in popularity. On a predictions market, you can demonstrate that you think Bitcoin will fall by a certain percentage or margin by a certain date. Another person in a predictions market can take you up on that bet. The bet is then locked-in on the platform.
Here’s a good resource to discover the top Bitcoin prediction markets.
Sell a Bitcoin Futures Contract
Like other assets, Bitcoin has a futures market. In futures trading, a buyer agrees to purchase a security with a contract. The contract specifies when and what price the security will be sold at. If you buy a futures contract for a higher price than what it is currently being traded at, that is usually associated with a bullish mindset. If you plan on selling a futures contract, it suggest a bearish mindset. Think about it, why would you want to sell a contract for less money than you expect it will be worth in the future (unless of course you needed the cash)?
Here are some of the best places to sell Bitcoin futures contracts:
Binary
The word ‘binary’ very simply means two things when you’re talking about how to short Bitcoin. You enter a trading position with a binary (two-sided) outcome- yes or no- that answers the question “Will an underlying asset be above a certain price at a certain time?” For example, you can predict the price of Bitcoin will fall below $7,300.00 by 12/15. Yes or no.
If the binary trade wins, you win the money, however, if the binary trade loses, your entire investment is lost. There are only two possibilities.
Directly Short-selling Bitcoin Assets
This is also not recommended for the faint of heart or those who already have trouble sleeping. A trader can short-sell currency directly from their own account by buying tokens at one price, then selling off tokens at the low-price they are comfortable with. This is the infamous “buy high, sell low” strategy that all desire to trade with. It can also work when answering the question ‘how to short Bitcoin.’ While this option is not as complex as some of the others, complexity isn’t everything. Less is more might apply here.
Short the Bitcoin Investment Trust
Traded on NASDAQ, the Bitcoin Investment Trust (NASDAQ: GBTC) tracks Bitcoin’s market price, then theoretically follows in price alongside it. The trust allows people to short and long Bitcoin without having to actually invest in the currency and while using more traditional financial trading systems.
In Closing
The price of the Bitcoin market is always changing, and when it’s going up, you know it could only go up for so long. When some investors see clear signs that the market is going south, then they often short the market or bet on the market’s downfall.
A short position is a much different strategy than longing the market. Then, even within short positions, there are at least six different ways you can bet on Bitcoin’s downfall. The strategies vary based on your aptitude for risk.
When it comes to tracking the performance of your portfolio, CoinStats has one of the highest-rated apps available on iOS and Android.
Good luck and happy trading!
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Monday, December 9, 2019
Is Binance Still Safe in 2020?
Is Binance still safe? After $40 million dollars in Bitcoin was stolen from the exchange earlier this year (in addition to several other blunders), people are wondering about the security of their digital assets held on what was once the world’s largest exchange by volume.
A Brief History
Binance’s rise to cryptocurrency exchange prominence was meteoric.
- The world’s largest cryptocurrency exchange by trading volume;
- CEO makes the cover of Forbes at height of crypto bubble;
- The team becomes billionaires;
- The mighty fall.
It launched in 2017, and by the end of 2018, Binance was the world’s largest cryptocurrency exchange doing more than $500-million-dollars of business… a day. The exchange marketed itself favorably with low trading fees and offered a proprietary coin called BNB. The coin itself had an ROI of 9,000% in the last 2.5 years. Additionally, if you used the coin within Binance’s ecosystem, it allowed users to experience some of the lowest fees in the industry.
Binance’s CEO, Changpeng Zhao, aka CZ also rose to fame. In February 2018 CZ made the cover of Forbes Magazine with the text: “Crypto Overload CZ– Zero to Billionaire in 6 Months.” Before his rise on Binance’s coattails, CZ made his career at the Tokyo Stock Exchange as well as Bloomberg Tradebook, positions he held as a developer of future trading softwares.
So Binance rose so quickly to the top, with its features, and leadership, and numbers… and it’s impenetrable security.
Oh, how the mighty fall.
It was only a matter of time until hackers hit Binance hard. Roughly $40 million dollars in cryptocurrencies were stolen, which was nearly 2% of the coins held by the exchange at the time.
Trust Fades Amidst Despite Some Transparency
The image that Binance once held as a beacon of safety faded in 2019. While the company has been applauded for its ability to communicate in the past, at least by some, even that image is becoming opaque in response to issues discussed below.
That’s not how it always was. Binance’s CEO, Changpeng Zhao, immediately fessed up to the company’s security failure and promised to refund all of the 7000 or so missing Bitcoins. Biance was working toward improving security protocols and it’s smart enough to keep the exact specifics of these implementations secret.
However, the exchange will forever be in the crosshairs of cybercriminals looking for both massive bucks and bragging rights. No matter the security measures Binance implements, they won’t be able to get around sophisticated phishing techniques in which users mistakenly give hackers their information.
Other Risk Factors
One of the major risks of using Binance as your exchange today is the improved Two-Factor Authentication (2FA) locking users out of their own accounts. That’s the last thing you want when you go to sell your cryptos at what could be the high of the month. While Binance made slight improvements, it seems like whatever security improvements it has made were overzealous because the end result is that the 2FA still rejects user login attempts.
This was around the same time complaints started to surface about the slowed and seemingly non-existent response to the 2FA issues. Bad customer service can cost you thousands of dollars in the lightning-fast world of crypto.
The Binance Office Issue
Another point to consider when evaluating how safe Binance is is the stability of Binance’s offices. They have been running from regulators, switching locations from Shanghai to Tokyo to Taipei to Malta, all in the space of a year and a half. Rumors swirled on the offices closing for good, and although closure rumors appear to be unsubstantiated, all of this affected the crypto market.
The amplifying uncertainty, even if it’s unsubstantiated at times, on top of the hopping around for headquarters more than once in the short two-year history leaves the world wondering, “Is Binance safe?”.
It has gone from a #1 ranked exchange on many crypto news networks to not even scraping the bottom of the top 10.
It’s not all Binance’s fault and, as an exchange, they have done a tremendous amount to make trading digital assets cheaper, more profitable, and more accessible. They are not scammers either, they were a reputable and trusted company that now has a damaged reputation, unlike, for instance, OneCoin – which was a full-on Ponzi Scheme.
Binance is Not Alone
Binance is not alone in its challenges. It will be a glorious day for us all when a top crypto exchange deflects all attacks from hackers forever. Every major credit card company faces fraud and cybercrime on a daily basis, digital stock exchanges are susceptible to attack – Robinhood even admitted to storing user login info in unencrypted areas where hackers could easily access it- and we all hear about know about how titanic companies like Sony and Visa are compromised regularly.
If you truly want your digital assets to be secure, you CANNOT store them in a hot wallet on an exchange.
Anyone asking themselves “is Binance still safe” who keeps a large portion of their portfolio in another exchange may fall prey to a phishing scheme or a virus.
For example, CryptoShuffler steals key information about addresses from cached copy paste clipboards. Investing in a hardware wallet like Ledger Nano S, which costs less than a night on the town, will secure your cryptos better than any exchange. Be sure to keep copies of your seed keys and other valuable information for emergencies. Of course, keeping your wallet offline adds unwanted time to facilitating transactions. There is always a trade-off.
In Closing
The fact that people around the globe are even asking is Binance still safe means they have lost consumer trust, and despite this industry being about trustlessness, trust is still paramount. If you are going to use a hot wallet on a crypto exchange, be sure you only keep an amount you can live with losing to hackers. Choose an exchange you can stand by.
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