How to Trade Ethereum (Cryptoсurrency)

Hello, friends, Forex traders!

We have already discussed how to trade Bitcoin, now it’s time to look at the new popular cryptocurrency - Ethereum.

The logical question - why do I need some new fancy cryptocurrency, when there is good old EURUSD? It’s very simple –the market has long ago learned how to work with the old tools and all the typical inefficiencies, while the new ones are an untouchable field of opportunity. Simply saying: the most standard technical analysis strategies can bring hundreds of percentages of profit when you are hardly earning anything with the established currencies.

One thing is that the popularization of Bitcoin cryptocurrency has disturbed the shaky foundations in the heads of the rulers of the law, already talking about the viability and potential power of the new technology. It turns out that, in fact, there can be a currency that is not subject to any state. And, the fact is that we are talking not only about bitcoins but about a lot of other currencies on blockchain technology, whose popularity is growing exponentially. There is a natural question, what is the future of the cryptocurrencies? So, let’s see if the ideal cryptocurrency is found and what it should be like.

What is the Ethereum?

The founder and one of the main developers of the project are Vitalik Buterin, a Canadian programmer of Russian origin. He was born in the Moscow region, in the city of Kolomna, and moved to Canada at the age of six. In July 2014, he received a grant of $100 thousand for the concept of the new cryptocurrency, and in the same year won the World Technology Awards.

At the basis of the development lies the very same block-chain - a technology of decentralized accounting. For cryptocurrencies, blockchain is a distributed database for storing transactions. It is where you confirm and synchronize all transfers between the e-wallets.

The Ethereum concept is trying to develop the idea of Bitcoin into something more ambitious. In fact, the Ethereum is the platform for developing decentralized applications. In the Ethereum, it was decided to implement the undisclosed potential of the Bitcoin scripting language at the protocol level, adding to the network a tool for creating smart contracts.

The smart contract is an attempt to automate the conduction of transactions, where all the conditions and the result of transactions are preliminarily taken into account. This simultaneously ensures safety and reliability, as the procedure does not involve third parties, and the terms of the contract can not be changed.

With the help of such contracts, for example, you can make a real revolution in micro crediting. The terms of such a contract may imply the transfer of ownership of certain digital assets in the event of a default of the loan until a certain period, a refund taking into account accrued interest and much more. In fact, the possibilities of smart contracts allow you to create your own currency within another currency.

In theory, the Ethereum is able to completely dislodge Bitcoin from the market, being its more perfect alternative. This is facilitated by the presence of a well-coordinated team of developers and a vector for active development. However, the stability of the Ethereum work is still in doubt.

For the sake of justice, it is worth noting that the implementation of the same smart contracts is available on the Bitcoin, provided a separate setting is used. If this mechanism becomes popular, the future of the Ethereum will not be obvious.

The main problems

One of the big problems of Bitcoin is the size of the blockchain. With the new currency on the market, the problem only worsened, and therefore it takes an unacceptably long time to launch a wallet. This factor can seriously slow down the growth when it reaches a certain level, as this will directly affect the spreading of the currency.

Another extremely unpleasant story that recently occurred with the decentralized crowdfunding project “The DAO”, built on the basis of clever Ethereum contracts. So, about a third of the fund (about $50 million) was transferred to the wallet of an individual who took advantage of the vulnerability in the code of a smart contract. The problem is that the entire responsibility of the decentralized system lies on the computer code, which, if there are errors, can lead to a large-scale failure, which, in fact, happened.

As a result, it was decided to create a parallel branch of the project and fix the detected problem. This led to the separation of the community since the original ideology of a free open source project was aimed at getting rid of financial corruption and the absence of manual intervention in the functioning of the network. Now, we have the “corrected” Ethereum from the main branch of the project - ETH and the “classic” unchanged Ethereum - ETC (Ethereum Classic), to which all those who disagree with the decision about the hard fork switched.

In general, investors are very emotionally reacting to any rumors about the Ethereum project. Thus, the fake news that the Ethereum founder dies, appeared on the evening of June 25 further accelerated the fall of the exchange rate. In fact, the rate restored to its former value after that.

Where to get the chart?

The currency graph can be obtained through the TradingView service directly on our website in the online charts section, choosing the name of the ETHUSD tool.

Here, you can immediately choose which stock quotes you are interested in. For the analysis, it is better to choose the most popular exchanges (Kraken, BTC-e, Bitfinex), since quotes can vary greatly depending on the site.

Of the well-known brokers, Ethereum is already available for trading on AMarkets. Below are the specifications for the account in USD.

In AMarkets, the minimum lot for cryptocurrency is 1, which in turn equals 10 units of Ethereum. Be careful, since opening 1 lot of ETHUSD will be a cost of about 30-60 dollars, taking into account the commission and the current spread. In addition, to open an order, a margin of 100 times more of the contract amount is required (not taking the leverage into account).

Best of all, try to open a couple of transactions on the demo to get used to the trading conditions first. The specifications of contracts on demos and real accounts do not differ.

Trading Strategies

Cryptocurrency is traded 24 hours a day 7 days a week and is in constant motion. This is a trend tool with short consolidations. Therefore, trend strategies will work well.

At the same time, the global trend tends to go up, when growing volatility generates more and more strong corrections.

Fortunately, Fibonacci levels work well for measuring corrections.

In this way, you can define the area of ending correction. Most often, the price stops at 61.8%.

The strategies that don’t work in popular currencies anymore, will work on Ethereum. So, for example, a significant difference in the quotes of various exchanges means the suitability of the currency for trading the classic arbitrage. The essence of arbitrage is very simple - buy where it’s cheap, sell where it’s expensive.

Naturally, in real life, the transfer of funds between exchanges and the commissions imposed at the same time may become a pitfall, but with this calculation, arbitrage may work well.

On the other hand, no one forbids the use of statistical arbitrage. In any way, the cryptocurrencies are still a quite young trading instrument, and therefore have a large number of inefficiencies. Analyzing the correlations of different cryptocurrencies, you can determine those hidden dependencies and try to trade them. But, due to high overhead costs (spread + commission), the main attention should be paid to long-term dependencies.

Bitcoin, for example, is sometimes used as a buffer zone for insurance against excessive volatility. Given the volatility of Bitcoin itself, this sounds strange, but this is easily explained by its political neutrality.

A good solution is to create a neutral market portfolio, which includes both traditional and crypto currencies.

And yet, wait and be ready for the big falls. In less than two weeks, the Ethereum lost 40% of its value for no apparent reason, and such volatility bursts are quite typical for both traditional and crypto currencies.

Similar has already happened to Bitcoin, and with sufficient frequency. But, the fall was more like a sharp correction, rather than a gentle descent, as in the case of the Ethereum. The instrument is still too young for investors to be able to adequately assess its potential and risks.

In general, the Ethereum is now at the stage of formation and is likely to overlive several more similar stages of inflation and bubbles, during which it will be possible to earn some money.

If you are focused on long-term investment, wait until the pair falls to the lowest possible (by an individual assessment) level, and make a purchase. Most likely, the global upward trend will continue.

As for intraday trading, even the most primitive strategies will work there. You can use technical analysis, fundamental, astrological … But, given the instability of the market as a whole, you need to pay special attention to the release of relevant news. Anything that can provoke a sharp collapse or growth, and you need to be on the alert in time to take appropriate measures.

Conclusion

The market of cryptocurrencies should definitely not be ignored. In some ways, it’s even easier to trade cryptocurrencies, given the huge number of unprocessed inefficiencies and the absence of centralized aggregators. Nevertheless, such instrument is unlikely to suit newcomers, given unpredictable outbursts of volatility, large overheads, and low liquidity.

Regards, Michael

ForexTraderPortal.com