Binary options have been becoming Stock & Crypto Trading more and more popular in the last 2 years. This type of trading has been desired among new traders as they don’t need to actually buy anything, just predict whether the asset will move up or down in specified time frame. Those trades are happening in short time frames (30 sec, 1 min, 5 min) but might be months too. If the trader predicted wrongly, they will obviously lose their money. If the trader was right in his/her prediction, they will receive 80-85% payout, depending on the broker.
Binary options are sometimes referred to as ‘all-or-nothing options’, ‘digital options’, or ‘fixed return options’ (FROs), which are traded on the American Stock Exchange.
Bitcoin (BTC) is a digital currency which is created and held electronically and no one controls it. “Bitcoin is an online payment system invented by Satoshi Nakamoto, who published his invention in 2008, and released it as open-source software in 2009. The system is peer-to-peer; users can transact directly without needing an intermediary.Transactions are verified by network nodes and recorded in a public distributed ledger called the blockchain. The ledger uses its own unit of account, also called bitcoin. The system works without a central repository or single administrator, which has led the US Treasury to categorize it as a decentralized virtual currency. Bitcoin is often called the first cryptocurrency… “
Bitcoin as a currency in binary options trading
Bitcoin is now widely used currency and many trading platforms accept it as a method of payment for their clients’ trading deposits. There are many benefits using Bitcoin as a currency. The first benefit is “the fact that the cost of transaction is the lowest among all forms of online payment. This is the very reason why Bitcoin was created in the first place, to lower the cost of online transaction. Since there is no central authority managing Bitcoin, no service fee is paid when receiving or transmitting payment.” Another reason for traders to use Bitcoin as a currency is that Bitcoin itself is tradeable and they can earn extra Bitcoins that way.
“By having all the trading transactions denoted in Bitcoin, a trader is able to shield himself from the fluctuation of this crypto currency while at the same time earn more of it through profits earned in trading.”
Bitcoin as a commodity in binary options trading
With a recent popularity of Bitcoin and its acceptance as a currency, many binary options platforms started using Bitcoin as one of the currencies to trade. so as an asset. Stockbrokers are seeing the value in trading BTC against flat currencies, mainly versus American Dollar.
Today there are 2 main types of Bitcoin binary options platforms:
- First-generation brokers – binary options platforms that allow trading on Bitcoin
- Second-generation brokers – platforms that offer both Bitcoin funding and Bitcoin trading
First generation brokers – brokers who offer Bitcoin trading:
- Coinut – only Bitcoin options exchange platform; programmed as a robust and distributed on Linux operating system coinut.com
- BTClevels – Bitcoin binary options trading platform; with or without registration, hassle free btclevels.com
- 24 Options – one of the first brokers who started offering BTC as an asset 24option.com
Second-generation brokers – brokers who offer Bitcoin funding and trading:
- Traderush binary platform – accepts BTC deposits traderush.com
- Nadex trading platform -accepts BTC funding and allows BTC trading; offers limited risk, short-term trading, transparency and full regulated market nadex.com
- Satoshi Option trading platform – accepts BTC funding and allows BTC trading; doesn’t require account registration neither personal details. Payouts are near instantaneous and the service is accessible from anywhere in the world satoshioption.com
- BTCOracle platform – Bitcoin only platform – allows BTC funding and trading offering few wallet options and full transparency btcoracle.com
- Bitstamp platform – As above, BTC only platform – allows BTC trading and funding but requires login bitstamp.net
- Bitcoin Wisdom – allows trading 3 digital currencies, Bitcoins, Litecoins, Altcoins versus other flat currencies and requires login bitcoinwisdom.com
- Beast Option – allows BTC funding and trading of Bitcoins and Litecoins; guarantees fairness in pricing regardless of market fluctuations beastoptions.com
When choosing a Bitcoin broker it is important to check their terms and conditions, paying a particular attention to the information whether their Bitcoin Assets are stored in “Deep Cold Storage”. It means that Bitcoins are insured and stored offline, where they are not susceptible to hackers.
Bitcoin peaked about a month ago, on December 17, at a high of nearly $20,000. As I write, the cryptocurrency is under $11,000… a loss of about 45%. That’s more than $150 billion in lost market cap.
Cue much hand-wringing and gnashing of teeth in the crypto-commentariat. It’s neck-and-neck, but I think the “I-told-you-so” crowd has the edge over the “excuse-makers.”
Here’s the thing: Unless you just lost your shirt on bitcoin, this doesn’t matter at all. And chances are, the “experts” you may see in the press aren’t telling you why.
In fact, bitcoin’s crash is wonderful… because it means we can all just stop thinking about cryptocurrencies altogether.
The Death of Bitcoin…
In a year or so, people won’t be talking about bitcoin in the line at the grocery store or on the bus, as they are now. Here’s why.
Bitcoin is the product of justified frustration. Its designer explicitly said the cryptocurrency was a reaction to government abuse of fiat currencies like the dollar or euro. It was supposed to provide an independent, peer-to-peer payment system based on a virtual currency that couldn’t be debased, since there was a finite number of them.
That dream has long since been jettisoned in favor of raw speculation. Ironically, most people care about bitcoin because it seems like an easy way to get more fiat currency! They don’t own it because they want to buy pizzas or gas with it.
Besides being a terrible way to transact electronically – it’s agonizingly slow – bitcoin’s success as a speculative play has made it useless as a currency. Why would anyone spend it if it’s appreciating so fast? Who would accept one when it’s depreciating rapidly?
Bitcoin is also a major source of pollution. It takes 351 kilowatt-hours of electricity just to process one transaction – which also releases 172 kilograms of carbon dioxide into the atmosphere. That’s enough to power one U.S. household for a year. The energy consumed by all bitcoin mining to date could power almost 4 million U.S. households for a year.
Paradoxically, bitcoin’s success as an old-fashioned speculative play – not its envisaged libertarian uses – has attracted government crackdown.
China, South Korea, Germany, Switzerland and France have implemented, or are considering, bans or limitations on bitcoin trading. Several intergovernmental organizations have called for concerted action to rein in the obvious bubble. The U.S. Securities and Exchange Commission, which once seemed likely to approve bitcoin-based financial derivatives, now seems hesitant.
And according to Investing.com: “The European Union is implementing stricter rules to prevent money laundering and terrorism financing on virtual currency platforms. It’s also looking into limits on cryptocurrency trading.”
We may see a functional, widely accepted cryptocurrency someday, but it won’t be bitcoin.
… But a Boost for Crypto Assets
Good. Getting over bitcoin allows us to see where the real value of crypto assets lies. Here’s how.
To use the New York subway system, you need tokens. You can’t use them to buy anything else… although you could sell them to someone who wanted to use the subway more than you.
In fact, if subway tokens were in limited supply, a lively market for them might spring up. They might even trade for a lot more than they originally cost. It all depends on how much people want to use the subway.
That, in a nutshell, is the scenario for the most promising “cryptocurrencies” other than bitcoin. They’re not money, they’re tokens – “crypto-tokens,” if you will. They aren’t used as general currency. They are only good within the platform for which they were designed.
If those platforms deliver valuable services, people will want those crypto-tokens, and that will determine their price. In other words, crypto-tokens will have value to the extent that people value the things you can get for them from their associated platform.
That will make them real assets, with intrinsic value – because they can be used to obtain something that people value. That means you can reliably expect a stream of revenue or services from owning such crypto-tokens. Critically, you can measure that stream of future returns against the price of the crypto-token, just as we do when we calculate the price/earnings ratio (P/E) of a stock.
Bitcoin, by contrast, has no intrinsic value. It only has a price – the price set by supply and demand. It can’t produce future streams of revenue, and you can’t measure anything like a P/E ratio for it.
One day it will be worthless because it doesn’t get you anything real.
Ether and Other Crypto Assets Are the Future
The crypto-token ether sure seems like a currency. It’s traded on cryptocurrency exchanges under the code ETH. Its symbol is the Greek uppercase Xi character. It’s mined in a similar (but less energy-intensive) process to bitcoin.
But ether isn’t a currency. Its designers describe it as “a fuel for operating the distributed application platform Ethereum. It is a form of payment made by the clients of the platform to the machines executing the requested operations.”
Ether tokens get you access to one of the world’s most sophisticated distributed computational networks. It’s so promising that big companies are falling all over each other to develop practical, real-world uses for it.
Because most people who trade it don’t really understand or care about its true purpose, the price of ether has bubbled and frothed like bitcoin in recent weeks.
But eventually, ether will revert to a stable price based on the demand for the computational services it can “buy” for people. That price will represent real value that can be priced into the future. There’ll be a futures market for it, and exchange-traded funds (ETFs), because everyone will have a way to assess its underlying value over time. Just as we do with stocks.
After a rather nice bull run The Dow Jones Industrial Average has had a rough couple of weeks. Cryptocurrency also is experiencing a correction. Could there be a correlation between the two investment worlds?
We need to be careful using vague terms like “bull and bear markets” when crossing over into each investment space. The main reason for this is that cryptocurrency over the course of its amazing 2017 “bull run” saw gains of well over 10x. If you put $1,000 into Bitcoin at the beginning of 2017 you would have made well over $10,000 by the end of the year. Traditional stock investing has never experienced anything like that. In 2017 the Dow increased approximately 23%.
I’m really careful when reviewing data and charts because I realize that you can make the numbers say what you want them to say. Just as crypto saw enormous gains in 2017, 2018 has seen an equally quick correction. The point I’m trying to make is that we need to try to be objective in our comparisons.
Many that are new to the cryptocurrency camp are shocked at the recent crash. All they’ve heard was how all these early adopters were getting rich and buying Lambos. To more experienced traders, this market correction was pretty obvious due to the skyrocketing prices over the last two months. Many digital currencies recently made many folks overnight millionaires. It was obvious that sooner or later they would want to take some of that profit off the table.
Another factor I think we really need to consider is the recent addition of Bitcoin futures trading. I personally believe that there are major forces at work here led by the old guard that want to see crypto fail. I also see futures trading and the excitement around crypto ETFs as positive steps toward making crypto mainstream and considered a “real” investment.
Having said all that, I began to think, “What if somehow there IS a connection here?”
What if bad news on Wall Street impacted crypto exchanges like Coinbase and Binance? Could it cause them both to fall on the same day? Or what if the opposite were true and it caused crypto to increase as people were looking for another place to park their money?
In the spirit of not trying to skew the numbers and to remain as objective as possible, I wanted to wait until we saw a relatively neutral playing field. This week is about as good as any as it represents a period in time when both markets saw corrections.
For those not familiar with cryptocurrency trading, unlike the stock market, the exchanges never close. I’ve traded stocks for over 20 years and know all too well that feeling where you’re sitting around on a lazy Sunday afternoon thinking,
“I really wish I could trade a position or two right now because I know when the markets open the price will change significantly.”
That Walmart-like availability can also lend to knee-jerk emotional reactions that can snowball in either direction. With the traditional stock market people have a chance to hit the pause button and sleep on their decisions overnight.
To get the equivalent of a one week cycle, I took the past 7 days of crypto trading data and the past 5 for the DJIA.
Here is a side by side comparison over the past week (3-3-18 to 3-10-18). The Dow (due to 20 of the 30 companies that it consists of losing money) decreased 1330 points which represented a 5.21% decline.
For cryptocurrencies finding an apples to apples comparison is a little different because a Dow doesn’t technically exist. This is changing though as many groups are creating their own version of it. The closest comparison at this time is to use the top 30 cryptocurrencies in terms of total market cap size.
According to coinmarketcap.com, 20 of the top 30 coins were down in the previous 7 days. Sound familiar? If you look at the entire crypto market, the size fell from $445 billion to 422 billion. Bitcoin, seen as the gold standard equivalent, saw a 6.7% decrease during the same time frame. Typically as goes Bitcoin so go the altcoins.
Coincidence or causation? How is that we saw nearly similar results? Were there similar reasons at play?
While the fall in prices seems to be similar, I find it interesting that the reasons for this are vastly different. I told you before that numbers can be deceiving so we really need to pull back the layers.
Here’s the major news impacting the Dow:
According to USA Today, “Strong pay data sparked fears of coming wage inflation, which intensified worries that the Federal Reserve might need to hike rates more often this year than the three times it had originally signaled.”
Since crypto is decentralized it can’t be manipulated by interest rates. That could mean that in the long run higher rates could lead investors to put their money elsewhere looking for higher returns. That’s where crypto could very well come into play.
If it wasn’t interest rates, then what caused the crypto correction?
It’s mainly due to conflicting news from several countries as to what their stance will be certainly impacts the market. People worldwide are uneasy as to whether or not countries will even allow them as a legal investment.
This past week saw some favorable news from the congressional testimonies of Jay Clayton (SEC Chairman) and Christopher Giancarlo (CFTC Chairman). The sense was that while they wanted to eliminate bad players and ensure AML laws were followed, they wanted to also allow for innovation.
It certainly appears that the connection in similar results between the two worlds is uncertainty.
We all know that markets don’t like uncertainty. But uncertainty is fleeting. What causes concerns one day can sometimes be resolved overnight. There are also times when the news is so staggering that it paralyzes the market for several months and even years.
The key is sifting through all of this information and deciphering what is real and what isn’t.
Because I am long on both stocks and cryptocurrencies, I believe that keeping a close eye on both can be quite rewarding. The opportunity for profit exists nearly everyday. This is especially true in crypto as I’ve often bought a coin that just dropped 30% over the past day and then fell another 30% the following, but regained all of that and more within a week.
I would recommend staying as diversified as necessary (this varies with each individual’s situation). There are days when one is up and the other down. For a morale boost, it’s nice to have the option of logging into the account that had the better day. If you have accounts in both worlds, perhaps you can relate to this.