As promised I thought a brief overview of what cryptocurrencies are may be a useful intro.
Some of you may be familiar with Bitcoin. Bitcoin is the leading cryptocurrency of the moment and was released into the world by it’s anonymous creator under the name Satoshi Nakamoto.
The concept of Bitcoin was first published on the internet in November 2008 under the title “bitcoin: A Peer-to-Peer Electronic Cash System” from this white paper the original bitcoin code was developed and released in January 2009 as an Open Source project and Satoshi mined the first block of bitcoins ever (the genesis block). The value of the first bitcoin transactions were negotiated by individuals on the bitcointalk forums with one notable transaction of 10,000BTC used to purchase two pizzas delivered by Papa John’s (current value of that 10,000BTC is in excess of $10m).
Cryptocurrencies are digital or virtual currencies that use cryptography for security. A defining feature of a cryptocurrency (until recently) is it is organic in nature; it is not issued by any central authority, rendering it theoretically immune to Government interference or manipulation.
This feature may be watered down by some of the private blockchain based currencies now being proposed by Central Banks to issue their own currencies. For our purposes we will differentiate between Public Cryptocurrencies (those held on a public Blockchain such as bitcoin) and Private Cryptocurrencies (those released on a private chain under the control of an issuing authority.
The other unique element of cryptocurrencies – all transactions are executed by “signing” the transaction with a private key. This private key is known only to the holder of the funds and by signing the transaction the holder of the funds issues a transaction from his own wallet address to the recipients wallet address. Without this private key the funds cannot be transferred – another benefit that prevents automatic confiscation or removal of your funds.
These transactions are all held on the Peer to Peer network and are validated by participants on this network. For bitcoin and most of the other leading public blockchains this validation uses a “Proof of Work” model. This sets the task for “miners” to solve a cryptographic puzzle that allows them to fix the next block of transactions on the blockchain. By rewarding these miners with distribution of bitcoin the network encourages the mining activity and the collective participants on the network validating the chains ensures that the blockchain is not corrupted or rewritten by a “bad actor” in the infrastructure.
It’s worth noting that there are other validation schemes being proposed, especially for private blockchains and in the public chain domain some are proposing alternative validation such as “Proof of Stake” – these are untried at this stage but overcome one of the leading concerns with Proof of Work, the unnecessary power consumption and computing power utilised for “wasted” effort.
For the purpose of our test trading we will focus entirely on Public Cryptocurrencies. Our starting markets will be:
Bitcoin – $16,900 trading Capital
Etherium – $4800 trading capital
ZCash – $610 trading capital
Etherium Classic – $203 trading capital
DASH – $610 trading capital
Monero – $305 trading capital
Ripple – $510 trading capital
We will follow a simple model if simply switching into the cryptocurrencies when the model believes the market will rise and move back into USD when the model believes the market is going to decline.
The exchanges we will use are First Global Credit for the Bitcoins (www.firstglobalcredit.com) and Poloniex for the other coins (www.poloniex.com). Poloniex does not support USD holdings so we will switch into Tether-USD, a USD proxy tradable on Poloniex.
We will publish a trading update whenever trades are executed or weekly if no trades have executed during the week.
— Wintermute —