The Cryptocurrency Trading Journal

Discussion in 'Journals' started by Daal, Jan 20, 2021.

  1. Daal


    I noticed that there is no journal on ET talking about cryptocurrency trading, so I decided to create one. In my other journal (Global Macro Trading Journal) I was already posting daily about cryptos, which removed some of that focus of that journal. That journal is more about what I call old finance (stocks, bonds, gold, real estate, ETFs, exchange traded futures, options), this journal will be more about new finance (crypto assets, tokenomics, DeFi, unregulated derivatives, computer security) etc.

    Everyone is welcomed to join and contribute, I'm just not very interested in the endless ET debate of whether this is a tulip mania, etc. Its a giant trading opportunity and discussing and learning more about these markets is beneficial to everyone.

    This journal will be all about how to profit from crypto markets and how to manage risk in cryto markets.

    Since a lot on ET doesnt seem to be involved in crypto, I'm creating a little FAQ to address some common questions people might have.

    Crypto FAQ

    But isn't this just another bubble driven by low interest rates?

    Its possible but Soros said it best “When I see a bubble forming, I rush in to buy, adding fuel to the fire,” he said in 2009. “That is not irrational.”

    Traders love volatility and crypto markets are one of the most volatile in the world! There are great opportunities long and short. Also, its a very inneficient market because Wall Street is not massively arbing every opportunity, running endless quant models to reprice every mispricing, etc. The amount of instutitions taking advantage of these markets is increasing but I still see plenty of inneficiencies. Recently Dan Laminer quit EOS (he was the one who designed), yet it took several hours for EOS to drop. If EOS was a stock, HFT news bots would have smashed it the millisecond the news was on Bloomberg.

    Also how many times have you thought something was a bubble and it proceeded to rise a lot? Heck I thought BTC was a bubble at $2,500 but I was wrong.
    I hope it is a bubble, it means I can make a lot of money. I know many traders that made a fortune in the tech bubble in the 1990's.

    But I would also counter ask, what if this is not a bubble? I have never seen (or read about) a bubble that goes down 80% 4 times and comes back to new highs and then increases exponentially from there. To me that is a sign of technology that is meeting a demand, not a bubble. To me, if BTC was a bubble, it would have died in 2018/2019, it had all the elements for its funeral but it came roaring back.

    Also, the company Paxos has issued a Ethereum token backed by gold. Its regulated (New York State Department of Financial Services) and audited, it can also be redeemed for real gold. Its basically GLD but on Ethereum with no annual fees. It has 24/7 liquidity, it can be transfered all over the world in a matter of minutes with low fees. It can be used (or will be in the future) as collateral on DeFi, this makes you can earn interest on it.
    Take a look at the comparission chart of Pax gold and other gold forms

    There is no bubble in this, its cryptographic asset (with a redemption feature) backed by a real asset. And if this is not a bubble, what other applications of Ethereum are possible? FTX has Tesla shares, SPY, SLV, Coinbase shares (pre-IPO) all in the form of tokens. This is what I call new finance. Ethereum can also host derivatives, where ether is used as collateral, if that market grows so will the Ether price. Where is the bubble here?
    Point is, cryptoassets could be a bubble, it could also be a tech revolution, either way traders can profit while managing their risk

    Which brokers/exchanges are best?
    I cant recommend one because I dont know how tight their security or risk management really is, I can only talk about the ones I use. I use mostly Kraken, Binance, TradeStation Crypto. Tradestation is nice because its connected to "old finance" (stocks, cash, futures) so it serves as a gateway for me to bridge these two worlds, but I always prefer to custody the crypto assets myself rather than to rely on a company.

    How to secure your crypto?
    I agree with Andreas Antonopoulos that Hardware wallets (with a strong passphrase + PIN and plenty of backups in different offline locations) is a pretty solid choice. For those more paranoid, you can use Electrum (Bitcoin Wallet Desktop application) with a multisig address where you need 3 signatures (or more) which are provided by three hardware wallets. On youtube there are videos explaning how to do this

    What do you own?
    A rough breakdown of my crypto portfolio is 85% BTC, 12% Ethereum, 1% Polkadot 1% Cardano, and 1% other things. Polkadot and Cardano are promising ethereum competitors so I own them more as a hedge than a bet. Of course, I also own plenty of old finance assets, I'm not all in

    How do you manage risk in crypto?
    One way is to buy when there is large panic or the start of exciment and sell when there is euphoria and people are talking about in cocktail parties. In December of 2017 Saturday Night Light had a sketch on Bitcoin, Kathy Perry was asking Warren Buffett about it, etc. And it was a great time to sell. In 2018 and 2020 there were various points where the idiots of 2017 were panic selling and it provided a great entry
    There are other indicators and models that I'm looking at

    But that is also the point of this journal, so that people can share their opinions and perspectives on how to manage risk and not sit idle by when markets are crashing

    But wont BTC collapse soon?
    At some point, its likely that it will. It has had monster rallies and monster sell-offs. It goes from extreme undervaluations to extreme overvaluations. Those that can read the signals of each can make a fortune

    What about hodling?
    I separate my crypto in two buckets. A hodl bucket (around 1/3 of my BTC) that I cannot sell no matter what (And I really cant as I locked that BTC in the blockchain with a function called CheckLockTimeVerify) and 2/3 which I trade with. The trading bucket I will sell when markets get heated, and will take some profits on the way up even before that. But the hodl bucket I can't sell even if I wanted to. That way I get the best of both worlds (hodling and market timing)

    But wont BTC go to $500,000? Why time the market?
    It might go to half a million or it might go to zero. To me, its a binary proposition with max uncertanty. In other words, its a coin flip. With my strategy I'm trying to maximize for both scenarios. But I welcome other views

    Whats your price target for BTC?
    The sum of different things I'm looking at and gut feel tells me to start to be cautious above $90K-$100K. Above $150K and I want to be pretty light on my trading positions, above $200K I will probably be out of my trading positions. But this is all super fluid and it can change at any time based on market sentiment. I'm quite unlikely to sell if $42,000 was the intermediate peak, I suspect that whatever sell off that comes will be met with institutional buying (herd behavior) through GBTC, Paypal buying and other vehicles
    Last edited: Jan 20, 2021
    vanzandt, cesfx, Pekelo and 2 others like this.
  2. Holy hell, did you take an Adderall before you wrote that? Yes Polkadot has a lot of Potential, and Polkadot not only has the ability to replace Ethereum but can also promote Ethereum. Lots of potential.

    Bitcoin is too expensive right now because imo I'm thinking of a price target of 80k, and although this sounds sexy, it's really not because all you will be doing is just doubling your money.

    There is greater potential with Ethereum, Chainlink and Polkadot imo
    Zodiac4u likes this.
  3. traider


    Why isn't there Monero
  4. Daal


    Very good discussion on the BTC vs ETH debate. Main takeways
    -BTC could become less secure as the block reward decreases significantly, this might be on 2032 or 2036
    -ETH is more fluid and uses optionality to not lock itself into a model that might not be long-term robust
    -ETH can also be a store of value, it just doesnt have a fixed monetary policy right now
  5. Daal


    A company is using BTC (Lightning) to create a Square Cash like app for global transfers (with KYC)

    Essentially BTC LN works as a settlement layer for FX transactions (secured by the BTC blockchain layer) and enables people to send fiat globally, instantly, cheaply in a way that still complies with international rules. A superior system to swift, western union, moneygram and transferwise
    Dont underestimate BTC as a currency, people that say BTC sucks as a currency are the ones that never made a LN transfer in their lives
    vanzandt and Sprout like this.
  6. Sprout


    Have you interacted with any of the major DeFi protocols?
  7. Daal


    I did some token swaps on Uniswap, pretty cool. I found out today they are doing more volume than Coinbase. DeFi is definetly the future. I'm not sure I want to invest in the tokens though, so many people are pumping these and they have been running since the summer. I rather own ETH because if DeFi keeps growing, ETH will win. But maybe I will miss out. I just think that ETH is a probable 7-10x from here and I'm not sure the DeFi tokens will outperform that. They will definetly rise in fiat terms but will they beat ETH? If anyone can tell me why will they be so valuable I'm all ears
    vanzandt and Sprout like this.
  8. Daal


    I'm also long a little bit of LINK(DeFi oracle), just a hype trade. I'm not even following the project much. I will sell as soon as it goes vertical
  9. Sprout


    Are you familiar with YFI?

    It will give you a better idea of the space as well as the clever interaction with CRV.

    That will open up the use of stablecoins and the reduction of risk in deploying interest earning capital.

    Then Balancer, Compound and Aave start to make better sense.

    I’ve found Finematics as an informative YouTube channel as well as DeFi Dad for walkthroughs of interacting with the various protocols.

    The YFI discord and Telegram also have some sharp folks to assist as well.
  10. Daal


    FTX has listed GME futures and GME (redeemable tokens representing custodial common stock held by a german company)USD pair. This pretty much enables someone with a large long position or long calls, to hedge out his position by shorting futures or the token. Which that investor/trader might not be able to do with his conventional broker due how hard it is to borrow GME shares or when the market is closed. 24/7 liquidity

    Little by little crypto finance is starting to kick old finance's ass
    Last edited: Jan 27, 2021
    #10     Jan 27, 2021
    Sprout likes this.