Hello, fellow forex traders!
Earlier we have already analyzed how to trade Bitcoin, now it’s time to look at the new popular cryptocurrency – Etherium (Ethereum).
A logical question – why do I need some hipster new-fangled cryptocurrencies, when there is good old EURUSD? It is very simple – if on old instruments the market learned to work out all typical inefficiencies long time ago, on new ones there is a vast field of possibilities. To put it simply: the most banal technical analysis strategies can bring hundreds of percent of profit in new instruments, when you can hardly break even with similar systems in matured currencies.
The fact that Bitcoin cryptocurrency popularization has disturbed the shaky foundations in the heads of the lawmakers already speaks of the viability and potential power of the new technology. It turns out that, in fact, there may be a currency that is beyond the control of any state. And the fact is that it is no longer about bitcoins, but about a multitude of other currencies based on blockchain technology, the popularity of which is growing exponentially. This raises a legitimate question: what is the future of cryptocurrencies? So let’s find out if the perfect cryptocurrency has been found and what it should represent in general.
The founder and one of the main developers of the project is 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 $100,000 for the concept of a new cryptocurrency, and in the same year he won the World Technology Awards.
The development is based on the blockchain – the technology of decentralized accounting. In terms of cryptocurrencies, blockchain is a distributed database for storing transactions. It is where all transfers between wallets are confirmed and synchronized.
The concept of Etherium tries to develop the idea of bitcoin into something larger. Essentially, Etherium is a platform for developing decentralized applications. At the protocol level, Etherium decided to realize the untapped potential of the bitcoin scripting language by adding a tool to create smart contracts to the network.
A smart contract is an attempt to automate transactions, where all conditions and the outcome of transactions are taken into account in advance. This provides security and reliability at the same time, since no third parties are involved in the procedure and the terms of the contract cannot be changed.
With the help of such contracts, for example, a real revolution in microcredit can be carried out. The terms of such a contract can imply the transfer of ownership of some digital property in the event of non-repayment of the loan by a certain deadline, repayment subject to accrued interest, and much more. Essentially, the capabilities of smart contracts allow you to create your own currency within another currency.
In theory, Etherium is capable of completely displacing bitcoin from the market, being its better alternative. This is facilitated by the presence of a well-coordinated team of developers and a vector for active development. However, the stability of Etherium is still in question.
To be fair, it should be noted that the implementation of the same smart contracts is also available in bitcoin, subject to a separate setting. If this mechanism becomes popular, the future of Etherium will not be obvious.
One of bitcoin’s big problems is the size of the blockchain. With the arrival of the new currency, the problem has only worsened, with it taking an unacceptably long time to get a wallet up and running. This factor can seriously stall growth when it reaches a certain point, as it will directly affect the spread of the currency.
Another extremely unpleasant story happened not so long ago with the decentralized crowdfunding project “The DAO”, built on the basis of Ethereum smart contracts. Thus, about a third of the entire fund (approx. $50 million in Eq.) was transferred to the wallets of an individual who took advantage of a vulnerability in the smart contract code. The problem is that the entire responsibility of the decentralized system falls on the computer code, which, given the presence of bugs, could lead to a massive failure, which, in fact, happened.
As a result, it was decided to create a parallel branch of the project and fix the problem. This led to a division of the community, since the original ideology of the free open source project was aimed at getting rid of financial corruption and avoiding manual interference in the functioning of the network. Now we have “fixed” Ether from the main branch of the project – ETH and “classic” unmodified Ether – ETC (Ethereum Classic), where all those who disagreed with the decision on hard fork moved.
In general, investors react very emotionally to any rumors about the project. So, the fake news that appeared in the evening of June 25 about the death of the founder of the cryptocurrency project further accelerated the rate drop. In truth, the rate recovered to its previous value after that.
The currency chart can be obtained through the TradingView service directly on our website in the online charts section, indicating the name of the instrument ETHUSD.
Here you can immediately select the exchange quotations you are interested in. For the analysis it is better to choose the most popular exchanges (Kraken, BTC-e, Bitfinex), because the quotes may be very different depending on the platform.
Of the well-known brokers, Etherium is already available for trading in FXopen and Amarkets. Below will be the specifications for the account in USD.
At A-Markets, the minimum lot for the cryptocurrency is 0.1, which is equivalent to 1 Ether. Be careful, as opening 1 lot of ETHUSD instant minus will be about $30-60, considering the commission and the current spread. The leverage is 1:5, which means the margin will be 20% of the full contract value.
FXOpen also allows you to trade contracts from 1 ether, but provides standard cryptocurrency leverage of 1 to 3 and a much smaller spread. With a leverage of 1 to 3 and the current rate of 210 usd, you will need $70 to open 1 lot.
AMarkets FXOpen broker
Min order size 1 unit of base currency 1 unit of base currency
Number of decimal places 3 5
Min volume 0.1 lot in increments of 0.1 1 lot in increments of 0.01
0.01 point value 0.00001
It is advised to try and open a couple of trades on the Demo in order to get accustomed to the trading conditions. There is no difference between demo and real account specifications.
Cryptocurrency is traded 24 hours a day, 7 days a week and is in constant motion. It is a trending instrument where there are brief consolidations. Therefore, trend-following strategies will work well.
That said, the global trend tends to go up when rising volatility generates increasingly strong corrections.
Fortunately, Fibonacci levels work well for measuring pullbacks.
In this way it is possible to determine the end zone of the correction. Most often the price stops at the 61.8% level.
For Etherium, the strategies that have already worn out on popular currencies will be suitable. For example, a significant difference in the quotes of different exchanges indicates the suitability of the currency for classical arbitrage. The essence of arbitrage is very simple – buy where the price is cheap, sell where the price is expensive. Of course, in real life, the pitfall may be the transfer of funds between exchanges and the commissions imposed, but with proper calculation arbitrage can work.
On the other hand, no one forbids the use of statistical arbitrage. After all, cryptocurrencies are still quite young as trading instruments, and therefore have a lot of inefficiencies. By analyzing the correlations of different cryptocurrencies, you can identify those hidden dependencies and try to trade them. But because of the high overhead (spread + commission), the main focus should be on long-term dependencies.
Bitcoin, for example, is sometimes used as a buffer zone, to insure funds against excessive volatility. Given the volatility of bitcoin itself, this sounds strange, but it is easily explained by its political neutrality. A good solution is to build a market-neutral portfolio that includes both traditional fiat currencies and cryptocurrencies.
Still, expect and be prepared for collapses. In less than two weeks, Etherium has lost 40% of its value for no obvious reason, and such volatility spikes are typical for an emerging cryptocurrency.
This has already happened to Bitcoin, with a fair amount of frequency. Except that this fall was more like a sharp correction, rather than a smooth decline, as in the case of Etherium. The instrument is still too young for investors to be able to adequately assess its potential and risks.
Overall, Etherium is in its formative stage right now and is likely to go through a few more such bubble inflation and deflation stages, during which it will be possible to make good money.
If you are aiming at long-term investing, wait for the pair to fall to the lowest possible level (according to your individual assessment) and then get in to buy. Most likely, the global uptrend will continue.
As for intraday trading, even the most primitive strategies will work there. You can use technical analysis, fundamental analysis, astrological analysis… But given the volatility of the market as a whole, you need to pay special attention to the release of relevant news. Anything can cause a sharp fall or rise, and you have to be on the alert to take appropriate actions.
The cryptocurrency market should definitely not be ignored. In some ways, trading cryptocurrencies is even easier, given the huge amount of raw inefficiencies and the lack of centralized aggregators. Nevertheless, such trading is hardly suitable for beginners, given unpredictable volatility spikes, high overheads and low liquidity.
Brokers and exchanges where Etherium trading is available
Bitcoin forex brokers