Crypto Margin Trading – Everything you need to know

What are Crypto Wallets and How Crypto Wallets Work?

How could a crypto investor who has a limited amount of cryptocurrency add leverage to his investment portfolio? One of the options that could pay off but is a risky investment is Margin Trading. Margin Trading allows investors to upsurge the amount to be invested without holding the assets. Though it sounds simpler is considered to be a risky strategy and not recommended for everyone.

What is Crypto Margin Trading?

Margin Trading is a concept where the traders are allowed to open a position with leverage. Picking an example would be beneficial here –

Assume you are keen to purchase 1000 shares of XYZ, which are currently trading at $5, so the amount of capital you need is $5000[1000*5]. Now with Margin trading, you can buy a future contract of XYZ by paying 20% margin, that means by investing $1000 you can get exposure to the stock of value $5000.

Leveraging has helped an investor to manage a portfolio worth $5000 with just $1000. Leveraging would also help in making profits if the prices of the stock shoot up.

In crypto world, the concept is similar where Margin Trading is conceivable due to growing interest of cryptocurrency users in the lending market. Funders offer loan to investors, while lenders earn interest on the loan released, the investor uses this money [ in crypto, bond or fiat form] to invest in more significant amounts of coins.

Lets again pick an example –

So you are planning to buy $10,000 worth of Bitcoin

With borrowing 50% Or leveraging 2:1 or 2x

Then you would only need $5000 to purchase a bitcoin worth $10,000.

Globally, we have two types crypto exchanges model, one where customer themselves offer the loan for the margin market and second where exchange itself provides them.

Costing of Crypto Margin Trading

Margin Trading is considered to be a risky investment and hence also serves as a high return strategy. So while leveraging is the best reward earned, it could also turn into bankruptcy risk when there is a steep fall. So as the investor’s chance of gaining more increases at the same rate there is an increase in the risk to lose more. Hence exchange fixes a value called as liquidation value. It is the value where any exchange would automatically close your position so that you do not lose any of the loaned money, and only lose your own money.

Cost of Crypto Margin Trading

The cost of a margin position would include

The interest for the borrowed coins
Fees for opening a position with the exchange

Continuing the same example of borrowing $10,000 worth of bitcoin with 2X leverage you would need $5000, so either you can borrow this money from exchange/lenders that would mean to pay interest and also a fee for opening a position with the exchange.

So total cost of buying a theoretical $10000 worth of bitcoin would be –

= $5000 + interest [ varies from 5% to 50%] + fees

Our next post would talk about the pros and cons of Crypto Margin Trading. Stay tuned.

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October 3, 2018

Reports state Crypto Trading to increase 50%

Crypto Wallets are the essential part of crypto margin trading

According to ICO advisory firm Satis Group – Crypto trading volume will grow 50% in 2019 and nurture at 9% CAGR [compound annual growth rate] through 2028. This may result in an increase in revenue for — rising as of $2.1 billion last year [2017] to well over $3 billion in 2019. However, to pass the regulatory hurdles as improvement in infrastructure is the need of the hour.

The report stats – While there is mostly a robust market for consumer trading and custody, these products do not always meet the needs of institutional investors, whose solutions must meet higher burdens relative to security and regulatory compliance.

Yahoo now supports Crypto Trading on its platform

As per reports, Yahoo one of the most popular website has launched a service that allows its visitors to trade different cryptocurrency tokens such as Bitcoin, Ethereum, etc. directly through its platform. The announcement was made after their collaboration with financial API developer Trade It. The partnership would offer all the users of Yahoo Finance to trade different cryptocurrency on the platform. The new trading feature focusing cryptocurrencies is available only on the Yahoo Finance mobile iOS app on the app store

BITCOIN PRICE 2018– HISTORY AND PREDICTIONS?

The year 2018 for Bitcoin had been nothing less than a roller coaster ride, where the market participant had witnessed a significant decline and only hope for it to rise again. Even if we compare the current price[as [ I write this article, the Bitcoin(USD) price is $6,300.44] to the time when new year knocked our doors[trading at 13,542.55 ], we have witnessed a significant plunge.

What could be the possible reasons for Bitcoin to get miscued? Let’s look at some of the major events that happened this year and resulted in Bitcoin price decline.

Major Events that Affected the Bitcoin Price This Year

Dec 28, 2017 – South Korea eyeing potential shutdown of cryptocurrency exchanges

According to a statement from the Office for Government Policy Coordination – South Korea will require real-name cryptocurrency transactions and impose a ban on the offering of virtual accounts by banks to crypto-exchanges. Releasing a statement, the government said Cryptocurrency speculation had been irrationally overheated in Korea. The government can’t leave the abnormal situation of speculation any longer.”

Bitcoin Price on 28-Dec-2017	Bitcoin Price Next Trading day
$16064.44	$14621.88

Jan 8, 2018 – CoinMarketCap hashed prices from South Korean exchanges

The Market in the second week of January 2018 witnessed a drop in Bitcoin price after a website CoinMarketCap removed prices from South Korean exchanges from its calculations of digital currency rates without any warning.

CoinMarketCap, a widely followed website by market participants that shows real-time prices for around 1300 + cryptocurrencies. With a sudden movement of exclusion of data from the South Korean exchange, it confused market participants and triggered a selloff.

Bitcoin Price on 08-Jan-2018	Bitcoin Price Next Trading day
$16834.12	$15546.07

Jan 30, 2018 – Facebook bans cryptocurrency ads

As per Facebook new policy, it prohibits advertisements that promote financial products and services that are frequently associated with misleading or deceptive promotional practices, such as binary options, initial coin offerings, and cryptocurrency. The move was triggered due to persistent complaints about spammy and fraudulent cryptocurrency ads; Facebook has issued an outright ban. However, the new policy is sure to be welcomed by Facebook users and bitcoin enthusiasts alike, who recognize that these adverts do little to promote the benefits of cryptocurrency.

Bitcoin Price on 30-Jan-2018	Bitcoin Price Next Trading day
$11400.77	$10788.89

March 7, 2018 – SEC says crypto exchanges must register with the agency

In a statement on Wednesday SEC noted – that online platforms trading digital assets that are considered securities need to register with the agency. Bitcoin price slashed, fearing that tightening regulation could restrict future trading.

Bitcoin Price on 07-Mar-2018	Bitcoin Price Next Trading day
$11091.64	$10474.36

March 14, 2018 – Google Bans cryptocurrency ads

As per Googles new financial products policy effective from June 2018, Google would no longer be serving as an ad platform to binary options, cryptocurrencies, ICO’s cryptocurrency wallets, trading advice. Google in a statement to CNBC said – we want our ecosystem to be safe and effective, and as the cryptocurrency market is unregulated and has been hit by a lot of scams, we need to take some measures.

Bitcoin Price on 14-Mar-2018	Bitcoin Price Next Trading day
$9208.96	$8832.15

March 26, 2018 – Twitter bands cryptocurrency ads

Following Facebook and Google, Twitter also amended its policy in banning cryptocurrency ads. As per Twitter spokesperson – Under this new policy, the advertisement of Initial Coin Offerings (ICOs) and token sales will be prohibited globally.

Bitcoin Price on 26-Mar-2018	Bitcoin Price Next Trading day
$8676.53	$8256.81

April 01, 2018 Bitcoin close to Death Cross chart pattern

Chart analysts saw an alarming trend in bitcoin’s pricing pattern; the one termed as Death Cross. Although experts were arguing if Death cross would be good or bad, it was undoubtedly a signal of bearish market leading to more decline in bitcoin prices.

Bitcoin Price on 01-Apr-2018	Bitcoin Price Next Trading day
$7041.48	$6842.43

May 11, 2018, South Korea’s exchange Upbit is suspected of fraud.

As reports surfaced that one of the largest executors in South Africa Upbit is suspected of fraud, the bitcoin price dropped below $9000 mark.

Bitcoin Price on 11-May-2018	Bitcoin Price Next Trading day
$9289.09	$8728.95

May 23, 2018, India proposes 18% tax on cryptocurrency trading and Regulatory Uncertainty pushed by US and Canada

As per a proposal under discussion by the Central Board of Indirect Taxes and Customs India, cryptocurrency trading that would be classified as intangible goods may attract 18% Goods and Services Tax (GST).

On the same day, the financial authorities in the US and Canada declared a cooperative crackdown on initial coin offerings (ICOs) and other cryptocurrency investment schemes, led by the North American Securities Administrators Association (NASAA).

The two roller coaster news triggered a decline in Bitcoin pricing further.

Bitcoin Price on 23-May-2018	Bitcoin Price Next Trading day
$8262.65	$7818.21

June 11, 2018, South Korean Exchange Coinrail hacked

Although experts believe that the price plunge has nothing to do with the exchange being hacked, some people had a different opinion. Overall, there was a dip in the Bitcoin price, and market participants were hoping the next trading day would help them to revamp.

Bitcoin Price on 11-June-2018	Bitcoin Price Next Trading day
$7158.95	$6786.98

The Bitcoin Price Trend Predictions

Though Bitcoin prices have declined this year, many experts believe a correction to be made in coming months.

Arthur Hayes, CEO of BitMEX stated:

“Well, I think that something that goes up to $20,000 in one year can have a correction down to around $6,000.” Later on, adding about the cryptocurrency, he says – one positive regulatory decision away, maybe an ETF approved by the SEC, to climbing through $20,000 or even $50,000 by the end of the year.”

On the other hand, Clem Chambers, Founder of ADVFN says – “It will probably hit $2,000 before it hits $20,000.” Later he also added that Bitcoin “is quite likely’ to eventually hit the $100,000 price level.

Another crucial statement was stated by The Founder of Fundtsrat Tom Lee, he says – Bitcoin can reach $25,000 by the end of the year or something like that.”And his predictions are based on future Bitcoin mining costs.

August 16, 2018