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Headlines How to profit from crypto-currencies

Jung

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To show the investment potential of crypto currencies, I decided to try a little experiment. I’m starting with zero initial investment money, and will only use coins I’ve mined (generated) with existing hardware. Since the point is to explore what the average person can do with little to no upfront investment, I’ve stayed away from coins that are mined on high-end graphics cards for the initial phase of this experiment (although I will buy into those later). The exception is the small mount of Dogecoin, which I forgot I had until I stated compiling my coins for sale. The other coins were mined over the course of about two weeks across ~32 Intel cores.

Of course, you're going to need to understand how to trade and perform tech analysis in to get the most out of this info. I will be using an EMA bot I wrote for some trades, but the initial Buys were all manual trades.


I started off selling mined coins. At this point I'm mostly just filling buy orders in order to cash out quickly.

244 [email protected] 0.00000226 = 0.0005 btc
4355 [email protected] 0.00000193 = 0.0084 btc
5 [email protected] 0.01730000 = 0.0865 btc
200 [email protected] 0.00018804 = 0.0376 btc
2550 [email protected] 0.00000211 = 0.0053 btc
~~
Total = 0.1383 btc ($86.44)


I then decided to pickup a few cheap Litcoins.

Buy
4 LTC @ 0.02480 btc ($14.32) = 0.0992 btc ($57.28)
~~
Totals:
BTC = 0.0391 btc ($24.50)
LTC = 4 ($57.28)


A few days later I saw CAGE take take a huge drop after a pump and dump, so I decided to spend a single Litcoin in order to speculate on a recovery. The sell was a quick MACD trigger on my bot after another pump a few days later.

Buy
5mil [email protected] 0.0000002 = 1 ltc ($14.32)
Sell
5mil [email protected] 0.0000014 = 7 ltc ($100.24)
~~
Totals:
BTC = 0.0391 btc ($24.50)
LTC = 10 ($143.20)


Happy with my Litecoin position, I decided to spend some Bitcoin in order to diversify my holdings. I feel there is potential in POT and TEA, and Karma was just too cheap to pass up. These may be long positions so I do not know how soon I will be able to log my Sells for these.

Buy
1,366 [email protected] 0.00001150 = 0.0144 btc
1200 [email protected] 0.00000300 = 0.0150 btc
257378 [email protected] 0.00000003 = 0.0154 btc
~~
Totals:
LTC = 10 ($143.20)
Remaining coins in btc value: $30 at the time of writing.
= $173.20

This is a 100% increase over the initial mining profit!


Future trades: I'm investing heavily in Vertcoin, an ASIC-resistent coin, in my main strategy so I will be exploring it here as well if possible. Darkcoin, Dogecoin and PenguinCoin are also on my short list. I feel Darkcoin has value in it's anonymity features and Doge is the meme-coin du jour. PENG may be the next meme-driven coin so it could stand to see a huge rise in value relatively easily.
 
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RebelBuddha

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Theoretically couldn't you do this with real currencies after you have gained real investment for absolutely no real investment?
 

Jung

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Theoretically couldn't you do this with real currencies after you have gained real investment for absolutely no real investment?
Not really. Traditional securities are regulated, so you don't see successful pump and dump schemes, for one. The stock market will net you about a 10% annualized return. Cryptos can give you that in 15 minutes (a common day trading interval for cryptos). Some of the coins in my main strategy portfolio have seen 2000% increase in a few months. Coins regularly swing 100-1000%+ depending on the market, variations in the difficulty of generating coins etc, and new coins are created all the time.
 
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53V3N

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^ That's mine as well. But let's keep discussions in the Computing Chamber on a more serious note (and sans animated .gifs for once!), please. :)

If you're confused but interested, ask for a resource to help you understand. I'm sure Jung would be willing to point you in the right direction. If you're confused but not really interested, hit him up in chat as I did or go read a couple articles. IDK.

As an aside: Life Sucks, Headlines (News & Debate), and Computing & Technology are the 3 forums we take seriously. This is why you may see more "moderation" in these forums over the others.
 
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Lioness

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@Jung
I understand the words and I understand the goal but I don't understand how "mining" "coins" from Intel cores ends up in a profit?

I see formulas but I've never been good at Science.

I believe most of my understanding is being hindered by the terms being used, perhaps. I think they are probably common for the line of work you are in but I need a dumbed down version.

I need the coin mining for dummies, please?

And @53V3N , I did look some of the keywords up but... I feel like I'm in a geometry class nightmare. I'm just not seeing it.
 
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BRiT

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Instead of "mining coins" you can buy in directly.

The overall premise is the same as other markets. Typically you buy in at a low(er) price-point, wait for market fluctuations, then sell at a high(er) price-point. Jung already iterated over some of the reasons this is more possible than standard markets including the existing money markets. It has the potential for extreme fluctuations with perceived value. You're capitalizing off the perception of value, not the coins actual value. Buy low, sell high.
 
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Lioness

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Instead of "mining coins" you can buy in directly.

The overall premise is the same as other markets. Typically you buy in at a low(er) price-point, wait for market fluctuations, then sell at a high(er) price-point. Jung already iterated over some of the reasons this is more possible than standard markets including the existing money markets. It has the potential for extreme fluctuations with perceived value. You're capitalizing off the perception of value, not the coins actual value. Buy low, sell high.
Okay, that's the part I understand. Basic investing. Where I'm lost is the definition of Cryptocurrency. It says it is virtual currency... how is that being converted to a tangible profit?
 
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BRiT

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The various Market Exchanges allow users to buy into and sell out of the various virtual cryptocurrency coins.
 
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Lioness

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Okay, here is what I'm understanding:

Coins are virtual currency.
Mining is basically obtaining coins/currency at a lower price then selling it at a higher rate.

There are various types of coins as mention by Jung in the original post.

Bitcoin was one of the first. What seems to be the biggest concern with cryptocurrency is that it can be wiped out or stolen?

"Bitcoins aren't backed by a hard asset or a large government, so there is no guarantee that bitcoins will hold any value in the future."

So the market isn't solid right now? One could wake up and have virtual nothing?

It mentions this currency replacing what we use now. So at some point it could be that crypto is how you pay for a burger.
 

Jung

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Okay, that's the part I understand. Basic investing. Where I'm lost is the definition of Cryptocurrency. It says it is virtual currency... how is that being converted to a tangible profit?
Short answer: a currency crated using only math. Miners perform cryptographic "proof of work" computations, and are rewarded for finding the "correct answer" with a sum of coins. The larger picture is that the "correct answer" is a block of individual transactions, which miners have verified to be legitimate. Once the block is "found" by miners, it's added to the "blockchain" which is basically a public ledger of all transactions.

Mining is basically just a way of minting currency in the absence of a central bank.

As for cashing out, most cryptos are pegged to the price of Bitcoin, so you could trade them for Bitcoin and then sell off the Bitcoin for fiat ($USD, EUR etc).


Edit: I would argue that Bitcon does have intrinsic value, both in the computations expended to generate them, and in the private keys required to spend them. I realize this is kind of vague, and we're touching on the more technical aspects, but I'm about to step out for dinner. I'll post more when I have the time.
 

-=iNsANe=-ADJ

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I've had serious issues trying to understand this since the first time I've heard of bitcoin, maybe because I'm lazy and never really wanted to read about it.
Basically I need a powerful machine to run math shit in order to get coins? How?
 

Jung

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Bitcoin was one of the first. What seems to be the biggest concern with cryptocurrency is that it can be wiped out or stolen?
It was the first, Litecoin being the second. Most of the other ~200 alt-coins are forks of theses.

Bitcoin can be stolen but it's not that hard to prevent this. I'd say the chance of it being wiped out is pretty much 0 at this point, given that it's a global, decentralized network and mining is a billion dollar/yr business.

So the market isn't solid right now? One could wake up and have virtual nothing?
It's highly volatile, which can mean huge profits OR huge losses. Tech analysis is super important. You can't really passively invest in cryptos. Maybe once more indexes start popping up.

It mentions this currency replacing what we use now. So at some point it could be that crypto is how you pay for a burger.
Eventually, sure; it will likely replace things like Paypal in the next 5 years. But fiat currency will remain the primary currency so long as govts. require you to pay taxes in it.


I've had serious issues trying to understand this since the first time I've heard of bitcoin, maybe because I'm lazy and never really wanted to read about it.
Basically I need a powerful machine to run math shit in order to get coins? How?
Bitcoin mining is not possible anymore without specialized hardware. This is currently the most cost effective miner, and it's unlikely to ever see ROI, given that it ships in Q2. If you had this right now, you could turn about $8k profit. If you got it next month, you'd lose about $150 on the deal. Crazy, right?

This happens because the Bitcoin network tries to create blocks every 10 minutes, and adjusts mining difficulty when block times fall under that mark. So when more people mine, or faster hardware gets released, it becomes harder to find blocks. Currently block times average 2-5 minutes. Difficulty increases by orders of magnitude roughly every 2-3 weeks.

That's why people mine these other "alt coins" and exchange them for Bitcoin. This scarcity is also why Bitcoin prices rise over time.

Difficulty for the non-technical:

For the rest of us: https://en.bitcoin.it/wiki/Difficulty
 
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Jung

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So... with all the Mt.Gox news most people have exited altcoin markets in favor of trading BTC. This means that most of my alt positions have tanked or gone sideways. This is common when BTC sees huge variance like it has recently. Hell, this is common for trading in general. You need to train yourself to not freak out when highly volatile markets sway +/-20% or more in a day. That's the game we choose to play. Luckily, I was able to use this crash as an opportunity to pick up some BTC for around $400, before the market corrected a bit, but I'll leave that for another thread.

I'm going to use this post to cover a bit about technical analysis, and how to continue profiting regardless of market conditions.



Technical analysis:

“An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return. Operations not meeting these requirements are speculative.” – Benjamin Graham

TA is essential to intelligent trading - and this applies 200% for cryptos. You need to understand the coins you're investing in, the features and value they purport to offer, the movement of their markets, social value attached to them, psychology etc. It can be a lot of info to take in, but there are some easy ways of trading technically without spending hours reading forums and reddit (although you will be dong this).



What to look for?

Does the coin bring anything new to the table? ~~ Does it employ a new Proof of Work (PoW) algorithm or solve any problems with current coins? Clones of existing coins do not necessarily equal failure, but you probably won't want to bet on them long-term. Coins that are simply abstraction layers which sit on top of current coins are an interesting idea here.

Coin specs ~~ How many coins will be mined in total? What are the block rewards, and reward-reduction schedule if applicable? The both factor into the market cap and pricing formula.

Is it actively being developed? ~~ You obviously wouldn't want to buy stock in a floundering company, so apply that here to development team. A successful mid-term coin needs active devs to implement new features, foster a community, help organize projects and fix bugs.

Marketting and branding ~~ Is there sufficient community support behind the coin? Does it have a nice design, does it appeal to a wide audience (e.g., dogecoin) have a good wallet, good projects and community support. I've seen several coins which would've otherwise remained relatively obscure, pique interest due to branding. Dogecoin, Teacoin and Particle are some examples of this.

Community adoption ~~ Look for forums, blogs, early projects like casinos or auctions site to help support the coin.

Exchanges ~~ This one isn't a strong good or bad, but it's nice to know if your investment has current support from exchanges. This has gotten better over time, with most coins being early-adopted by at least one or two exchanges.

Is it premined? ~~ I'll let you decide how to feel about this issue. Basically, when a coin is created, the developers have an option to mine coins before the public is allowed to do so. The reasoning here varies from developer compensation (akin to stock options in a company), to prizes for give-aways or bounties for projects. Some people consider this unfair for any reason, others consider it fair if the proceeds are used to promote the coin, and some others don't seem to care. I should point out that none of the initial cryptos were pre-mined, although it's suspected that "Satoshi Nakamoto" mined close to 1 mil BTC early on using special hardware or techniques.



Brief analysis examples:

These are bare-minimum examples of where I'd start were I researching a new coin.

Bitcoin (BTC) - The first crypto currency and current leading in name recognition, market capitalization and liquidity. It employs SHA256 as it's PoW algo, has a block time of 10 minutes and a current block reward of 25 btc. Bitcoin is the clear "gold" of the crypto-world, but it's not without it's issues. The current major issues, which most altcoins seek to fix in some way, are long-ish transaction times of ~2-10 minutes (slow when compared to a CC), susceptibility to several attacks, including the 51% attack and selfish miner attack. More are outlined here: https://en.bitcoin.it/wiki/Weaknesses

Litecoin (LTC) - First Bitcoin "clone," often considered the silver to Bitcoin's gold. It employs a different Proof of Worth (PoW) algorithm, scrypt, which was intended to make the specialized hardware now required to mine Bitcoin, uneconomical to develop (although scrypt ASICs are starting to hit the market). This is accomplished by artifically increasing the memory requirement for mining, in order to reduce the efficiency of running many hashing operations in parallel. It features a faster block time of 1.5 minutes compared to Bitcoin's 10 mi, which results in faster transaction times. It was originally devised as a way to ensure GPU mining profitability after Bitcoin difficulty made GPU mining unprofitable.

Dogecoin (DOGE) - Litecoin clone based on the doge meme, which offers faster 1 min block times and a higly inflated block reward - the block reward being (currently) as much as 500,000 coins. The idea here being that 1000 coins is psychologically more appealing than 0.001, even if they hold the same monetary value. Most of this coins allure comes from its meme basis and good marketting.

Vertcoin (VTC) - 2.5 min block times and 50 coin block reward. Similar to Litecoin and other scrypt coins, but it employs an ""Adaptive N-Factor" algorithm, where N = the current memory requirement. The purpose here is to make the creation of specialized hardware (ASIC / FPGA) for mining uneconomical, due to the ever-increasing memory requirement. The reason Bitcoin mining currently requires upwards of $10k just to see ROI was the advent of FPGA and then ASIC hardware. VTC mining is currently 2x as difficult as normal scrypt coins. E.g., if your scrypt hashrate is 1000 kH/s you'd mine VTC at 500 kH/s.

Particle (PRT) - Billed as a CPU mine-able "super secure" coin featuring 2 minute block times. It employs an entirely new PoW mechanism, featuring multiple PoW algorithms in chained fashion in order to make GPU mining more difficult. This coin shares the "Quark algo" with several other coins, although it is currently the most profitable of the bunch. From the original Quark project - "Quark is super secure and uses a different hashing algorithm with 9 rounds of hashing from 6 unique hashing functions (blake, groestl, blue midnight wish, jh, SHA-3, skein). 3 rounds deliver a random hashing function. Even though most believe the SHA2 is sufficient at present, technology is always changing and improving. Just one of Quark's algos, SHA-3, was developed after SHA-2 in case it was somehow comprised in the future. The multiple hash gives a further layer of security against unknowns that will enter the market down the road."



Resources for researching coins:


http://coinmarketcap.com
https://bitcointalk.org/index.php?board=67.0 (don't miss the announcements & mining subforums)
https://cryptocointalk.com
http://www.reddit.com/user/iddeen/m/cryptomoney
http://www.coinwarz.com
http://coinchoose.com/

Individual coins have sites that often host tech specs, white papers and manifestos. There are typically individual sub-reddits for each popular coin as well (e.g., /r/litecoin). Just keep in mind that opinions found via these forums are typically coming from holders of the coin in question. Everyone wants their investment to do well, even at your expense. Your job is to try and obtain a feeling for aggregate opinions and technical ability of coins, rather than look for the one "right" view. I encourage you to teat my advice on specific coins with due skepticism as well.
 
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Jung

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Support and Resistance:

Basically, support is the level at which the market is thought to auto-correct at, preventing further decline. The basic idea here is that as the price of a security declines, more people are likely to buy in thus increasing the price. When the market seams to decide on price floor, this is your support. Resistance is basically the opposite. When prices right too high to a point, the market is likely to be determined to be over-bought, and will correct downward into more reasonable prices.

This is a very simple concept, but I don't feel as though I can do it justice in just a few paragraphs. The below links should cover this in-depth.

http://www.investopedia.com/articles/technical/061801.asp
http://stockcharts.com/help/doku.php?id=chart_school:chart_analysis:support_and_resistan



Reading Charts:

Initially one of the more technical aspects, this is also one of the most valuable tools to a trader. I would suggest first learning to read candlestick charts. You will come across a lot of different charts but these are by far the most useful. The candles indicate a number of metrics, from opening and closing cost per interval, to average buy/sell prices to price outliers. There is an entire field of study behind interpreting these so don't get discouraged at the curve.

You will also want to learn how to employ different trading algorithms and indicators such as the EMA and MACD signal lines (fairly technical but invaluable read) in your strategy. I also employ the StochRSI indicator for "double crosses" in addition to MACD.

One thing I find incredibly useful, and have so far only found on one site, is the market depth indicator (shown inside the red box below). More on market depth here.




To offer an example of trading based on signal line, I've highlighted crosses for sell points in green and buy points in red. You can see the EMA/MACD overlay on the candlestick as well as represented as signals and histogram below the chart.




Chart resources:

http://bitcoinwisdom.com/markets/bitstamp/btcusd
I use Bitstamp as my market since it's typically middle-ground on price. I would also make sure EMA, MACD, candlestick and logarithmic scale are selected under settings.

https://www.cryptocoincharts.info
If you sign up there is a neat, albeit limited, "investment club" section that you can use to track your portfolio.) This site also offers an arbitrage (taking advantage of price variance from market to market - more info here) suggestions, although I'd be careful here.

http://www.cryptocoincharts.info/v2/
Newer version of some features from above.

http://dc-charts.com/
http://cryptometer.org/
http://www.cryptocurrencychart.com
http://www.cryptochart.com/CryptoTools.php



A bit about strategy:

The short position:

During downtrends, the most common strategy is going to be the short position, or "shorting," the security you expect to decline. The basic idea here is that you sell your security for market price, in hopes of being able to buy back in at a lower point in the future, thus securing fiat gains while retaining your number of coins. Traditionally, these trades would be performed "on a margin." This allows you to get anywhere from 1:1 to 2.5:1 for trading. So you could deposit 1 btc and end up with 2.5 btc for use in trading. You would then create a limit order based on your evaluation of where the next "supports" will be. More info here: http://www.investopedia.com/university/margin/margin1.asp



That's about all I care to write for now... it is mardi gras, after all. Laissez les bons temps rouler.
 
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Jung

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I just got an invite to Tradewave, a site which allows you to easily create trade bots/strategies in Python and "backtest" them on historical data. I used their example strategy with modified moving averages (7/24) and was able to get roughly ~$26/hr from it. That's obviously nothing, and it missed a huge spike on Mar 4, but it shows the potential even with zero coding. With stop losses and additional indicators it should be pretty profitable on shorter intervals. I'm probably going to rebuild my bot based on their API.

http://i.imgur.com/EhAGLHP.png


Not much to report on the positions... most are still tanked or sideways. I did ended up selling my POT (lol) for 2694 (bought at 1150) for a nice ~130% increase (really wish I'd have put more into this...) and dumped my remaining 100K PRT for about $100. I've been snatching up LTC since it's lagging in recovery behind BTC. We'll see how that goes.
 

ib4

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@Jung how do you feel about updating this to the current market setting? :) There is good profit potential right now.