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What is a Soft-Cap?

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When undergoing a capital generation event, a company will typically set both a soft, and hard, cap.  A soft-cap refers to the minimum amount of funds that the company is looking to raise.  Often the soft-cap is used as a minimum threshold needed to attain a greenlight for token issuance.  If not met, funds are typically returned to investors.

Antoine Tardif is the founding partner of Securities.io, the CEO of BlockVentures.com, and has invested in over 50 blockchain & AI projects. He is the founder of Unite.AI a news website for AI and Robotics. He is also a member of the Forbes Technology Council.

Digital Assets

Kraken Becomes First US Licensed Digital Asset Bank

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Kraken Becomes First US Licensed Digital Asset Bank

Popular digital asset exchange, Kraken, has been given the green light to form a ‘Special Purpose Depository Institution (SPDI)’.  This designation will allow for Kraken to develop a new entity, known as Kraken Financial, which will act as a chartered bank offering comprehensive digital asset services such as deposit-taking, custody, and fiduciary services.

“Kraken’s vision is to become the world’s trusted bridge between the crypto economy of the future and today’s existing financial ecosystem.”

Kraken is the first company specializing in digital assets to receive the SPDI status – a particularly noteworthy step forward for Kraken and the blockchain industry as a whole.

Becoming a Bank

By becoming the first bank of its kind in the US, Kraken Financial is expected to play an important role in continuing the adoption of digital assets.  Some other benefits include:

  • Kraken Financial gains a first-mover advantage being the first entity of its kind
  • Blockchain as a whole will benefit through increased clout, adoption, and prevalence
  • The public will benefit through increased access to financial services built for the future

The forward-thinking nature of Wyoming regulators has not gone unnoticed by those responsible for Kraken services.  While many States have taken a more cautious approach towards the adoption of cryptocurrencies, Wyoming appears primed to blaze a trail forward through its treatment of FinTech.

“We’re thrilled to work in a state so aligned with our philosophy and values.  Wyoming is a rare and shining example of how thoughtful regulation can drive innovation for FinTech companies.” – David Kinitsky, CEO of Kraken Financial

When Kraken Financial first launches, services will be restricted to U.S. based clientele only.  The company notes that accessibility will expand over time to include international clients.

New Services?

The hard work that Kraken put into achieving this goal was not simply for the title.  By becoming a chartered bank, it will now legally be able to offer a variety of new services; each of which will help the company achieve its end goal of bridging traditional finance with the world of blockchain and cryptocurrencies.  The following are just a few of the services to be supported over time.

  • Custodial Services
  • FIAT Payment gateways
  • Account Management Services

“From paying bills and receiving salaries in cryptocurrency to incorporating digital assets into investment and trading portfolios, Kraken Financial will enable Kraken clients in the U.S. to bank seamlessly between digital assets and national currencies.”

New Assets?

Along with offering new services, Kraken will also gain the ability to support a wider range of asset classes.  Until now, the company has dealt primarily with cryptocurrencies.  Moving forward, however, Kraken notes that the possibility remains for securities to be supported.  With company roots surrounding digital assets, it would stand to reason that support for securities would include digital securities/security tokens, as well.

New Restrictions

While the aforementioned expansion of supported assets and offered services is a definite positive for Kraken, its new designation as a bank also comes with increased regulatory scrutiny.

In addition to now being subject to all the same rules as a traditional bank, it is noted that it will be required to maintain 100% of deposit reserves at all times.  This means that the bank will not be taking part in fractional reserve lending – providing its clients with full access to their funds at all times.

Kraken Financial

Founded in 2020, Kraken Financial is headquartered in Cheyenne, Wyoming.    This subsidiary of Kraken will function as a chartered bank, offering a variety of services, tailor-built to bridge traditional finance with blockchain-based assets.

CEO, Dave Kinitsky, currently oversees company operations.

In Other News

Kraken has always been a leader in the world of blockchain.  Not only is the company a vocal proponent for digital assets, but it has also taken various past actions to forward the sector.  We covered one such instance, as Kraken was a founding member of the ‘Crypto Ratings Council (CRC)’.

The CRC is a self-regulated group – comprised of industry leaders like Coinbase, Circle, Bittrex, and Kraken – which has tasked itself with educating the public on asset classification.  To learn more about what the CRC does, and how they do it, make sure to peruse our previous coverage, HERE.

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Forex

Forex Market Majors Down Further Amid Fiscal Uncertainty

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Forex Market Majors Down Further Amid Fiscal Uncertainty
  • EUR/USD at Monthly Low as Fed Remain Hesitant
  • Pound Falls Further on Negative Rates Possibility
  • US Jobless Numbers Drop Lower Again

The EUR/USD continued to fall on Thursday. Hitting its lowest point in one month, the market seems to be heading on a downward trajectory as there was no rush to further stimulus despite a grim economic outlook from the Fed. The GBP also continued to struggle lower on news from the Bank of England that negative rates remain under consideration. In the US meanwhile, although the number of jobless claims fell more than expected, the total still remains challengingly high.

Dollar Strength Returns as Euro Falls

Demand for the US Dollar has rebounded slightly todays as the Euro has continued to slip back against the currency. The pair has now reached its lowest point in a one month period with forex brokers projecting a further battle ahead. This comes in the wake of the FOMC meeting, and comments from chief of the Federal Reserve Jerome Powell that although more fiscal support may be needed, nothing in particular seems to be forthcoming from the Fed at this moment.

The Fed reluctance to add any more stimulus, coupled with the poor retail sales figures showcased for August in the US would appear to have pushed those forex trading the markets, back toward the relative safety of the Dollar. Though this may be no bad thing for the struggling Greenback, it leaves the Euro in a tentative position with many already seeing it as largely overbought.

Brexit Trade Hope Balances Struggling Pound

News that the Bank of England are looking into the possibility of setting negative interest rates to stimulate the economy of the UK made sure that Sterling started off the day with added woes. The Pound bounced back slightly though on news that a Brexit trade deal may not be as dead in the water as was previously expected.

Though the EU and UK have both been at loggerheads during the trade negotiations and with no positive resolution in sight, news emerged today that the UK has offered some concessions on fisheries to the EU. This has prompted the EU chief negotiator, Michel Barnier to say that he still believes a deal can be done. This though, would still appear a long way from certain.

US jobless Claims Slightly Lower Than Expected

Initial unemployment claims continued to trickle down for the last week in the US. Coming in at 860,000 the number of new claims slightly beat estimates, with the number of continuing claims also falling. This number still remains staggeringly high though at 12.6 million.

The general consensus is, that while the numbers are continuing to fall slowly, indicating that more and more people are getting back to work, the numbers remain too high, and falling at too slow a pace to really boost the economy. This is another factor which has backed a push back into the US Dollar as much of the road ahead remains still unknown.

 

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Cryptocurrency

How to Short Bitcoin (BTC) – An Easy to Follow Guide

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Learning how to short Bitcoin (BTC) is an essential skill to learn if you intend to become a professional crypto trader. Notably, shorting is an advanced investment strategy that comes with a high level of risk. However, if you master the skill, you gain the ability to acquire massive returns during times of market value decline.

What is Short Selling?

Short selling is an investment method that allows you to benefit from drops in the price of a particular asset. When an investor speculates on the decline in a tradable asset such as Bitcoin, stocks, or other securities prices, they can gain profits using shorts. In a short sale scenario, you bet against the price of the asset in question.

Why Would You Want to Short Bitcoin?

While in the long term it’s easy to see that Bitcoin continues to see price appreciation, there are endless reasons to short this cryptocurrency. The market is volatile and rather than letting your holdings sit during times of market value decline, you can sure up your holdings using shorts.

Bitcoin Yearly Price Cycle

Bitcoin Yearly Price Cycle

How Bitcoin Shorting Works

To understand shorting, let’s first look at the industry that created this method, stocks. In the stock market, short selling is a popular investment strategy. To accomplish a short, an investor borrows a certain amount of the stock they believe will decline in value. As soon as the investor receives these stocks, they sell them at the current market value. Once the price of the assets drops, the investor then can buy the stocks back and return it to the lender.

Bitcoin Shorts

While the asset is different, shorting Bitcoin works in much the same manner. A crypto trader will borrow Bitcoin prior to a foreseen market drop. As soon as the investor receives their Bitcoin, the assets are sold. After the value of Bitcoin completes its dip, the investor repurchases Bitcoin with the original sales funds.

Because the price of Bitcoin is cheaper than when you borrowed it, you can repay your loan and keep the difference in the repayment and your total trading actions. Here is a specific example of shorting in action.

Shorting Example

Jeremy borrows 5 Bitcoin’s at $12,000 apiece. He immediately sells these coins for $60,000.00. A few days pass. On the third day, Jeremy’s hunch proved correct. The price of Bitcoin did a major correction to $10,000.00.

Jeremy then repurchases Bitcoins using the $60,000 he held from the initial sale of his holdings. Since the price of Bitcoin dropped $2,000 apiece, Jeremy receives six Bitcoins for his purchase. He then returns the five Bitcoins to the lender. The last Bitcoin is his profit.

Jeremy can sell this Bitcoin and keep the $10,000, or he can use his earnings to make other investments. Had he not shorted the market, he would only show losses in his portfolio. Even if he had traded his assets out to stable coins, he would only make the difference in price from his original holdings and the value drop. Instead, he 5x his ROI using this advanced trading method.

How to Short Bitcoin?

Shorting Bitcoin is easier than ever today. The first step is to locate a reliable platform that permits leveraged trading. These platforms specialize in high-risk shorting investment loans.

Importantly, you will need to pay back any loan you take, plus fees. If you borrow ten Bitcoin, you’ll need to have those coins back when it’s time to repay your loan. To ensure that you fulfill your promise, these platforms require users to put up a deposit, or margin.

Your margin requirements act as a form of collateral or security. These holdings back your position with the goal to ensure the shares will be repaid at the agreed-upon future date. If your short starts to go awry, your lender can, and most likely, will call your margin in. Most platforms only need to provide you with a quick notice to do this. For these reasons, it’s imperative you read all the fine details of your Bitcoin short agreement.

Ways to Short Bitcoin

Today, there is a variety of ways to short Bitcoin. Each of these techniques provides its own advantages and disadvantages. You must consider the entire situation before you decide on what strategy best suits your needs.

Short Sell – Contract for Difference (CFD)

One of the most popular ways to short Bitcoin is through the use of CFDs. CFDs allow you to short Bitcoin without purchasing any coins directly. Instead, you sign a CFD and agree to just pay the difference between the price of the asset at the time of your loan and your contract rate. CFDs are popular because they are more convenient and cost-efficient because there is no need to make additional purchases.

How to Short CFD

eToro is the premier exchange for cryptocurrency CFD trading services. You will need to create an account to get started. Luckily, the process is simple. Notably, you must verify your identity and account via an email before you can use the platform.

Once you are all set up, shorting is simple. All you need to do is open a trade on the BTC/USD instrument. Next, you need to select “Sell” from the options. You will be brought to a screen that will allow you to set up all of the details of your CFD. It doesn’t get easier than that. Best of all, eToro features an advanced interface that is easy to navigate. Form here, you can stay up-to-date on all the market’s developments.

Exchange Shorting

There are many exchanges in the market today that offer shorting services. Most of these platforms allow you to leverage your shorting strategy. Leveraged shorting is the act of borrowing more Bitcoin from the exchange than you hold prior to your sell-off.

Bitcoin Price Dump

Bitcoin Price Dump

Leveraged trading is one of the riskiest strategies in the market. It takes a firm understanding of the market conditions and your investment. Additionally, you really need impeccable timing to be successful with this strategy. If the exchange feels as if your investments are going to sour, they will close your trade early, keep your margin, and make you repay your loan.

Understanding When to Short

There are certain times when shorting Bitcoin is more complicated than others. For example, shorting Bitcoin against long-term uptrends can be tricky, to say the least. Bitcoin has a way to slowly rise in value. Reversely, this digital asset can shed thousands of dollars in market value in minutes. These scenarios put into perspective why shorting can be difficult for new investors to complete successfully.

Understanding the Mentality of the Market

It’s also important to consider the mentality of other traders in the market. If you short Bitcoin, and suddenly the price starts to shoot up quickly, you will need to rush to repurchase your assets. Unfortunately, every other investor who made the same decision will seek to accomplish the same task.

This sudden drive to repurchase Bitcoin drives the market value up sharply. When this scenario plays out, it’s what is known as a short squeeze. Short squeezes add to your losses in this position. To avoid this scenario, you must be vigilant in your market assessments.

Past Bitcoin Sell-offs 

The Bitcoin market has nine years of trading data to back it up now. A quick glimpse at the past of Bitcoin and you can easily see scenarios that initiated major sell-offs. The more you understand these scenarios, the easier it will be to identify the next major sell-off in the market. Here are some of the main reasons Bitcoin prices stuttered in the past.

Bitcoin Whale Dump - How to Short Bitcoin (BTC)

Bitcoin Whale Dump – How to Short Bitcoin (BTC)

Regulatory Concerns

Since the crypto market is still in its early stages, there is still a lot of regulatory uncertainty surrounding this industry. In the event that a major country bans or enacts some anti-Bitcoin stance, the market will adjust accordingly.

Major Exchange Hacks – Short Bitcoin

History has shown that major exchange hacks can tank Bitcoin prices in minutes. One famous example of this scenario playing out was during the Mt.Gox hack. At the time, Mt.Gox was the largest Bitcoin exchange in the world. Its hacking sent Bitcoin prices spiraling downwards for months.

Hard Forks

Hard forks occur when the community behind a crypto project is split on a certain upgrade. In a hard fork, some of the miners refuse to change over to the new protocol. This creates two separate blockchains from the moment of the fork moving forward. Consequently, hard forks also create a rift in a coins support community.

Bitcoin prices saw a decline when the community split over transaction block sizes. The row eventually led to the creation of Bitcoin Cash. Today, both coins have a strong following in the market.

Delayed Updates

There is another update related scenario that can drop the price of a digital asset. When important upgrades see considerable delays, it can cause a loss of faith by investors. This loss of faith demonstrates itself in negative price movements.

Bitcoin saw some significant price drawbacks when developers postponed the SegWit update. SegWit reduced the size of transactions in an attempt to combat market congestion on Bitcoin’s blockchain. At the time, the network’s congestion was unbearable. Consequently, every delay was met with negative price movements.

Developers Exiting the Project

Another major development that can hurt a coin’s price is the exiting of a key member from the platform. Blockchain developers are in high demand. The top programmers are respected throughout the entire industry. When one leaves a project, it can symbolize the beginning of the end for a coin. It can also represent a shift in the coin’s primary functionality moving forward. Either way, investors don’t like to see these guys go.

Future Risk Scenarios

There are also future scenarios that could occur that would affect Bitcoin’s price negatively. For example, if the cryptographic hashing algorithm of Bitcoin is broken, the coin will become unsecured and its market value will plummet. Along the same line of thought, major coding exploitations could also cause investors to lose faith in this cryptocurrency.

Future Regulations

Regulatory changes in the market are perhaps the biggest threats to Bitcoin prices. In the past, major countries, such as China have put heavy pressure on the market. In 2017, China banned all exchanges and ICOs in the country. These actions dropped Bitcoin’s price sharply following the news.

Satoshi’s Back

Bitcoins anonymous creator Satoshi Nakamoto has remained in the shadows for the last couple of years. In the early days of Bitcoin, Nakamoto mined over one million coins. These coins have sat in his wallets since day one. If these coins were to enter the market, the price of Bitcoin would see a huge correction to reflect the added supply.

Risks of Shorting Bitcoin

Short sales are considered a risky trading strategy because they limit gains even as they magnify losses. Shorting is especially risky if the lender calls in the assets before prices have a chance to drop. There are some techniques you can employ to simplify the process, however, none are full proof.

Let’s examine the same example from before using the $12,000 Bitcoins that dropped down to $10,000. In the first scenario the short completed according to plan, the price of Bitcoin dropped and the investor repaid their debts to the lender. Now let’s see what would happen if the price of Bitcoin didn’t drop.

Maximum Risk Exposure

Let’s say that the price of Bitcoin jumped up to $13,000 instead of dropping. In this situation, the lender would call in their loan. The lender would close your trade and keep your margin. Additionally, you would owe $65,000 worth of Bitcoin instead of the original $60,000 worth of Bitcoin you borrowed.

Shorting Bitcoin – Summary

Shorting is a great way to make some extra profits. However, if you are new to trading, or are unfamiliar with the market, shorting is one of the fastest ways to lose your booty. For these reasons, each investor needs to do some soul searching prior to jumping into the shorting market. That being said, shorting is a powerful tool that provides investors with huge ROIs when completed correctly.

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Trading Risk Disclaimer: There is a very high degree of risk involved in trading securities. Trading in any type of financial product including forex, CFDs, stocks, and cryptocurrencies involves a high level of risk.

This risk is  higher with Cryptocurrencies due to markets being decentralized and non-regulated. You should be aware that you may lose a significant portion of your portfolio.

Securities.io is not a registered broker, analyst, or investment advisor.