Equity crowdfunding occurs when private companies raise capital from the public through the sale of securities. These financial instruments can include shares, convertible notes, revenue shares, debts, and tokens. Today, equity crowdfunding is an important part of the global financial markets because it provides SMEs a more cost-effective strategy to raise capital versus traditional IPOs.
Interestingly, equity crowdfunding is a relatively new investment tool. President Obama enabled equity crowdfunding back in 2011 when he signed the JOBS Act, but it wasn’t until the last five years that the practice became popular. One of the reasons it took so long for equity crowdfunding to gain popularity is that it took until May 2016 for key regulations to come into effect.
How Does Equity Crowdfunding Work?
Equity crowdfunding works very similar in function to the popular crowdfunding website, Kickstarter. Basically, investors seek out private firms that meet their criteria. Once a suitable investment is found, an investor visits a funding portal website that gives them access to the opportunity and its details. Here, investors are able to explore different equity crowdfunding investment opportunities for the firm.
Key Differences from Kickstarter
Unlike Kickstarter, investors don’t receive early access to a product or service for their contributions. Instead, investors in equity crowdfunding campaigns seek to make a profit for their participation. In most instances, investors receive shares, rights, and other benefits for their investment.
Different than Stocks
It’s important to understand why equity crowdfunding provides entrepreneurs with different opportunities compared to trading shares on the stock markets. For one, equity crowdfunding firms are private companies and in most instances, startups. In the past, IPOs were the only form of crowdfunding a company could engage in. This practice restricted access to the markets for SMEs for many entrepreneurs.
Many companies simply lacked the funding to cover the huge financial and legal requirements needed to host an Initial Public Offering (IPO). In turn, only the largest firms could generate the funding needed to launch an IPO successfully. Consequently, studies show that IPOs continue to see a decline in use as more affordable options are now available.
Additionally, these practices left investors out of the loop as well. Many IPOs are only open to accredited investors. Accredited investors make at least $200,000 per year, or can show over $1 million in assets. Notably, your assets must exclude your home. As you could imagine, this system left your average investors shut out from the most lucrative investments.
Thanks to the rise of equity crowdfunding platforms, now everyone has access to these valuable opportunities. Prior to the rise in internet crowdfunding platforms, investors were mostly VC and angel investors. These were the only individuals that had the funding to both make a major investment and wait for the mandatory lockup period before receiving returns.
No Lockup Period
Notably, investors that participated in private equity crowdfunding before the 2016 regulations implemented had to wait to access their funds for a designated lockup period, similarly to IPOs. During this time, investors were unable to trade or cash out their investment. This lock-up left investors exposed to major losses. Thankfully, the new regulations opened the door for secondary trading of these financial instruments via Alternative Trading Systems (ATS). In this way, ATS provide much-needed liquidity to the market.
Benefits of Equity Crowdfunding
Aside from the obvious financial gains equity crowdfunding brings to the table, there are plenty of other reasons why a firm would follow this strategy. For one, businesses gain strong brand support from investors. Each investor in your firm acts as a brand ambassador for your company. Since these investors need you to succeed in order to make a profit, they will often diligently spread the word about your business and products.
There are also managerial aspects that make equity crowdfunding a more attractive option to consider. For one, an entrepreneur raising capital via equity crowdfunding has total control over the offering. The entrepreneur can chose the valuation, how much capital to raise, what to sell, how much to sell, and at what price. They can even specify a minimum funding goal to ensure the firm receives enough backing to proceed with its plans. In comparison, a company engaged in an IPO is beholden to its investor’s terms.
Keep it Reasonable
Of course, with all of this flexibility also comes new responsibilities. Only companies that can produce a reasonable valuation and terms see success in the equity crowdfunding space. Investors are looking for great opportunities with minimal risk.
Crowdfunding Regulations and Rules
There are some key requirements a company must first meet prior to launching an equity crowdfunding campaign. First, the firm has to be privately owned and not listed on any stock exchange globally. Secondly, all investors must prove their identity and that they are over the age of 18. Additionally, many equity crowdfunding campaigns include limits on how much capital an individual can invest based on their income and net worth.
Currently, each region has its own equity crowdfunding regulations in place. In the US, there are two main types of equity crowdfunding campaigns – Regulation Crowdfunding and Regulation A+. Both provide SMEs with a more efficient and less-costly alternative than hosting an IPO.
Regulation Crowdfunding allows companies to raise up to $1.07M annually. Currently, these companies can start raising capital for free after filing a Form C with the SEC. Importantly, if the firm seeks to raise more than $107,000, an independent CPA must review the company’s financials for the past two fiscal years.
Regulation A+ companies can raise up to $50M annually. Companies that seek to go this route must first undergo a financial audit for the past two fiscal years. Additionally, they must hire a securities attorney in order to create a Form 1-A. This form must get submitted to the SEC for qualification. Unfortunately, the qualification can take some time to complete. On average it takes 3-5 months at the minimum.
Importantly, companies are unable to raise funds during this time frame, but, they are able to collect investor information to better rate investor excitement levels. This practice is called “testing the waters” and it’s a powerful tool that enables firms to receive valuable market feedback prior to the official launch of their crowdfunding strategy.
What is Real Estate Crowdfunding?
Importantly, equity crowdfunding platforms have given way to a new way to invest in commercial real estate, real estate crowdfunding. Real estate crowdfunding involves a group of investors who each contribute money to a specific real estate deal. Importantly, this strategy lowers the entry bar for investors and provides real estate owners access to global capital. As such, the practice has exploded in popularity in recent years, especially since the introduction of blockchain technology.
How Real Estate Crowdfunding Works
In most real estate crowdfunding transactions, a developer or experienced real estate professional identifies an investment opportunity. This real estate professional may decide that they don’t want to fund the entire project. This decision could be because of a lack of funds or a desire to utilize other peoples funding to complete the project. Either way, the professional would then open the opportunity to investors.
There are three key players in any crowdfunded real estate investment. All crowdfunding real estate ventures begin with the sponsor. The sponsor is the individual or company that identifies, plans, and oversees the investment. Their responsibilities can include purchasing the asset, organizing needed work, arranging the financing, and handling the eventual sale of the property. For their labors, sponsors require a certain share of any profits they earn.
The second key component of any crowdfunding real estate transaction is the platform. Think of these platforms as the middleman between investors and sponsors. Their primary purpose is to link investors and sponsors. As such, they are also responsible for collecting funds from investors. Along with this task comes a host of other responsibilities such as verifying standards, guarantying that investors meet the requirements for investment, advertising deals to potential investors, and dealing with regulatory issues.
The investor is the final piece of the puzzle. An investor trades their funds for some form of income distributions from the profit the property generates. Additionally, they will receive a proportional payout from any eventual profitable sale of the property. In some instances, certain voting rights are a part of the deal. for example, these rights could include whether or not to accept an offer on the property.
Advantages of Crowdfunded Real Estate
There are some major advantages realized through real estate crowdfunding strategies. For one, there is a much higher potential for increased returns when compared to other major asset classes. Additionally, investors gain access to assets that may otherwise be inaccessible to them. A such, crowdfunding real estate is an awesome way to diversify your portfolio.
Importantly, equity crowdfunded real estate platforms usually focus on a specific property. This is opposed to real estate investment trusts (REITs) that can involve billions in properties. Consequently, crowdfunded real estate investors can enjoy the benefits of single-property investments without the financial exposure of actually becoming a landlord. In the end, these investors get the best of both worlds. They receive an income as well as a targeted lump-sum return without major risk exposure.
Top Crowdfunding Websites
Now that you have a firm understanding of what equity crowdfunding is, and how it benefits the entire market, you are ready to explore some of the top platforms providing these services. Importantly, many of these companies now utilize blockchain technology to reduce the overall costs needed to manage and implement their equity crowdfunding concepts.
SeedInvest was founded in 2012 and launched in 2013. The platform is unique in that it has a stricter acceptance policy. Only handpicked start-ups in upcoming future tech industries gain access to this powerful tool. Specifically, a firm needs to deal with blockchain, augmented reality, 3d printing, artificial intelligence, robotics, or space technologies. Importantly, SeedInvest‘s pickiness has paid off as the firm has successfully helped raise money for over 150 companies to date.
The Austin-based crowdfunding platform Microventures entered the market in 2009. The company focuses solely on late-stage companies as part of its niche market. Late Stage companies are firms that are expected to go public within the next couple of years. As such, these companies are usually well-known players in the sector. For example, you can invest in SpaceX, Lyft, Pinterest, and Robinhood via Microventures. Importantly, the company only allows accredited investors to join because each investment ranges from the $5000 to $50000 range.
WeFunder entered the market in 2011. This San-Francisco-based firm originated from the Y Combinator accelerator program. Importantly, the Y Combinator helped launch some of the most successful ventures to date. These ventures include companies such as Coinbase and Airbnb. Also, due to the fact that WeFunder is one of the oldest platforms in the market, the company participated in writing the JOBS Act with the Obama administration.
Fundable entered the market on May 22, 2012, as a rewards-based investment vehicle. Investors would pledge funds in exchange for pre-orders. In 2012, the firm switched over to a true equity crowdfunding strategy. Notably, Fundable’s equity crowdfunding tools are only available to accredited investors at this time.
StartEngine entered the market in 2014 with the goal to provide more flexibility for entrepreneurs in the space. Unlike most of the competition, StartEngine is laxer on what type of firms and investors can utilize its services. As such, investors need to use a little more due diligence when investing on the platform. Importantly, StartEngine showcased its abilities after successfully raising $10M via a self-hosted STO in 2018.
Equity Crowdfunding – The Future is Today
Today, equity crowdfunding is an essential tool used by startups to access capital markets. Consequently, you can expect to see this style of crowdfunding increase in adoption due to its lower costs and more efficient business model. Thankfully, blockchain technology continues to streamline the entire equity crowdfunding process. If the trends continue, equity crowdfunding is set to overtake the stock market as the premier crowdfunding strategy in the coming decades.
What are Dapps (Decentralized Applications)?
Decentralized applications (Dapps) continue to change the world around us in remarkable ways. These new-age programs provide users with more functionality and security than ever. Additionally, these applications feature a robust design that is meant to leverage the decentralized nature of blockchain technology. As such, these programs run on a blockchain or P2P network of computers instead of a single computer.
When you think of a traditional software program like MSWord, it’s important to understand that the protocol resides on a single computer system. Even if you are using the online version, the actual software is operated by a central organization, in this case, Microsoft. Consequently, Microsoft has full control over the application and its use.
This control provides the group with full authority over the app. Importantly, centralized apps, such as Facebook, require this style of structuring to function correctly. The organization plays a pivotal role in these software systems. If it was attacked, damaged, or removed for any reason, the system would fail to operate.
While Dapps can come in all shapes and sizes, they all share some common factors. Firstly, all Dapps are decentralized. Decentralization implies that all the application’s operations must be stored on a public blockchain. Next, Dapps incentivize users to participate in their network. In most instances, these incentives include payment via some form of cryptocurrency. It’s very common for the application to create a native utility token to facilitate this process.
Paramountly, Dapps utilize some form of a consensus mechanism to ensure the validity of the network. In a consensus mechanism, the network’s participants act as validators. They are also known as nodes or miners because they receive a reward for their efforts, like mining for gold. Nodes are who validates new transactions. Additionally, one of the nodes eventually is who gets to add the next “block” to the “chain” of transactions. Ideally, a Dapp will also feature an open-source protocol.
Dapps and P2P Networks
All Dapps run on either a P2P network or a blockchain network. A P2P network is a network that allows users to exchange data and services directly. In the case of websites, you can think of streaming websites such as Popcorn Time. When users enter the Popcorn Time P2P Tor network they receive access to a variety of other users who are offering downloads. The user then chooses which user to download the data from and a direct connection is established between the two parties.
In a blockchain network, there is no central point of control. There is no company that ensures the blockchain is running correctly. Instead, every computer on the network works together to secure the network. In most instances, the software is open source. Open-source software is generally more secure because it allows the community o test its capabilities. In this way, blockchain technology creates a truly decentralized experience for participants.
Dapps vs. Regular Apps
To put the power of Dapps in perspective, let’s imagine that you just placed a post for your new political book on Facebook. However, when you go back to check on the stats for your post just a few hours later, you realize the post was removed because your book’s content violated Facebook’s new terms of service.
In its centralized network, Facebook is the entity in control of the network. In other words, they are the king of the content provided. If they deem that what you have to say doesn’t fit into their narrative, they have every right to kick you out of the platform. The same way you could ask someone to leave your home if you disapproved of their conduct.
Dapps function much differently. If Facebook is like your home, think of Dapps as a public park. There is no central governing authority to tell you that your post must go. In fact, due to the immutable nature of blockchain technology, your post about your book will never come down.
Dapps Enter the Scene
The first Dapp to enter the market with success was Bitcoin. As such, Bitcoin is a self-sustaining public ledger. It is immutable and decentralized. Even more important, is the fact that Bitcoin entered the market as a direct response to the centralization experienced within the traditional financial sector.
Ethereum Changed the Game
If Bitcoin lit the Dapp candle, Ethereum poured gas on it. Ethereum’s whitepaper states that this cryptocurrency is a “protocol for building decentralized applications.” Every aspect of Ethereum’s network focuses on reducing development time, improving security, and ensuring scalability.
Ethereum changed the Dapp game forever. This unique platform introduced a new programming language specifically to simplify Dapp programming. Additionally, Ethereum developers can utilize the Turing-complete Ethereum Virtual Machine (EVM) to create smart contracts in minutes.
Brave New Browser
Today Ethereum Dapps dominate the market. Applications such as the Brave New Browser utilize ERC-20 compliant tokens to accomplish some amazing things. In the case of the next-generation browser Brave, users receive BAT tokens for their participation. Brave users actually receive payment for their data. Additionally, they gain far more control over their information. Users can decide who, when, and what to share. In this way, the Dapp Brave is revolutionizing what it means to surf the net.
In another perfect example of the added capabilities that Dapps bring to the market, the platform STORJ allows users to rent out their unused computer space. The application helps users and those seeking more storage meet up and exchange services. In the end, one party receives computer storage capabilities at a fraction of the normal market costs, while the other party earns cryptocurrency for providing the space.
The future potential for Dapps is undeniable. Every week, new and exciting projects emerge in the market. As such, you should expect to continue to see these protocols integrated into every business sector over the coming years.
Bitcoin Trading Part 2 – Understanding Charts
Learning how to read crypto charts is an essential skill for anyone interested in trading Bitcoin successfully. At first glance, trading charts can seem like a foreign language. All the confusing lines, shapes, and colors can make it seem very intimidating for beginners. Additionally, learning technical analysis requires that you begin to learn the jargon associated with trading.
Luckily, crypto trading is very similar to stocks. In fact, the only real difference is the asset. Both assets utilize the same fundamentals. You can study up on some of the greatest stock traders in the world, and you will give yourself an amazing edge in the market.
Remember, trading isn’t about being different. It’s about understanding the psychology of the market. In other words, you don’t need to reinvent the wheel. At first, you will see more success by following the path of established traders that have practiced this skill for years. The great news is that once you understand how to trade Bitcoin, you can trade a vast array of assets classes.
Step one on your journey to becoming the ultimate Bitcoin trader is to get familiar with the basics of trading. You will need to familiarize yourself with the key theories and terminology used today. You will also want to have a firm understanding of different chart types and pattern recognition.
Luckily, in terms of trading, market history has a tendency to repeat itself. Consequently, analysis allows you to recognize these trends and use them to make an informed decision on the market movements of the future.
The Dow Theory is a strategy developed by Charles H. Dow., hence its name. Dow, along with Edward Jones and Charles Bergstresser, founded Dow Jones & Company, Inc. The trio went on to develop the Dow Jones Industrial Average in 1896.
The Dow Theory provides you with valuable insight into market movements. It states that the market price takes everything into consideration. Every factor including outside developments and all prior, current, and future details combine to establish the market value of an asset.
This theory means that as an experienced trader you must be able to monitor multiple variables in the market. You will learn to understand the current, past, and future demands of your asset community. This learning must come from a constant gathering of information and market news. You should always pay special attention to any future regulations.
The Dow Theory means that all price movements are not random at all, quite the opposite. Price movements follow larger trends. These trends can be broken into two categories – short and long term trends.
Bitcoin Market Analysis
In technical market analysis, you focus on a coin’s price specifically. This strategy requires you to utilize technical indicators and ignore outside variables contributing to the price. In this way, you are able to remove emotion from your decisions.
6 Tenets of Dow Theory
3 Market Movements
Main Movement – The main movement is the major trend currently underway. This trend is going to encompass years of market activity. For example, the main movement in Bitcoin is bullish if you look at the complete trading history of the asset. However, it’s important to understand that the main movement can be either bearish or bullish depending on the time frame included in your analysis.
Medium Swing – A medium swing is a secondary market reaction. This reaction can last for up to three months. Medium swings include price retraces. A retrace is when Bitcoin’s market movement begins to return to its original state prior to the market activity. In most instances, a retrace will return to 30% – 60% of the original market value.
Short Swing – Short swings are daily price fluctuations. A short swing can last up to a month in some scenarios. These minor movements occur due to market speculation. As such, Bitcoin experiences short swings throughout the week on a regular basis.
3 Market Phases
The accumulation phase occurs when knowledgeable investors receive some sort of valuable information that relates to them a significant change in market conditions. This information could include knowledge acquired from inside the company or from other avenues that could affect the market. In either case, the results are the same. These investors begin buying or selling their assets in a bid to position for the news.
Notably, this phase is difficult to detect as the market movements are minimal. The reason for the miniscule market adjustments is that the majority of investors are not privy to the information the first movers received. Since only a small number of people have access to this information, these sales go unnoticed amongst the daily trading volume.
Absorption occurs when the general public begins to take notice of the market trend emerging. This participation leads to more market activity. Consequently, more investors jump on board the movement. Eventually, this scenario leads to speculation fueled by FOMO (fear of missing out).
Here is where emotions play a major role in dictating the market’s behavior. If the market is tanking, investors will get scared and panic sell their Bitcoin further fueling the price drop. Opposingly, if Bitcoin’s value begins to rise steeply, a rush of new investors enter the market attempting to catch the next bull run.
In this phase, early investors begin to reintroduce their accumulated holdings to the public. These investors already realized a profit and now they are exiting their positions before the trend reverses. This exit causes the emergence of a swing that creates a price retrace in the market. Untrained investors are left with the holdings of those that were ahead of the trend.
Markets Discount News Immediately
The market reacts instantaneously to all information regarding an asset. This reaction encompasses all the data surrounding the investment. The value of your asset reflects the sum of all the hopes, fears, and expectations of all the market. News such as future regulations, major institutional adoption, and the introduction of new financial products all play a major role in the pricing of Bitcoin.
Additionally, non-Bitcoin related issues can affect the price of your asset. Occurrences such as major elections can cast doubt on the stability of an asset in the future. This scenario is especially true when speaking with new unregulated assets such as Bitcoin. Also, major events such as war, natural disasters, or pandemics affect the market value of assets as well.
Volume Confirms Trends
The volume of an asset is the amount of market activity it experiences. In the case of a bull trend, you should notice jumps in the trading volume. This price raise should correspond with a spike in market volume. When you see price jumps without corresponding upticks in volume, it’s usually a sign of what’s known as a pump. In a pump, large investors manipulate the price of an asset using their weight to initiate price trends.
Trends Continue Until the Market Shifts
This rule states that a market in motion will remain in motion until a trend reversal occurs. Basically, if you notice a large scale trend, you can expect that the trend will continue until you notice the start of another accumulation period by educated investors.
Unfortunately, it can be very difficult to successfully determine when a trend reversal is underway. The market will always have small and medium swings. These movements can make it extremely tricky to verify if a movement is actually the start of a reversal. A careful evaluation of all outside trading factors can help you to make the right choice in these situations
Bitcoin Technical Analysis
Technical analysis requires you to utilize a combination of tools to predict if the price of Bitcoin will rise or fall. Importantly, technical analysis provides you with more insight into the market. Consequently, the better you are at it, the more success you will have trading. Here are some key concepts you need to understand to simplify your technical analysis.
Bitcoin Chart Time Frames
You need to understand the timeframe windows and how their use will affect your analysis’s results. These are the most popular time frames available on Bitcoin exchanges today
- 15 Min
- 4-Hour Chart
- Daily Chart
The time -frame you use depends heavily on your trading style. For example, if you are a day trader, you will use hourly, all the way down to the minute trading window. The reason for this decision is simple. You need the most up-to-date information because you are conducting micro trades.
Bitcoin Day Trading
Day traders can open and close their trading position in minutes. Additionally, they can trade continuously throughout the day. Some traders make 50+ trades a day. For these actions, you need up to the minute analysis.
Bitcoin Long-Term Traders
The situation is reversed for long term traders. These traders prefer to hold their position for months and even years. In some cases such as with HODLers (hold on for dear life), they may never intend to sell their Bitcoin holdings.
Long term traders depend on long term trends. These traders need to examine months of data at the same time to get a better overview of the larger trends. It does long term traders no service to examine the smaller fluctuations in the market. In fact, it can be counterproductive as it could cause the trader to second guess their decision.
Bitcoin Market Cap
You only need to be involved in the crypto market for ten minutes before you hear someone mention “market cap.” The Bitcoin market cap is the total amount of coins in circulation X the price of each coin currently. Consequently, the market cap tells you a lot about a particular asset.
You can examine the market cap to gain a deeper insight into the stability of an asset. Websites such as CoinMarketCap.com provide you with real-time analytics in the form of a line chart. You can use these charts to spot trends in the market. In the case of Bitcoin, you will notice that over the last 9 years the asset has gained considerable value.
Bitcoin Candlestick Charts
Candlestick charts are the most popular style of chart used in the crypto space today. At first, these charts can seem as strange as the controls of an alien spacecraft to the untrained eye. However, it only takes a few minutes to understand these remarkable trading tools.
Candlestick charts provide you with a plethora of information at just a glance. You will notice the red and green candlesticks are laid in succession. Importantly, each candle shows you the price movement of an asset over the selected timeframe.
How to Read Bitcoin Candle Sticks
Candlestick charts provide you with everything you need to know to understand the current state of the market value of an asset. You can see the opening and closing prices, the daily high and low, and you can decide on what time intervals you what this information displayed.
A green candlestick indicates that Bitcoin closed higher for the time period than its opening value. Anytime you see a red candle, it indicates there were some losses incurred by the asset. In this way, it’s easy to monitor market activity, even from your phone.
In most candles, you will notice there’s a body. Where the main body of the candle begins is the opening price for the day. If the candle is green, the opening price will be the bottom of the candle body. If the candle is red, the body’s top will let you know the opening price.
You will notice that the top or bottom always lines up with the proceeding candle in the chart. This alignment represents the close and opening of the next trading day. This time can varies depedning on the trading interval you choose.
There are also small lines sticking out from the top and bottom of the candle. These lines are known as shadows. Shadows represent the high and low for the day. In this way, you can ascertain an incredible amount of information from a candlestick chart in seconds.
This data can then help you to make a timely investment decision. Certain candles can indicate the start of trends. Consequently, an entire terminology has emerged surrounding these indicators. Here are the most common candlestick indicators you will see when trading Bitcoin.
A hammer candle can indicate a bullish reversal is about to occur. The candle shows that when the market opened, sellers forced the price to drop steeply. This downward pressure was met with stronger buying pressure. This pressure resulted in a shift in momentum.
Importantly, the momentum was pushed back down a slight bit, but not before the day closed. Hammers are easy to spot because they contain a shadow that is sometimes 3x as long as the body of the candle. Hammers let you know that buyers are in the market and they are controlling the price action for the day.
The falling star candle is the opposite of the hammer candle. When you see these candles it means that the buyers had control of the market when the day opened but before the close, their gains were erased by strong bearish pressure. In turn, you can predict that more selling pressure is entering the market. Falling stars have very small lower shadows with the upper shadow accounting for the majority of the candle.
Bullish Engulfing Pattern
A bullish engulfing pattern again signifies that buying pressure is strong in the market. In this 2-candle pattern, you see that the sellers forced the price down the day prior. The following day, sellers regained control and dwarfed the losses the bears introduced the day prior. This pattern shows a bearish candle followed by a larger bullish candle.
Bearish Engulfing Pattern
Reversely, the bearish engulfing pattern lets you know that sellers are entering the market in droves. The first candle in this pattern will show gains from the day prior. The next candle in this pattern will reverse the gains and show even stronger losses.
A morning star pattern utilizes three candles to determine market trends. A morning star is a bullish reversal pattern that shows a struggle ensuing between buyers and sellers. On day one, you see that sellers had full control over the market. This sales pressure was countered on day two and reversed on day three.
The evening star pattern is the opposite of a morning star. Here you see that buyers get exhausted after two days of pressure. On day one, the buyers were able to control the price. On day two there advancements were met with equal pressure and by day three, they lost control of the market. You can easily spot star trends because they have no body because the pressure on both sides of the market was equal. The morning star candle indicates that sellers are now in the backseat and bulls are in control. Evening Stars show that bears run the market currently.
Relative Strength Index
The Relative Strength Index (RSI) is a mathematical formula used to measure the current of the market. The formula takes the strength and speed of a market’s price movements and compares them to others that occurred previously. The formula reads as:
RSI = 100 – (100/(1-RS))
By comparing the current and past market fluctuations, as well as the magnitude of recent gains to recent losses, the RSI attempts to establish if an asset is overbought or undervalued. An overbought asset will usually depreciate in the near future. An undervalued asset will go up in price as its intrinsic value is realized.
As with any charting tool, the RSI is not 100% accurate, no trading tool is. This means that you must use this tool in conjunction with other indicators to improve your results. RSI indicators are prone to false buy and false sell signals. These can occur when there is a pump or flash sale in the Bitcoin market.
Reading the RSI
The RSI chart shows a line graph that ranges from 0 to 100. A score of 70+ indicates an overbought asset. This indication could signal a price drop. Reversely, a score of 30 demonstrates an undervalued asset. This score means there is a good chance the asset could experience a price rise.
Bitcoin Support and Resistance Lines
RSI is important but it’s not the only tool that you use to trade Bitcoin. You will also want to understand support and resistance lines. Think of these invisible barriers as predetermined levels of the price of an asset at which trend reversal usually occurs.
Determining support and resistance levels is easy. Just look for points on the chart that you see multiple touches of price without a breakthrough of the level. Whenever the asset meets these barriers it is either pushed away or it breaks through to the next support/resistance levels. When a support level is broken, it indicates that the market has reversed its flow. Additionally, support levels can help you to determine where the price of Bitcoin might bounce back.
For example, if Bitcoin has a support level at $8500, it will be harder for Bitcoin to increase past this price if it’s below that level. This is what’s known as a resistance level. If Bitcoin was over the price of this level, it would then serve as a support line. When the line is definitely broken, it signals major market movements.
Bitcoin Market Psychology
Successful traders need to grasps the main psychology of the market to remain effective. Understanding the minds of other traders helps you to better predict how the market will reflect certain developments such as new regulations. There are three main types of trading psychologies at work in the market today.
The first type of trading psychology is that of long traders. These are individuals that buy their assets and plan to hold them until the price rises at a much later date. At that point, they will resell their assets and take their profits. You also have traders who go “short”. These are traders that expect Bitcoin’s price to fall in the future. These traders often incorporate other financial instruments such as leveraged futures to maximize their profits. Lastly, you have your average trader. This is the trader who doesn’t have the insight to make a determination of the market’s fluctuations. This category contains most new traders.
Bitcoin Trading – A New Skill to Master
Now that you have a firm understanding of the key components in trading Bitcoin, you are ready to start your trading adventure.
What is Blockchain Technology?
Its been almost ten years since Satoshi Nakamoto first introduced Blockchain technology to the world in his 2008 Bitcoin Whitepaper. Since that time, these revolutionary networks have gained popularity in both the corporate and governmental sectors. This growth is easily explained when you consider that blockchain technology provides the world with some unique advantages that were previously unimaginable. Consequently, today, you can find blockchain technology in nearly every sector of the global economy.
What is Blockchain Technology?
A blockchain is a network of computers that share a distributed ledger across all network participants (nodes). This strategy is far different than say, fiat currencies that originate from a centralized authority figure. Importantly, this ledger keeps an unbroken chain of transactions since the birth of the network. This “chain” of transactions grows larger as new “blocks” of transactions are approved and added to it.
In order to approve new transactions, each node works together with others to validate new blocks. Additionally, the nodes also validate the current state of the entire blockchain. In order for a new block of transactions to be added to the blockchain, they must receive approval from 51% of the network’s nodes. Nodes are also referred to as miners. In this manner, blockchain networks are decentralized networks that provide unmatched security to the world of digital assets.
Security via Decentralization
Decentralization is an important aspect of blockchain technology because it makes these revolutionary ledgers immutable and unalterable. In fact, since there is no centralized attack vector, hacking a blockchain is nearly impossible. The larger the blockchain network, the more secure the data on it remains.
For example, let’s look at the world’s largest blockchain, Bitcoin. Currently, the Bitcoin blockchain has over 10,000 active nodes located across the globe. This distribution means that in order for an attacker to alter even just one tiny piece of information on the blockchain, they would need to successfully hack 5,000+ computers at once.
While this task may not be impossible for the quantum computers of the future, it’s so unprofitable that it makes no sense to even attempt such a monumental task. Additionally, on top of successfully hacking 5000+ computers at once, an attacker would also need a supercomputer to recalculate the new blockchain transactions in time to introduce them into the network. It would literally be more affordable to create a new cryptocurrency from scratch.
One of the reasons why blockchain networks are so secure is the integration of consensus mechanisms. Consensus mechanisms are cryptographic protocols that leverage the participants of a blockchain network in securing its data. In the case of Bitcoin, the Proof-of-Work (PoW) consensus mechanism is used.
The Proof-of-Work consensus mechanism was revolutionary to the world of cryptography when it was first introduced years prior by Adam Back in his Hashcash whitepaper. In the concept, Back describes the integration of a mathematical equation to the network’s security protocols. In this way, every computer can show “proof” of their work securing the network.
It’s important to understand that nodes receive a reward for their mining efforts. These rewards adjust automatically depending on the network’s difficulty and value. In the case of Bitcoin, miners originally received 50 Bitcoin for their efforts. Today, this seems like fortune, but back in 2009, Bitcoin was only worth pennies. As the value of the token rises and the network goes, the mining rewards shrink. Today, Bitcoin miners receive 6.5 BTC if they add the next block to the chain.
Notably, every node validates and secures the blockchain, but only one gets to add the next block of transactions to the network. To determine who the next miner is that gets to add this block, every computer competes in a mathematical race to figure out the PoW equation. In the case of Bitcoin, the equation is known as SHA-256. Importantly, the first SHA algorithm dates back to Hashcash. This early version of the equation was known as SHA-1.
Notably, the SHA-256 equation is so difficult that it’s easier and more efficient for your computer to just make random guesses rather than attempting to figure out the equation directly. The answer to the equation must begin with a predetermined amount of 0s. In the Bitcoin blockchain, the equation’s answer must start with four zeros. However, if the network’s congestion rises, so does the difficulty of these equations. This difficulty adjusts by the addition of another zero at the beginning of the required SHA-256 answer.
Similarly to traditional commodities such as gold, there are costs that are associated with the creation and introduction of these digital assets into the market. These random guesses utilize intense computational power. This power equates to real-world costs such as electricity bills. Studies have shown that securing the Bitcoin network can use more electricity than required by entire countries. Luckily, over 80% of Bitcoin’s power consumption comes from renewable sources such as solar or hydroelectric. This cost of mining also adds measurable value to each Bitcoin.
As Bitcoin began to gain in profitability, its network’s computing power expanded significantly. In the beginning, nodes, also known as miners, could mine for Bitcoin using nothing more than your home PC. Eventually, miners realized that graphic cards were far better at the repetitive guessing required to figure out the SHA-256 algorithm. This led to a computational race in the market.
Eventually, large blockchain firms such as Bitmain introduced Application Specific Integrated Circuit (ASIC) miners into the equation. These purpose-built miners were thousands of times more efficient at guessing the SHA-256 algorithm than the GPUs and CPUs before them. Consequently, their introduction created a scenario in which the average miner now needed to invest thousands in mining equipment to stay relevant.
Luckily, some creative minds in the field began to think of ways to level the playing field out again. They developed “mining pools.” A mining pool is a network of miners that all share computational power for the common goal of mining blockchain transactions. Importantly, mining pool participants receive a percentage of the reward based on their contributions to the network’s overall hash (computational power).
Importantly, over the last three years, there has been a push to move away from power-hungry consensus mechanisms such as PoW. This desire to secure blockchains in a more efficient manner has led to the development of some truly unique consensus mechanisms in the sector.
The Proof-of-Stake mechanism does away with the difficult mathematical algorithms and instead utilizes a more psychological approach to securing the network. In a PoS blockchain, users don’t need to compete mathematically to add the next block to the blockchain. Instead, PoS users “stake” their coins via network wallets to secure the network. The way staking works is simple.
Keeping a certain amount of coins in your wallet allows you to participate in transaction validations. The more coins you stake, the more likely the chances are you get to add the next block of transactions to the network. In most PoS systems, a miner from those with the most tokens staked at the time receives the chance to add the blocks.
The advantages of a PoS consensus mechanism are immediately evident. For one, you don’t need to pour tons of resources into your network to keep it safe. Additionally, since nodes are chosen based on their amount of staked coins, there is never a scenario in which a node gains anything from validating incorrect transactions. Basically, a hacker would have to fully invest in the cryptocurrency prior to attacking the network. In this way, PoS systems create a huge deterrent to attackers.
The Future of Blockchain Technology
Blockchain technology has come a long way from its early days as a means to secure cryptocurrency networks. Today, blockchain technology has numerous uses across every type of industry imaginable. Specifically, blockchain programs have impacted the logistical, financial, and data security sectors in a major way.
Blockchain Technology Logistics
Blockchain logistical systems are more efficient and cost-effective to operate than traditional paper-based models. In fact, the immutable and unalterable nature of blockchain tech makes it ideally suited to logistical tasks. Soon, you may be able to ascertain much more information regarding the creation and delivery of your products thanks to these new-age systems emerging.
Blockchain technology has also altered the way in which businesses raise funds. In a traditional corporate crowdfunding strategy such as an IPO, companies must balance between cost-effectiveness and participation. The inability to process smaller transactions meant that for the longest time, companies had to turn away potential investors. Nowadays, blockchain technology enables businesses to easily automate these procedures via smart contracts.
Smart Contracts feature preprogrammed protocols that execute when they receive a certain amount of cryptocurrency sent to their address. These contracts live on the blockchain and enable remarkable functionality. For example, in the case of fundraising, a smart contract can automate processes such as the approval of investors and the distribution of funds.
Blockchain Technology Today
You can expect to see further expansion of the blockchain sector in the coming months as more governments and institutions explore its benefits. For now, the blockchain revolution is well underway.