Ethereum sister cryptocurrency Bitcoin is making new highs on the daily basis. Most of the people talk about bitcoin. Bitcoin price surged from around $1000 at the start of this year and is hovering around $17K at this time which is almost the end of the year. So we had something like 1,600% in the price of bitcoin which is phenomenal. Main financial media is only talking about bitcoin as if it is the only cryptocurrency around. There are many cryptocurrencies that are floating around now. Ethereum is one of them. I wanted to write a post on Ethereum and how it is beating bitcoin. Do you read my Binary Trading Ninja blog regularly?
Ethereum started the year around $8. A few days back it breached the $600 mark which was a pretty tough milestone to achieve. In percentage terms this comes close to 8,000% percent which is a pretty impressively feat. If you had invested $200 in ETH at the start of the year, you would have by now $16,000 in your investment. If you had instead invested $2000 in ETH, by now you would have had $160,000. Many people simply missed the boat. At the start of the year, bitcoin was aroun $1000, so $200 would have not bought you a full bitcoin but a small part of it and by now you would have $3200. So you can see how Ethereum beat Bitcoin this year. I believe Ethereum will ultimately defeat Bitcoin. Ethereum was launched by a Canadian computer programmer Vitalik Buterin unlike Bitcoin whose inventor is an unknown person Satoshi Nakamoto. Always keep this mind, trading cryptocurrencies is not different than trading forex or for that matter binary options. Take a look at the following screenshot of ETH.
Now in the above ETH weekly chart, you can see ETH in a strong up trend for the past many weeks. It did make a few retracements but it could never breakdown below the EMA 21 (red line). The last weekly candle is pretty strong. You can see it going up with a very strong momentum. As a trader you know there is always some fundamentals that drive the price up or down. The same price action principles apply when you trade cryptocurrencies as when you trade currencies and stocks. Above ETH price surge was caused by the news in the financial media that Swiss Bank UBS alongwith Credit Suisse, Barclays, KBC, Thomas Reuters and the Swiss Stock Exchange SIX has decided to use Ethereum based blockchain platform. Viola you find ETH price spike up. Cryptocurrencies are very volatile. But we have seen similar volatility in case of GBPUSD and USDCHF but on the downside. You should keep this fact in mind, financial markets are news driven now a days. Prices are sentiment based. As far as currencies are concerned fundamentals don’t matter in the short term but of course fundamentals do matter in the long term. The same thing applies to the new world of cryptocurrencies. What we are seeing are once in a lifetime price surges. Over the next few years, these cryptocurrencies will also stabilize and become far less volatile. Did you download FREE Forex Money Bounce Strategy?
Could we have predicted the above price surge? We could have easily predicted the above price movement. Of course we can never predict how much price is going to go up but we can always predict the upward bias in the market. Candlestick patterns are the best indicators. Above is ETH Daily chart. You can see the red arrow above, this is where the upward surge started. Always start from the longest timeframe chart. Then drill down to the lower timeframe charts. I always use H4 chart for entry and exit. Below you can see ETH H4 chart. Price is surging up with a strong positive momentum.
MACD is a good momentum indicator. As long as it does not change color, momentum stays strong. Red color means strong up momentum while green color means strong down momentum. You can see the MACD below in ETH H4 chart. It is red. Once we enter into the trade we stay in the trade as long as MACD does not change color. You can also trade binary options on cryptocurrencies. Did you read this binary options strategy?
That was a brief technical analysis of ETH and how we could have predicted the price surge. As I said, before hand it is very difficult to predict how much price is going to move but we can definitely predict direction of the market and trade accordingly. Market data streams and after each time period we update our preditions. Download Forex Directional Edge Strategy FREE.
Is Ethereum A Ponzi Scheme?
Now let’s turn to Ethereum as a cryptocurrency and how it is designed and what makes it superior to bitcoin. First you need to have the concept of blockchains. Ethereum Whitepaper was first published on github in 2014. You can download it from github if you want to read it. There are a lot of people who are claiming Bitcoin and Ethereum to be scams and a ponzi scheme. A few central banks have also issued warning to their citizens to be careful before they invest in cryptocurrencies like Bitcoin and Ethereum. As the prices of these cryptocurrencies have skyrocketed, noise against them have also increased from well established quarters like the central banks,the regulatory authorities and the people in the financial industry.
This belief that cryptocurrencies are a scam and a Ponzi scheme stems from the fact that there is no lender of last resort in the case of cryptocurrencies. There is no central authority like the central bank that will redeem your Ethereum tokens. There are some financial sector services that have started to accept these cryptocurrencies and exchange them with other currencies like US Dollar, British Pound or Japanese Yen. As I said in the start of this post, a number of Swiss Banks have decided to use Ethereum Blockchain Platform so they will be exchanging Ethereum tokens with other currencies. In the same manner there are many entities that now accept Bitcoin as a payment and exchange them with other currencies.
In a sense the critics of cryptocurrencies are saying something that holds ground. There is no lender of last resort that will guarantee to exchange your Ethereum tokens for Dollars or Pounds. You will have to connect to an online exchange and trade your coins for dollars. But this also happens for currencies. Their prices are determined by their supply and demand in the global market. Central Banks have the mandate to regulate their currency to check inflation and unemployment. This they do with a few monetary tools that are primarily the interest rates and the money supply. In the new world of cryptocurrencies there are no interest rates. It is just supply and demand. So the lack of a central authority means things are a bit risky here. You need to know this!
This is important for you to understand. Cryptocurrencies are a public payment system on top of the existing global fiat money system that we have today. These cryptocurrencies don’t have their own independent existence. Over the years, it is being speculated that these cryptocurrencies will ultimately have their own independent market for financial products and services dominated in them. Right now there is only one country Barbados that has issued a digital dollar. Federal Reserve has indicated that in future it might have its own digital currency.
Gresham’s Law And Ethereum
Gresham stipulated in the 16th century that bad money drives out good money in the economy. Let me explain how this happens. People want a stable store of their wealth. Traditionally gold and silver has been used as a store of wealth in human history. People expect gold and silver to appreciate in value so they store it while they spend the currencies (coins in those days) that they expect to lose value. This is where Ether beats Bitcoin. Ethereum network allows writing smart financial contracts that project far into the future. This gives a reason for the stakeholders writing that contract to hold Ether in the future as well.
Fiat currencies are facing their biggest challenge since their invention and the free floating regime that was adopted after 1973 when US decided to abandon Dollar Gold parity. Traditionally gold has been used as an alternative to fiat currencies as a store of wealth. Ethereum provides a better alternative by providing the facility of smart contracts that can enforced. Winklevoss Twins recently appeared in the financial media when they claimed that bitcoin will replace gold in the long run. Gold market right now is valued around $3 trillion. Bitcoin has now total market cap of around $250 Billion while Ethereum has a market cap right now of $71 Billion. So right now gold is a long way off and these cryptocurrencies have a long way to go before they catch up. Did you take a look at my course on Quantitative Trading Fundamentals?
Right now there is a lot of economic uncertainty in the world. Public confidence in fiat currencies is waning due to multiple reasons. Cryptocurrencies like Ethereum are trying to fill the void and fulfill a fundamental law of economics: When there is a demand in the market, services will appear in the market to address that demand. Ethereum is an attempt to build an economic system in pure software form. Designing software with game theoretic rules is what Ethereum is trying to do. In the coming years, it will face many challenges and we will see whether it survives those challenges or just withers away like so many ideas in human history.
Ethereum Virtual Machine (EVM)
The Ethereum Network is one large huge computer spread over thousands of computers all over the world. You can call this a shared computer that is ownerless. This ownerless concept means changes cannot be made by one single entity or central authority. Changes can only be accomplished by community persuasion and participation so that community decides to upgrate to a new version of Ethereum software. This is known as Hard Forking. In order to code programs on this software you will need to learn programming language Solidity. If you want to write the smart contract on Ethereum, you will need to write them in Solidity using the concepts of Object Oriented Programming. When that code is executed on Ethereum Virtual Machine, data and Ethereum tokens become almost the same thing. Solidity is very similar to Javascript. This is one simple example how one can use this EVM. Using the Ethereum Virtual Machine, an employer can pay hundreds of thousands of people spread all over the world every few minutes whereas it would take a lot of effort to pay so many people spread all over the world using the traditional banking channels.