Značka: volatility

Buyback-and-burn: What does it mean in crypto?

Miners can burn virtual currency tokens using the proof-of-burn (PoB) consensus mechanism. Proof-of-burn is one of several consensus mechanisms blockchain networks use to verify that all participating nodes agree on the blockchain network’s genuine and legitimate state. A consensus mechanism is a collection of protocols that use several validators to agree on the validity of a transaction. PoB is a proof-of-work mechanism that does not waste energy. Instead, it works on the idea of allowing miners to burn tokens of virtual currency. The right to write blocks (mine) is then awarded in proportion to the coins burned. Miners transmit the coins to a burner address to destroy them. This procedure uses few resources (aside from the energy necessary to mine the coins before burning them) and keeps the network active and flexible.  Depending on the implementation, you may burn the native currency or that of an alternate chain, such as BTC. In exchange, you’ll get a payout in the blockchain’s native currency token. However, PoB will reduce the number of miners, just as it will reduce the token supply because there will be fewer resources and less competition. This leads to the obvious problem of centralization since large miners are granted too much capacity, allowing them to burn massive amounts of tokens at once, drastically impacting price and supply. To get around this problem, a decay rate is frequently utilized, which effectively decreases individual miners’ total capacity to validate transactions. PoB is similar to PoS in that both need miners to lock up their assets to mine. Unlike PoB, stakers can get their coins back after they quit mining with PoS. In cryptocurrency, the buyback works the same way, by purchasing tokens from the community and putting them in the developers’ wallets. As a result, unlike coin burning, which permanently destroys the tokens circulating in the market, the buyback does not permanently eliminate their tokens.

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Bitcoin leverage ratio reaches new highs

The estimated leverage ratio for Bitcoin (BTC) hit a new all-time high last night according to CryptoQuant. Further metrics point to growing leveraged interest, but liquidations have remained relatively low. According to on-chain analytics resource CryptoQuant, while the Bitcoin price fell off a cliff over the past 24 hours, the estimated leverage ratio reached 0.224, an all-time high. The metric works by dividing exchanges’ open interest by their coin reserve. The result shows how much leverage traders are using on average. A higher ratio, such as 0.22, indicates that more investors are taking high leverage risks. Conversely, lower values mean traders are increasingly risk-averse in their derivative trading. The blue line on the graph below, it’s trended upwards since June 2019. Estimated leverage ratio for Bitcoin. Source: CryptoQuantMost cryptocurrency exchanges offer leverage trading with FTX, Huobi and Binance leading the way. They have all agreed to reduce the amount of leverage available to traders in order to prevent mass liquidation events, such as the one seen in September last year when $3.5 billion longs and shorts were liquidated.Nonetheless, it hasn’t slowed exchanges plans to bring leverage trading to a wider audience. Sam Bankman-Fried, CEO of FTX exchange, tweeted that his “FTX 20x Leveraged Bitcoin Index” has been listed on the Vienna Stock Exchange. According to the Wienerborse, Austrian daredevils will soon be able to access up to 20x leveraged BTC trades. Related: Here’s why Bitcoin traders say a drop to $38K is the worst case scenarioMeanwhile, despite a circa 10% price drop over the past three days, a mere half a billion dollars worth of liquidations took place across all exchanges according to coinglass.com data (formerly ByBt), less than the $600 million worth of liquidations that took place in minutes in March last year. It’s eery to observe the leverage ratio hit all-time highs and liquidations remain steady, all while the price stoops lower. Could more volatility be in the cards? Analyst Will Clemente summed it up adequately in a tweet. “Could still resolve to the upside. All I know for sure is that this party is just getting started.”

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Bitcoin reaches for $47K as analysts agree BTC price consolidation cannot last

Bitcoin (BTC) recovered from new lows of $45,550 on Jan. 5 as analysts waited patiently for a “squeeze” to trigger fresh volatility.BTC/USD 1-hour candle chart (Bitstamp). Source: TradingViewAnalyst weighs prospect of “fakedown” towards $40,000Data from Cointelegraph Markets Pro and TradingView showed BTC/USD returning to the previous day’s levels near $47,000 on Binance at the time of writing.The repeated dips had failed to unsettle market participants, who now turned to the prospect of an abrupt move up or down in the coming weeks. Volatility in a time of flat funding rates and record-high open interest on derivatives markets, they had said Tuesday, was all but a given.”Think we enter a volatility squeeze by end of the month,” analyst William Clemente forecast in part of comments on Bitcoin’s Bollinger band chart.A popular indicator which Clemente acknowledged as one of his “favorite” tools, Bollinger bands use two standard deviation bands around the Bitcoin spot price to assess when volatility is likely to come.BTC/USD with Bollinger bands annotated chart. Source: William Clemente/ TwitterThe question this week, however, was whether the move would be up or down.”If we get that same setup from late July and initial pop down to low 40s out of a squeeze I will def be a buyer there,” Clemente added during a discussion on the outlook.A further post unveiled the likely cause of the $45,550 dip — a trader’s failed attempt to short the lows and a subsequent buyback.Bitcoin volatility index chart. Source: CoinglassRed herring candlesThose looking for upside meanwhile highlighted macro factors. Inflation, running hotter than anticipated, had not been fully reacted to by Bitcoin yet.Related: Bitcoin exchange balances trend back to historic lows as BTC withdrawals resume in January”View-wise, we are still holding out for an upside move in the near-term,” trading firm QCP Capital wrote in its latest update to Telegram channel subscribers. “Looking at the 10-year breakeven inflation rate (which has historically had a high correlation with BTC), there has been a material divergence since end-December… If BTC plays catch up here we could see the move towards 60,000.”Inflation cues are due next week with the publication of December’s consumer price index (CPI) data.”Never once BTC looked like this when it ended its bullish cycle. NEVER, since its inception,” an even more bullish Galaxy continued Tuesday.”It always drops sharply without much recovery.”Galaxy was observing periods of consolidation following price tops throughout Bitcoin’s history, concluding that the $69,000 top in November could not logically form a multi-year high. “We are in a consolidation before the next massive move to the upside,” he added.BTC/USD annotated chart. Source: Galaxy/ Twitter

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New to crypto trading? Here are 5 tips on how to start 2022 on the right foot

It doesn’t matter how experienced you are at trading because nothing can be done to protect a person against the might of cryptocurrencies’ price swings. Currently, Bitcoin’s (BTC) volatility, the standard measure for daily fluctuations, stands at 64% annualized. As a comparison, the same metric for the S&P 500 stands at 17%, while the volatility spec for WTI crude oil is at 54%.However, it is possible to avoid the psychological impact of an unexpected 25% intraday price swing by following five basic rules. Fortunately, these tactics do not require advanced tools or large sums of money to hold through periods of high volatility.Plan to refrain from withdrawing money in less than 2 yearsLet’s assume that you’ve got $5,000 to invest, but there’s a good possibility that you might need at least $2,000 of that amount within 12 months for travel or car maintenance or some other task.The worst thing you can do is do a 100% allocation in crypto because you might need to sell your position at the worst time ever, maybe at a cycle bottom. Even if one plans to use the proceeds in decentralized finance (DeFi) pools, there’s always the risk of impairment losses or hacks that compromise access to the funds.In short, any funds allocated to cryptocurrencies should have a two-year vesting period.Always dollar cost averageEven professional traders get swept away by the fear of missing out (FOMO), ceding to an urgency to build a position as quickly as possible. But, if everyone is getting 50% and higher returns consistently and even meme coins are posting stellar returns, how can you stand aside and merely watch?The DCA strategy consists of buying the same dollar amount every week or month, regardless of the market’s movements; for example, buying $200 every Monday afternoon for a year removes the anxiety and pressure caused by the constant need to decide whether to add a position.Avoid buying all the positions in less than three or four weeks at all costs. Remember, the crypto adoption rate is still in its infancy.Don’t use too many indicators when conducting analysisThere are countless technical indicators, including the moving average, Fibonacci retracement levels, Bollinger Bands, the directional movement index, the Ichimoku Cloud, the parabolic SAR, the relative strength index and more. If you consider that each one has multiple setups, there are endless possibilities for tracking these indicators.The best traders are experienced enough to know that reading the market correctly is more important than picking the best indicator. Some prefer to track correlations to traditional markets, while others focus exclusively on crypto price charts. There’s no right and wrong here, except for trying to track five different indicators simultaneously.Markets are dynamic, and in crypto, that is especially true considering how fast things change. Learn when to step asideEventually, you will read the market incorrectly while finding bottoms or altcoin seasons. Every trader gets it wrong sometimes and there’s no need to compensate by immediately increasing the bet size to recoup the losses. That is precisely the opposite of what one should be doing.Whenever you catch a “bad break,” step aside for a couple of days. The psychological impact of losses is a heavy burden and will negatively impact your capacity to think clearly. Even if a clear opportunity arises, let that one slide. Go for a walk, or try to organize your life aside from trading.Truly successful traders are not the most gifted, but those who survive the longest.Continue to invest in winnersThis might be the hardest lesson of them all because investors have a natural tendency to take profit on our winning positions. As discussed previously, crypto market volatility is extremely high, so aiming for a 30% gain will not cover your previous (or future) losses.Instead of selling winners, traders should be buying more of those. Of course, one should not neglect the market data or the overall sentiment but if your expectations remain bullish, then consider adding to the position until the overall market signals some form of weakness.One will eventually catch a 300% or 500% gain by being brave and holding on to the most profitable positions. These are the returns you expected when entering such a risky market, so don’t be afraid when they pop up.Every rule is meant to be brokenIf a roadmap to cryptocurrency trading success existed, many people would have found it after many years and the returns would quickly fade. That is why you should always be ready to break your own rules every once in a while.Do not follow investment advice from influencers or experienced money managers blindly. Everyone has their own risk appetite and capacity to add positions after an unexpected setback. But, more importantly, make sure to take care of yourself along the way!The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.

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