The Forex Chronicles

The Crypto 10 Index

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Introduction

Cryptocurrencies have exploded in popularity in recent years as more and more people learn more about them, and see the potential of these digital / virtual currencies in the years ahead.

As a result of this, some speculators inevitably want to try and make some money by either investing in or trading these cryptocurrencies, whether it’s one of the most popular cryptocurrencies such as Bitcoin, or whether it’s one of the newer relatively unknown ones that has a lot more potential to explode in value.

It is now relatively easy to buy one or more of these cryptos online, but if you are unsure which one has the most potential, or if you are just bullish about the prospects of all the major cryptos, you may be interested to know that there is now a Crypto 10 index that you can trade that includes the 10 most popular cryptocurrencies.

History / Performance

This index was originally launched a few years back as far as I understand, and at the time of writing it is currently up 58.16% since the start of the year, demonstrating the renewed strength and bullishness of the general cryptocurrency market in recent months.

Crypto 10 Index Weekly Chart

Crypto 10 Index Cryptocurrencies

As I said earlier, this index includes ten of the largest and most actively traded cryptocurrencies in terms of market capitalization, all of which are listed below:

  • Bitcoin
  • Ethereum
  • Ripple
  • Litecoin
  • Bitcoin Cash
  • EOS
  • Bitcoin SV
  • Cardano
  • Monero
  • Dash

It is a weighted index which means that the larger cryptos will influence the price movement of the index a lot more that the smaller ones, but it will still give you exposure to many of the most popular cryptos in the world without having to buy any of them individually.

Where to Trade the Crypto 10 Index

I first learned about this particular index on IG.com, and have actually added it to my shortlist and been tracking its price movement ever since, but I understand that it is also possible to trade this index through Plus 500 as well.

It is worth noting that as well as being able to open long positions, you can also enter short positions if you feel that many of the major coins are overvalued and likely to fall in the near future, which gives you a lot more options as a trader.

Final Thoughts

It should be pointed out that this is not the only index that groups together many of the most popular cryptocurrency tokens. You will find that some brokers have developed their own indexes that enables their customers to buy or sell a large basket of cryptocurrencies.

However I just thought I would bring it to your attention because I know that many of my readers like to trade with IG, and a few people have asked me if there are any indexes or ETFs that include all of the most popular tokens collectively. So hopefully you will find this article useful.

Please remember that cryptocurrencies are highly speculative, and it is possible to lose all of your capital.

Bitcoin Finally Breaks Out… But To The Downside

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Bitcoin’s Trading Action

The price of Bitcoin has remained steady for quite some time now because it has continued to trade within a fairly predictable sideways trading range between around $5900 and $6800.

I think it is fair to say that many people, particularly those people who have purchased some Bitcoins as a long-term investment, expected the price to eventually break upwards out of this trading range when the breakout finally happened.

Therefore I think many will have been shocked to see the price drop sharply downwards yesterday. The price hit a new low for 2018 of $5304, according to my IG chart, but has since recovered slightly to $5555 at the time of writing. However it is still well below the previous trading range, as you can see below:

Bitcoin Downward Breakout - November 2018

Cryptocurrency Sell-Off

It is not just Bitcoin that has experienced heavy price falls either because all of the other major cryptos have dropped sharply.

Bitcoin Cash experienced the biggest falls, but cryptos such as Ethereum, Litecoin and Ripple were also affected.

The question is; is this the end for cryptocurrencies, or this just a temporary set-back?

Future of Cryptocurrencies

The reality is that no-one really knows. I personally have never purchased any cryptocurrencies or traded them long or short, and don’t really intend to either because to me it is just gambling.

Yes these assets could well be the future and the price could easily move dramatically higher in the future, but they could just as easily become completely worthless in a few years.

Some of the most well-known cryptos may not be around in a few years time, and there may end up being one or two dominant ones that make all the other ones practically worthless. Indeed the biggest cryptos in 2020 in beyond may not even have been invented yet.

As I say, there is just too much uncertainty to trade these assets with any real confidence, but at least now we have finally seen a breakout on Bitcoin, even it is a negative breakout. This should create some decent trading opportunities for those traders who like to trade these assets on a short or medium-term basis.

Why It Is Almost Impossible To Day Trade Bitcoin

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Popularity of Bitcoin

Bitcoin ImageCryptocurrencies such as Ripple, Litecoin, Ethereum and Dash are continually being mentioned on the various different financial news channels and websites , but it is fair to say that Bitcoin is still the most well-known of these cryptocurrencies, and the most talked about.

Many people have chosen to actively buy some Bitcoin coins in the last five years or so and hold on to them as a long-term investment, but others now prefer to trade the price movements of Bitcoin over the course of several days or weeks via CFDs because they can open long positions and short positions.

However while it is true that many brokers now offer CFDs for Bitcoin and many of the other popular cryptocurrencies, it is worth pointing out that these markets are still not really suitable for day trading.

Here are some of the reasons why:

Low Average Daily Trading Range

There was a time at the end of 2017 and the beginning of 2018 when the price of Bitcoin used to fluctuate by around 1500-1900 points a day, but volatility has been steadily declining throughout 2018, and the average daily trading range is now just 208 points.

Therefore this makes it very difficult to make money from if you are just looking to hold on to a position for no more than a few hours, and don’t want to hold any overnight positions.

It is hard enough to predict where the price is heading in the next few weeks or months, but it is even harder trying to correctly predict the direction of the price on any given day.

Large Spreads

Following on from the last point, even if you were able to correctly predict the price direction of Bitcoin on a daily basis, the large spreads would massively eat into your profits.

As stated above, the average daily trading range is currently just over 200 points. So when you bear in mind that many of the leading CFD brokers have spreads of between 50 and 150 points, it is practically impossible to consistently make money from short-term day trades.

Easy Markets have spreads from 45 points on Bitcoin, which is very reasonable, but this still isn’t low enough to make Bitcoin a viable day trading instrument.

Large Margin Requirements

There is one other factor that restricts the ability for traders to day trade Bitcoin, and that’s the large margin requirements.

Many brokers require greater margin for cryptocurrencies than other markets because they are viewed as being a lot more risky, and this is particularly the case for Europe-based traders because the new ESMA rules require a margin of at least 50% when trading cryptos.

Final Thoughts

As you can see, there are many reasons why Bitcoin is not really suitable for day traders at the present time.

The large spreads and the large margin requirements, combined with the low average trading range make this virtually impossible to make money from right now.

Therefore if you are someone who is looking to trade Bitcoin, you should take a longer term view and be prepared to hold on to your positions for days, weeks or months at a time because then these factors will be less of an issue, even if you have to pay a small daily financing charge for holding long positions overnight.

If you open a long position and the price of Bitcoin goes up by $500 or $1000 one week later, then a $50 spread won’t eat into your profits too much, and the daily financing charges will be relatively small.

Over time the spreads may start to come down, and there is a possibility that the ESMA may lower their margin requirements for European traders. However until that happens, it is probably better to look for breakouts or price reversals, for example, and wait for the big price moves to occur, which are obviously more likely to occur over the course of several days rather than a few hours.

Is Forex Trading Being Overshadowed by Cryptos and Cannabis?

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Popularity of Cryptocurrencies in 2017

Bitcoin, Ethereum, Litecoin, Ripple and many other cryptocurrencies really exploded in popularity in 2017 as the price of these instruments continued to rocket higher and higher, making thousands of people extremely rich in the process.

In some respects it was a new gold rush because many ordinary people started taking an interest in these cryptocurrencies and buying a few Bitcoins to grab a slice of the pie.

However, as expected, the price of Bitcoin and other markets couldn’t keep on going up forever, and eventually there was a huge price drop across the board, which has left many people nursing some heavy losses and praying for a recovery.

Despite these price falls, these cryptocurrencies are still very popular with speculators and traders, and are still be talked about on financial blogs, websites and TV channels on a daily basis.

Cannabis Stocks and ETFs

With the legalisation of cannabis in Canada, and a potential relaxation of laws in other countries around the world, there has also been a huge rush to buy shares in companies that are involved in the cannabis industry.

ETFs have been set up that invest in a selection of companies in this growing sector so that individuals can get a broad exposure to this industry without having to select individual companies, and the price of these ETFs has really rocketed higher in the last few months.

Two of the most popular ones are the Horizons Medical Marijuana Life Sciences ETF (HMMJ) and the ETFMG Alternative Harvest ETF (MJ), and you can see from their respective charts below that they have both risen by more than 50% since August:

Horizons Medical Marijuana Life Sciences ETF

ETFMG Alternative Harvest ETF

As a result of these price moves and the increased media coverage, more and more traders and investors are taking in interest in these cannabis stocks and ETFs because of the enormous potential to make future profits from the opening up of this industry.

Indeed as interest in cryptocurrencies has started to wane in 2018 with less volatility and fewer wild price swings, it is the cannabis / marijuana stocks that have become the ‘next big thing’ this year.

Implications for the Forex Trading Industry

I think it is fair to say that forex trading has definitely been overshadowed by both cryptocurrencies and cannabis stocks in the last couple of years.

While it is true that there will always be a large forex industry with many participants from all over the world, there is no doubt that traders are increasingly looking to these alternative markets in the belief that they can potentially generate more profits in the long run.

Subsequently, forex brokers are desperately looking to capitalise on these trends and compensate for any reduction in forex trading activity by their traders.

Therefore you will see that many brokers now offer trading on Bitcoin and a few other cryptocurrencies in the form of CFDs, and have created a range of banners and promotional material that is designed to attract these cryptocurrency traders.

Similarly, I am also seeing a range of banners for cannabis ETFs from brokers who provide the option to buy or trade these markets.

So, if anything, the clever brokers are actually benefiting from the growing popularity of cannabis stocks and cryptos, even if their forex trading profits have flat-lined or are growing at a slower rate.

It is also good news if you are an individual trader because you now have more markets to potentially make money from with the ability to trade these cannabis stocks and ETFs, and more opportunities to benefit from the price volatility of cryptocurrencies because you can take long and short positions, and don’t actually have to buy the cryptos directly.

Cryptocurrency Trading is Just About to Become More Expensive

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The Popularity of Cryptocurrency Trading

Many people from all over the world have made life-changing sums of money from buying Bitcoin several years ago when it was a fraction of the price that it is today, and people are still purchasing Bitcoin and other cryptocurrencies right now in the hope of making 2, 5 or even 10 times their investment back.

However it is not just investors who are looking to profit from cryptocurrencies because there are many traders who are choosing to trade these markets using conventional spread bets and CFDs.

The benefit of this is that traders can choose to open long positions and short positions, and because they can trade on margin, they don’t need to actually own any of the cryptocurrencies that they wish to trade.

New 50% Margin Rate for Cryptocurrency Traders

50 Percent ImageThe bad news for traders based in Europe is that they are now going to need more capital in their trading accounts in order to trade these cryptocurrencies.

As I discussed in my last blog post, the ESMA are introducing new margin rules in order to protect traders and investors, and in the case of cryptocurrencies, the new margin rate has been increased to 50%.

This could potentially create problems for a lot of short and medium-term traders because they may well need to deposit more capital just to cover their positions, and to enable them to open new positions when trading these markets.

To give you an idea of how much capital you will need to trade cryptocurrencies, let me give you some examples of how much you would need to open a relatively small long position on Bitcoin and Ethereum, two of the most popular markets, based on today’s prices.

Margin Requirement Examples

Bitcoin – £1 long at 8250, margin = 8250 x £1 x 50% = £4125

Ethereum – £10 long at 481, margin = 481 x £10 x 50% = £2405

So as you can see, it is going to be hard for smaller traders to trade these instruments in the future because the margin requirements are now going to be a lot higher.

However it is easy to see why the ESMA have increased the margin requirements because cryptocurrencies in particular are exceptionally risky, and it is certainly possible for people to lose all of their money in some worse-case scenarios.