On Wednesday, June 21, 2017, the GDAX (a leading digital asset exchange) experienced a flash crash in its Etherean crypto currency (ETH-USD). The currency dropped from a value of $317.81 to ten cents. Trading was halted, while the GDAX exchange could evaluate what had caused the implosion.
So, what happened? The cascade of chaos began as a multi-million dollar sell order. That dropped the price to $224.48, at which point stop-loss orders and margin calls kicked in.
The currency is back trading at $271.89 (down 14.4%) and GDAX has promised to credit any customers who had losses as a result of a stop-loss or margin call (with their own money). This is all according to GDAX VP Adam White, in his blog on the matter.
There are many lessons to be learned here.
And here are a few details.
1. Think Capture Gains, Not Stop Losses.
Exchanges don’t have to refund stop losses or margin calls. It’s important to have a good strategy in place that truly puts you in the best seat possible. In a volatile marketplace with wild price swings, stop losses mean you lose frequently. Capture gains would have you winning frequently in that same scenario. In fact, it has been reported that someone had a buy order at 10 cents for ETH-USD, which the GDAX has vowed to honor. That person made $307 for every dime invested. (Hopefully the entire stratagem wasn’t a scam by the multi-million dollar seller.)
2. Future Flash Crashes Are Possible.
All exchanges have a policy toward halting trading for 15 minutes or longer in a single company when there are suspicious circumstances, or when the exchange falls too far too rapidly. (You can search to find the Market Wide Circuit Breaker Policy of each exchange). However, with all of the options and margins alive in the markets today, crashes will still occur – at speeds that are far more rapid than we’ve seen in the past. Multi-million dollar trades do happen. While the market pauses may delay the inevitable and spread it out over a few days (or months), they can't prevent market drops. The Dow Jones Industrial Average fell from a high of over 14,000 in October of 2007, to 6547 on March 9, 2009.
3. Buy Low; Sell High.
It's always tempting to buy high in the hopes of selling higher. However, the surefire market rule is, "Buy low, sell high." Sure, the value of crypto currency might go higher. However, you should be aware that you could have purchased almost every crypto currency for pennies on the dollar just a few years ago.
Coinbase (and its digital currency exchange GDAX) is one of the few legitimate crypto currency companies. Coinbase is backed by some of the most respected venture capitalists in technology, including Andreessen Horowitz, with a board that includes Kathryn Haun, a former Dept. of Justice prosecutor.
Bitcoin and Crypto Currency Scams
Sadly, whenever you have an young, fast-growing business that is posting the kind of gains that crypto currency is posting, it’s like the Wild West, full of Snake Oil salesmen, gunslingers and highway robbery.
Trade Coin Club
Joff Paradise and his Trade Coin Club, appears to be a MLM proposition that has bathed in Ponzi perfume. The business will kill you in trading fees (25% of your ups) if it gives you anything back at all. There are multiple red flags with this website and the info-videos, and scathing warnings from former recruiters and customers. “Joff” has a LinkedIn page showing a graveyard of past “businesses.” (Just Google “Joff Paradise complaints” to get 11,300 results.) The recruitment video says that trading on other platforms is difficult, boasting that this club makes it easy with “Stop Loss buttons that allow you not to jeopardize your Bitcoin.” Trading Bitcoin is very easy on GDAX (a far more reputable exchange). Stop loss buttons are a terrible idea in a volatile marketplace. (See above.)
BitcoinIRA.com is another website that is rife with red flags. It’s a virtual office with an 800 number, with a website that has broken links when you try to find out who is behind the operation.
Bitcoin Buyer Beware! Know the executives and board members behind the operation before getting involved. If you're going to travel to the Wild West, make sure that you haven't selected a pistol-packing Ponzi clown as your tour guide. Bitcoin scams are becoming as widely spread as the Nigerian email scams were at the beginning of the Internet.
Early Adopters May Want to Take Quick Profits
Most investors want an exit strategy within three years of their investment. Traders who are sitting on millions from their small, early investment are going to be itching to turn their paper profits into real cash (and then probably a Tesla) – even if they are crypto-currency philes. It’s never a good idea to buy high. Whenever you see a quick spike, as there has been in both Bitcoin and Etherean, you have to be very cautious about catching a falling knife, when the sellers back up the truck to turn multi millions of crypto into USD. -- as happened on June 21, 2017 with Etherean.
Disruptive Technology vs. a Trillion Dollar, Global Industry
Bitcoin feels a lot like VOIP and video conferencing, ala Skype 2002. It’s a disruptive technology taking on an entrenched trillion dollar, global industry. Many of us would love to circumvent the banks altogether (particularly after their shenanigans that resulted in the meltdown of the Great Recession). However, the truth is that it is difficult to topple a trillion dollar, global industry. Skype didn’t wipe out telecom, and it’s hard to imagine Bitcoin wiping out banks. The technology will revolutionize the industry, however – something the financial industry is already moving to embrace and to regulate.
FINRA (the Financial Industry Regulatory Authority) is hosting a Blockchain Symposium in New York City this July.
If you purchased Bitcoin or Etherean two years ago on a respected exchange, like GDAX, then you are the most eligible bachelor/bachelorette in your city. If you're been sold into paradise recently on any other platform, you'd better make sure you aren't kissing a frog, hoping he'll make you a princely sum.
26/6/2017 01:28:01 pm
Ethereum is down 30.6% since 6.21.17. Ouch. Bitcoin is down 19% since its high on 6.9.17.
16/7/2017 05:27:56 pm
Important distinction between a crypto-currency wallet and a wallet/exchange hybrid model, penned by Coinbase CFO. https://blog.coinbase.com/coinbase-is-not-a-wallet-b5b9293ca0e7
10/8/2017 01:06:00 am
You know, we've sure hear a lot about Bitcoin in the media, how the perceived value or intrinsic value of a bitcoin has so rapidly increased, fallen back and then held steady. Some say the volatility was a sign of a systemic problem, but maybe that's not the real problem at all. Maybe, the real problem with currency, isn't the nature of the electronic strategy it uses or electronic money at all, but rather an internal struggle with complex systems in our monetary world over all.
17/3/2018 12:22:54 am
Thanks for the valuable information and insights you have so provided here...
31/3/2018 08:08:38 am
This article mainly outlines the current issues with cryptocurrencies in India and their legal establishment in the coming years. It also covers the active projects and their functionality with a little elaboration.
1/4/2018 05:12:53 am
Currency exchanges provide several different services. Read on to find out how these exchanges impact nearly everyone.
2/4/2018 04:38:11 am
Fantastic blog! Do you have any tips and hints for aspiring writers? I’m planning to start my own website soon but I’m a little lost on everything. Would you propose starting with a free platform like WordPress or go for a paid option? There are so many options out there that I’m completely overwhelmed .. Any suggestions? Many thanks!
3/4/2018 08:39:36 am
I would check out Medium.com (free) and also see if you can get onto whatever websites that specialize in whatever subject matter you will be blogging about. I hope that helps. Thanks for checking out my blog. Learn more about what I do on the home page at https://www.nataliepace.com/.
25/6/2018 12:26:21 pm
China has been aggressive on its stance against cryptocurrency. As adoption of blockchain increases, there have been increasing popularity of cryptocurrency among the global community. Nonetheless, the Chinese government is not banning cryptocurrency but rather, regulating it to protect its citizens from the extreme price volatility.
28/6/2018 01:24:08 am
The best way to learn about bitcoin, is to jump in and get a few in your "pocket" to get a feel for how they work. Despite the hype about how difficult and dangerous it can be, getting bitcoins is a lot easier and safer than you might think. In a lot of ways, it is probably easier than opening an account at a traditional bank.
28/6/2018 05:10:32 am
Technology has increased productivity for businesses by leaps and bounds. Companies went from being completely stationary to absolutely mobile businesses. Here are some expert check this blog online.
4/8/2018 06:00:02 am
Thankyou for this wondrous post, I am glad I observed this website on yahoo.
26/8/2018 04:06:05 am
Bitcoin is a cryptocurrency, which can be spent, saved, or invested, and it can be stolen too. Trading with Bitcoins was considered to be risky, but the current trends show that it has become a big hit the binary options sector
31/8/2018 01:24:10 pm
Hello! I just would like to give a huge thumbs up for the great info you have here on this post. I will be coming back to your blog for more soon.
2/9/2018 10:57:53 pm
Great things you’ve always shared with us. Just keep writing this kind of posts.The time which was wasted in traveling for tuition now it can be used for studies.Thanks
6/9/2018 06:16:06 am
There is no doubt that Bitcoin has captured the lion's share of the crypto currency (CC) market, and that is largely due to its FAME
21/9/2018 10:05:38 pm
I am often to blogging and i really appreciate your content. The article has really peaks my interest. I am going to bookmark your site and keep checking for new information.
1/12/2018 06:57:55 am
I wanted to thank you for this excellent read!! I definitely loved every little bit of it. I have you bookmarked your site to check out the new stuff you post.
24/4/2020 01:32:34 am
Excellent website you have here, so much cool information!. Please search webstagram to discover nice photos and videos on instagram.
10/11/2020 05:24:03 am
Now, anybody could be a miner. The masterminds of Bitcoin made the mining device open resource,
28/2/2021 06:38:14 am
Hi greeat reading your blog
Leave a Reply.
Natalie Pace is the co-creator of the Earth Gratitude Project and the author of The Power of 8 Billion: It's Up to Us, The ABCs of Money, The ABCs of Money for College, The Gratitude Game and Put Your Money Where Your Heart Is. She is a repeat guest & speaker on national news shows and stages. She has been ranked the No. 1 stock picker, above over 830 A-list pundits, by an independent tracking agency, and has been saving homes and nest eggs since 1999.