As I did (almost) millions in Bitcoin

January 9, 2019 Bitcoin

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What to know about the crypt-mania before it implodes.

It's a lazy Sunday morning away from my family, I'm sitting in a hotel room in Montreal and I have $ 160,000 in my pocket. Or better, my "pocket".

I am in the neighborhood known locally as the McGill Ghetto, thanks to its proximity to the city's famous university. My room is large – with a kitchen and living area – but not luxury.

Money is stuck in cryptocurrency – and I'm not ready to cash out.

With a few clicks of the mouse, I could liquidate my positions and transfer the proceeds (minus the commissions) to my bank account overnight. After paying the capital gains tax, I would have had six digits in the legally earned legal currency.

But here's the problem: twenty-four hours earlier, my wallet was worth less than $ 80,000. During the night, a particular cryptocurrency – a currency with the low capitalization privacy called Verge – caught fire with the Asian markets. At the same time, tomorrow, $ 80,000 could evaporate. Or it could double again.

Welcome to the wild world of cryptocurrency, an incredibly young global financial market that works 24 hours a day, seven days a week. Especially in recent months, the media has become feverish for bitcoin, ethereum and Initial Coin Offerings, while the breathless journalists publish stories of college elders transformed millionaires thanks to small investments made during their early years.

The reality is much less romantic. For every 1,000 times stronger, thousands of other investments have gone south, wiping out trading accounts and nesting eggs. Passionate bitcoin since 2013 and a casual crypto trader since 2015, I've had my share of euphoric wins and crushing losses of the heart.

But I'm also an adult man with a family – I do not do Google's sports cars when I'm ahead; my dreams are about 529 floors and down payments.

Still, they are just as open to greedy eyes wide open. Sitting in my hotel room in Montreal, I he could have cashed out at $ 160,000, pocketing enough to pass the "college funds" from my to-do list. I he could have cashed, returned to Brooklyn with the best part of a down payment in hand. Instead, I told myself, that half-penny coin has more room to run.

"Forget deposit, "I thought, looking at 0.5 cents in 0.6 cents at my phone, translating into another $ 16,000 gain." Let's go to brownstone shopping cash."

That's not how this story ends, of course. It is true that a well-placed $ 3,000 can become $ 160,000 in appearance from one day to the next. But, as many are learning the hard way, every cryptographic investment can easily evaporate in the time needed to "refresh".

Bitcoin was created in 2009 by the pseudonym Satoshi Nakamoto, considered by all to be a pioneering genius in the field of computational cryptography. His invention was designed to be used as an inaccessible and non-negotiable currency that operates beyond government oversight. Although the bitcoin has tickled the dreams of many technolibertari that have long desired the Internet to function as a digital utopian space, it is another of Nakamoto's innovations that gave rise to the cryptocurrency revolution: decentralized and encrypted networks.

The particular way in which Nakamoto has achieved this result is a bit complicated, but put as simply as possible, bitcoin runs on a network without a central server. Rather, it is a network of computers, called miners, that work both collaboratively and competitively. Before executing any bitcoin transactions, it must be validated and confirmed by a consensus of these computers. This decentralization was the true innovation of bitcoin. It gave rise not only to 1,300 clones and descendants of bitcoins, but to a completely new industrial sector known as blockchain technology.

Within a few years of its launch in 2009, bitcoin has become less important as a currency than as a commodity, not unlike gold. You can still buy things with bitcoins (and also gold, so to speak, sort of), but it has become an investment vehicle for most buyers. Why invest in a virtual currency with no "real" value? Since $ 2 spent per bitcoin in December 2011 is worth more than $ 18,000 today – and many believe that the higher prices of bitcoins still have to come.

At the same time the clones, knockoffs and descendants arrived.

Because bitcoin is open source, anyone can copy, modify and redistribute their source code for their own purposes. This is exactly what happened, starting with the introduction of Namecoin ($ NMC), a bitcoin derivation, in 2011. Since then, more than 1,300 new cryptocurrencies have been launched; most, but not all, are freely exchanged on various cryptocurrency exchange platforms.

They are known as "altcoin" – or alternatives to bitcoin. Some, like ethereum ($ ETH), are rapidly becoming family names; others are more obscure, known only in cryptocurrency circles, with names like Siberian chervonets ($ SIB), florincoin ($ FLO) and augur ($ REP). Although they have no physical value, these altcoins are easily converted into real money; buying them is legal in most countries, including the United States

In theory, every coin and token has its reason to be. For example, no less than five cryptocurrencies ($ POT, $ THC, $ CANN, $ CCN and $ CNNC) compete to solve the banking problems of the legal cannabis sector; pinkcoin ($ PINK) wants to become a ubiquitous micro-tipping service for non-profit organizations; foldingcoin ($ FLDC) rewards participants in the Folding @ home disease research project at Stanford University. We also have two Trump coins ($ TRUMP, $ PRES), a Putin coin ($ PUT) and dozens of others that are too racist or vulgar to worry about mentioning them.

At first glance, the crypt recalls the trade in foreign currency more closely, and cryptocurrency pairs are bought and sold using dashboards that would be familiar to any E-Trade user. For example, when you trade BTC-ETC, you are buying and selling ethereum versus bitcoin. There are non-BTC couples – ethereum-monero, reddcoin-doge – but most traders prefer to trade against BTC, measuring yields in bitcoins until the time comes to cash in and convert into dollars, euros, renminbi, won or yen.

But crypto actually moves more like the stock market – a completely unregulated stock market. Prices bounce wildly with rumors and announcements; tips for experts are exchanged in private chat groups; pump-and-dump are organized by whales to the detriment of inexperienced beginners. For daily traders, keeping up with the news can quickly become a full-time job.

Consider my position as a Verge, for example. Sometimes, in 2016, I noticed an unusual amount of Twitter chatter on $ XVG, its trading symbol. I spent an hour researching Verge – formerly known as DogecoinDark; it has recently been renamed and re-launched under the new ticker symbol; its main purpose was to facilitate anonymous transactions.

I think there's a strong future for privacy-oriented cryptocurrencies, so I've become more interested in Verge. One of the many "small capitalization coins" at the time was very cheap: for $ 530 I bought 5 million. When the price fell two weeks later, I bought another 5 million for $ 300. In the following months, Verge would have attracted the attention of other traders, which led to greater interest from Twitter; the price has gone up slowly. I bought 6 million more.

Some time later, sitting in that hotel room in Montreal, Verge's price went up without reason so I could find him. Cryptocurrencies do not release earnings; they do not announce dividends. Perhaps a secret group of pump-and-dump was targeting Verge; or maybe the developer has shared a new software update in a Telegram channel. The point is, somewhere, someone has unleashed a buying spree that, if this were the stock market, would have been catnip for the SEC.

Verge is just one of the 100 exchanges I've made since I opened my daily trading account with three bitcoins, so it's worth about $ 1,000 each. With eyes wide open on the risks, I started researching every altcoin listed on it top-100 list by market capitalization, looking for significant price actions. I went into ethereum for $ 9 (now traded north of $ 750, although I sold for $ 300). I reversed modest positions in ripple ($ XRP), blackcoin ($ BLK), factom ($ FCT) and dozens more, scalping most returns from 10 to 50 percent in less than 24 hours. Obviously I had losses, but I defend myself with strict stop loss orders.

But, again, these markets do not react to the fundamentals; they are driven by advertising and emotions and are prone to manipulation. Speaking again with Verge, I saw the skeptics converge on Twitter, bringing down the price by 30 percent. But I also rode the dramatic rises; when technician John McAfee tweeted his support for Verge and other so-called "private currencies", prices rose 100% overnight.

As in the stock market, the trick is to identify the best and the lowest. Buy low and sell high, in other words. This is not easy money.

I signed on Silk Road in October 2011, a few months after Adrian Chen introduced the illicit dark network market to the public through his reports for Gawker and, later, Wired. At that time, a single bitcoin cost $ 4.10. I know the exact price because I have the outgoing emails where I enthusiastically told friends about this new anonymous digital currency. But I would probably remember it anyway, because the regret for the lost opportunity still burns. How could not it? Like all the others who in 2017 failed to become bitcoin millionaires by spending $ 1,000 in 2011, I did not see the future clearly enough.

When I learned about altcoin and cryptography trading a few years later, I was determined not to make the same mistake. Starting from 2014, with every paycheck, I did less than a few dollars Coinbase, the popular and user-friendly digital currency exchange. With bitcoin trading at $ 350, these small investments have increased.

Once I accumulated some coins, I could work. There are several dozen cryptocurrency trading platforms; for Americans, the most popular are Poloniex, Kraken, Bitfinex, Bittrex and Bitstamp. Elsewhere, others serve specific markets; you will find most South Koreans Coinone, for example, while Chinese traders gravitate on Binance.

Encryption is not just confusing and intimidating, even measuring one's own profit can be complicated. Even if your BTC-ETC position does not move, for example, the bitcoin itself may rise in value – giving gains in USD even if you have not done anything. This is fine for traders moving in and out of the fiat. Most of the traders I've met prefer to stay in bitcoin, taking profits occasionally and with caution.

Confusing things further, it is a general rule that when the bitcoins climb, the altcoins fall. The reason is that the owners of altcoin are famous for cashing out the fiat when the bitcoin is hurling. The opposite is also true: when the bitcoin stops, traders and investors seek security in altcoin markets.

I've been luckier than clever. Thanks above all to good timing, my initial investment has increased 50 times. At least for a few days. After that glorious peak in June, my half-penny coin returned to reasonable levels, dropping 30 percent. This happened more than once. Every time my wallet fell by one third during the night, I resisted the impulse to sell panic; more often than not, my positions have been recovered.

Very few people have a stomach for $ 50,000 swings – my wife included. When it comes to investing, I'd rather take some smart positions and let them run. After my third roller coaster ride, I was inclined to agree. To learn how to do it, I needed advice from more experienced operators.

My first stop was the Ainsworth Hotel in Midtown. Monday evening, this summer, I joined a few hundred other crypts passionate about the CryptoCircle meetup. There were no speakers, no agenda. Just a counter in the large back room of Ainsworth, decorated in an elegant hunting lodge – dark wood, soft lighting, stuffed animal trophies.

The room was filled with a rainbow coalition of nerds and bros, programmers and entrepreneurs, speculators and true believers. A quarter of the crowd were newcomers eager to learn more about this mysterious, new money machine. Everyone asked: "What is your favorite currency?" And "What looks good?"

They reminded me of the afternoons I spent at the Meadowlands Racetrack, shooting at the shit with the veterans and trying hard to hear the good advice of the handicappers. In crypts, as in horse racing, everyone has their own system. Some traders love to invest in Initial Coin Offerings, or ICOs – the process by which new coins are launched in the market, intentionally called to imitate the initial public offers. Others look at trading cards, hoping to apply traditional financial models to the encrypted price action. Still others are based exclusively on Twitter and chat room entries.

Standing at the bar, I met Rob Behnke, a 33-year-old businessman, veteran musician and trader who describes his story with cryptocurrencies as "rocky but passionate".

Behnke caught the bug at the end of 2013, when the price of the bitcoin exceeded the $ 1,000 barrier first. In the following months, he enjoyed "some serious profits" that did not last long.

"I went all-in on the low-cap altcoin scene," he said, referring to cryptocurrencies with the lowest market limits. With a timely investment, low capitalization coins can return incredibly high returns when they "rise" to 50, 100 or even 1,000 times their initial prices. This growth can be driven by ads, such as a strategic rental or a new business partnership. They are also susceptible to pump-and-dump schemes, where dark groups conspire to drive up prices – only to cash in, leaving suckers behind. Because encryption is not regulated, these scams are impossible to prevent, not to mention the accusation.

"There was a lot of buzz around the cloakcoin ($ CLOAK), "explained Behnke," but it eventually became a pump-and-dump … I lost 95% of my initial investment after only a few days. "

Seeing again "great potential in bitcoin and in the community", Behnke licked his wounds and began to rebuild his portfolio. Today it performs between 5 and 50 operations a week, even if it does not trade any more day. Instead, it focuses on ICOs, which are increasingly known as Token Generation Events or TGE sales.
"I'm starting a family and I'm getting married," he said. "My goal is early retirement in five years".

With that, Behnke left and went to work in the room on behalf of his new venture, the Token Agency, a marketing company specializing in token and TGE sales. The start of Behnke is one of the many companies that were born to support the growing cryptocurrency sector. Leveraging his knowledge as a veteran merchant, Behnke helps other start-up markets and builds communities around their symbolic offerings. As the saying goes, a rush to gold is a good time to sell shovels.

Waiting for my next drink, I met another entrepreneurial crypto trader. Reed Korach first dipped his finger in online commerce in 1999 when, at the age of 16, he started selling antiques from eBay bought at the square. This has led to Internet marketing and helping others "sell their e-books and physical products in various niches on Amazon," he said.

During this time, Korach found his first digital money. Few understand that bitcoin was not the first digital currency. In the late 1990s, several experiments in "web currency" and "virtual money" crashed and burned, largely due to governmental interference. It was noted that if the heavy hand of regulation did not crush these first experiments – beenz, flooz, e-gold – Satoshi Nakamoto may not have been inspired to create a decentralized bitcoin network.

Korach earns a living through e-commerce. It is also deep in cryptography. "I study the trends and then I buy after doing a lot of research," he said. For example, cannabis coins have been very popular for a while in 2016, and continue to increase in price around April 20, the pot-smoker's vacations. "There are over 1,000 different projects, and it's important to read about each one of them – it's easy to spot a scam currency if they do not have a strong community … I spend most of the day and night now following the cryptic world."

It is also known as a "hodler": a long-term investor. "I do not do the day-trade and I only do research for projects to buy and keep … I'm going to cling to my crypt for a few years and hope for the best."

For years, Tone Vays has built risk models working as a quantitative analyst for Bear Stearns, J.P. Morgan, MFCI and Axioma. When he was involved for the first time with bitcoin in 2013, he "liked it" – but only as a curiosity, not as a serious and negotiable asset.

"From the point of view of the tools," he said during a telephone interview from his home in Staten Island, "the trading of altcoin and the bitcoin trading were so amateur … the more it evolved, the more it seemed ridiculous."

Much of Vays' skepticism comes from "exchange rate risk". Even with today's improved security and stability, Vays remains skeptical that overcoins can mature in legitimate financial products. Just because everyone is making money, he said, this does not mean that the markets are functioning properly. At the heart of current growth, he sees scams and manipulation.

"Most of these people know nothing about real commerce," he said. "They're using all the tricks that were done at the beginning and at the end of the 90s … Most of the money is made by people who coordinate in chat groups who decide to pump these coins ".

Watching altcoins climb and crashing so recklessly, Vays finds himself reversing one of his long-standing positions as a financial professional. "I hated regulation when I was at Bear Stearns and J.P. Morgan because I had trading restrictions, I thought it was ridiculous, I was working at risk analysis – I did not have any proprietary information – but I had all this regulation on me."

These days, he said: "I have a new respect for regulation".

On his YouTube channel and podcast, CryptoScam, Vays is a pure bitcoin purifier who is skeptical of coins and tokens thrown to the great fanfare. He prefers developers "who do not actively pump their coins in. They are not out there telling you how good it is, how they should all use it.There are no sponsor conferences out there … It's ridiculous … These are not the kinds of projects I want to support" , He says.

"You must realize that you are entering an unregulated space where you are trading unnecessary vaporware," he said. "Yes, if you have the right time, there is a lot of money to be made, but if you keep doubling, doubling and never taking anything out, all that value on the card will disappear.

Victor Ramos is a 28-year-old native of Washington Heights, who has been trading for about four years. He put himself in bitcoin near his first peak in 2013; he still lived with his parents.

Initially, Ramos wanted to "extract" bitcoins by himself. For those who do not know, in exchange for maintaining the blockchain, participating computers – known as "miners" – earn rewards for their owners in the form of transaction fees and recently minted coins. In other words, if you help keep the cryptography system that supports bitcoin, you will receive some as a reward: an incentive structure that has created a huge energy-intensive competition between the competing server farms, the largest in China.

This is what made the bitcoin extraction a practical impossibility for Ramos. Already in 2013, bitcoin mining was dominated by large operations; with their enormous computing power, they squeezed home enthusiasts trying to run mining software on their computers and laptops.

Ramos turned to virtual data mining pools, where few dollars spent CPU time; the members of the pool share their profits after paying a small fee to the operator. He concentrated on the extraction of new altcoins, where there was not much competition. Slowly, he saw the returns on his investment: $ 100 here, $ 300 there. It was not F-U money, but it was enough to increase the cash flow of a college kid.

In 2014, he was involved in a "shady and reserved" group that was on the ground floor for the nautiluscoin ($ NAUT), the "bitcoin currency" launched by the CNBC Brian Kelly. With a "$ 40 or $ 50" investment in mining facilities, Ramos earned $ 10,000.

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As I did (almost) millions in Bitcoin

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