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Cryptocurrency Mega Thread


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There has been a significant increase in media coverage for Cryptocurrencies such as Bitcoin and Ethereum, so I thought I would create an 'IG Community Mega Thread' to answer any questions relating to trading these markets with IG. If you have any questions, please leave a comment below.

We will also be updating a list of third party websites at the bottom of this post which are useful for research, fundamental analysis, market movers, news and general Cryptocurrency discussion. Please remember that these links are external to IG, and may contain views and opinions on market direction. Proper due diligence is encouraged. Please feel free to add links and articles which others may find interesting.

This is a long post, but by the end all your questions should be answered. 

 

Contents

  1. History and real world uses of Cryptocurrency
    • Bitcoin: Satoshi's white paper and the start of Blockchain
    • How does Bitcoin work?
    • What is the difference between Bitcoin (BTC) and Bitcoin Cash (BCH)?
    • Ethereum: What is it and what is Ether (ETH)?
  2. How do you trade Cryptocurrencies with IG?
    • Spread Betting and CFD Cryptocurrency trading
  3. Trading Cryptocurrencies with IG FAQs
    • How does IG price Cryptocurrencies?
    • What impacts Bitcoin and Ether spread?
    • What are the overnight funding charges on Cryptocurrency?
    • Do I need a wallet to trade Cryptocurrency markets with IG?
    • Do you offer advanced order types?
    • When are your Cryptocurrency markets available?
    • What is IGs policy on Blockchain hard forks? 
  4. Final notes and a list of links

 

History and real world use of Cryptocurrencies

Bitcoin: Satoshi’s white paper and the start of Blockchain

In 2008 a research paper was sent to a closed mailing list of cryptographic computer scientists entitled “Bitcoin: A Peer to Peer Electronic Cash System”. This paper, written under the pseudonym Satoshi Nakamoto, was the pre-cursor for the open source Bitcoin network released in 2009, and Blockchain technology which it relies on.

Bitcoin (BTC) was revolutionary in that it solved the ‘double-spend’ problem. No one, until Satoshi, had figured out a way to stop the duplication or creation of additional tokens for a digital currency, without a middle man or counterparty. This inability to be copied or created out of thin air is important because it fulfils the two attributes which give anything value; it provides utility (a payments system) and scarcity (there is a finite supply of Bitcoin, and no way to ‘double spend’ or create additional tokens).

1504000831495Bitcoin is both decentralised and open source. This means that any member of the Bitcoin community can edit Satoshi’s code, and then vote on whether or not to implement these changes. This is an important attribute of the cryptocurrency, which recently has resulted in Bitcoin ‘fork’. We will talk about that more in depth later.

Satoshi’s identity has never been verified, and he’s had no known involvement in Bitcoin since 2010. He did however ‘pass the reigns’ to a group of cryptographers he had never met in person, who are now known as core developers of the ‘Bitcoin Foundation’. They describe themselves as a non-profit organization who aim to educate others and increase adoption for Bitcoin and Blockchain technology.

 

How does Bitcoin work?

When you send Bitcoin from one individual to another, the transaction is recorded on a public distributed ledger and sent to all the computers, known as ‘Nodes’, connected to the network. These transactions are grouped together in a ‘Block’ of data, and all the connected computers compete to validate, or ‘mine’, these transactions.

The computer, and therefore individual, that first validates each Block is rewarded by automatically being sent Bitcoin by the networks algorithm. This is the only way Bitcoin is created, and therefore, there will only ever be 21 million Bitcoin in existence. A pre-defined schedule, hardwired into the protocol, restricts mining of Blocks and Bitcoin released to about 12 BTC every 10 minutes, although this pay out halves every 4 years. If you follow through with the maths, this means that the last Bitcoin to be mined will be in 2140; yes that’s correct, about 123 years from now.

These Bitcoin Blocks are mathematically and cryptographically irrefutable, and once validated, create a chain of transactions leading back to the 1st ‘Genesis Block’ mined by Satoshi in 2009. All of this happens automatically and on a back end system, with a user simply seeing the movement of BTC from themselves (their BTC wallet) to another’s.

 

What is the difference between Bitcoin (BTC) and Bitcoin Cash (BCH)?

Evolution of the open source Bitcoin software is achieved through decentralised consensus. In other words, if you want to make a change to the Bitcoin code, everyone who validates the Blocks of Bitcoin transactions gets to vote on whether they wish to take up the changes. This means that there is a chance for a split opinion on which code to use.

From 2015 onwards there has been a debate within the community on how to best scale Bitcoin. The fundamental issue is that each Block can only hold a certain number of transactions, 1mb worth, and with more and more people using the network, transactions were becoming slow and expensive.

IGTV 9 September 2017: August has been a historical month for Bitcoin because it has split and divided opinion as a result. Ryan Radloff, XBT's head of investor relations explains what this so-called forking means for investors of the digital currency.

 

Two ‘philosophies’, or competing code ideas, came to surface. One is known as on-chain scaling, whilst the other is referred to as off-chain scaling. There are pros and cons for each side of the argument, but lack of a clear consensus led to the Blockchain splitting, or ‘forking’, into two separate chains. This occurred on the 1st August 2017, with each group of Bitcoin miners (those who validate the Blocks) continuing to support their individual chains.

The primary difference between BTC and BCH is the back end code, but this is something which could really have an impact on the price of these competing Blockchains. If one over the other is seen as more efficient or profitable to mine, then over time it could pull more miners and individual users. This increases the chance of the other chain fading away due to neglect, or being attacked by malicious individuals who want to invalidate the Block verification process.

 

Ethereum: what is it and what is Ether (ETH)?

In much the same way as Bitcoin, Ethereum runs on a decentralised, public, open sourced Blockchain. However, rather than being a peer to peer electronic cash system the network supports automatically executed scripts, or smart contracts, via the Ethereum Virtual Machine.


2017-08-29 14_00_34-IG_Ethereum-trading-hero.jpg ‎- Photos.pngThe advantages of the Ethereum network over Bitcoin is that it provides a platform protocol for others to build decentralised applications, or Dapps, on a distributed Blockchain via a derived and widely used scripting language. These applications “run exactly as programmed without any possibility of downtime, censorship, fraud or third party interference.”

The network runs on its own cryptocurrency called Ether (ETH) which is destroyed, or burnt, to process actions and automated smart contracts. Those within the community sometimes refer to ETH as ‘gas’ because it is seen as a commodity which needs to be destroyed in order to ‘run’ contracts on the Ethereum network, known as the Ethereum Virtual Machine or EVM.

 

Blocks are still mined and individuals rewarded with ETH, however the supply isn’t finite and the distribution algorithm is more complex. In the near future Ether won’t be mined to validate the Blockchain, but instead used to stake a claim in the validity of a Block. This is known as ‘Proof of Stake’ over the ‘Proof of Work’ concept, and I will write another article explaining this at a later date.

Although Ethereum and Ether are separate parts of the same protocol, many use the terminology interchangeably. For example people would say that they “own some Ethereum” even though they really hold Ether.

The ecosystem was proposed and developed by a cryptocurrency researcher and programmer Vitalik Buterin who was a prominent advocate of Bitcoin, and actually co-founded the Bitcoin Magazine. The network went live at the end of July 2015 and to date, has had a very interesting history. Most notably there was a hard fork initiated by the core team which rolled back the Blockchain to invalidate a hack on a widely used Dapp, known as the DAO. If you would like to know more about this, just let me know in the comments below.

 

All trading involves risk. Losses can exceed deposits.

 

How do you trade Cryptocurrency with IG?

Spread Betting and CFD trading Cryptocurrencies

You can trade Bitcoin and Ether as an IG client via a leveraged Spread Betting or CFD account. You don’t need a wallet or additional offline storage device, and account verification and KYC checks are automatic. With IG you are not buying or selling the underlying Cryptocurrency, but instead speculating on the price movement.

Once you’ve logged in to your IG account, simply navigate to the search box, search for ‘Bitcoin’ or ‘Ether’ and bring up a deal ticket. We offer BTC, BCH, and ETH in USD, GBP, or EUR. In the underlying market, cryptocurrency’s have greater liquidity against the USD, so for this community page we will continue to discuss in USD terms.

If you are Spread Betting then you place a bet based on a point’s movement in the underlying market. A point is anything to the left of the decimal place, and therefore you are betting per USD movement in the market. A CFD contract will be the same, however your profit/loss per USD movement in the underlying market will be the Contract Size x Number of Contracts.

It’s worth noting that you cannot trade Cryptocurrency via a Share Dealing account, ISA, SIPP or Smart Portfolio.

 

Trading Cryptocurrency with IG FAQs

The information below is accurate at the time of going to print, however due to the nature of the IG Community forum, some of the specifics below could be out of date. Please check the appropriate page on IG.com, or the ‘Info’ section on the dealing platform for the most up to date information. Unless specifically stated, the term ‘Bitcoin’ refers to both Bitcoin (BTC) and Bitcoin Cash (BCH).

Please add any further Bitcoin or Ethereum questions in the comments section below and someone from the community, or an IG moderator, can answer you as soon as possible.

 

What order types do you offer?

If you want to trade now you can select the ‘Deal’ tab, fill in your size, and select one of the following:

  • Current price or better: This default trade option will open your position at the current price or better if the market moves in your favour.
  • Points through current: This gives you more control of your execution by allowing you to trade through the current price, up to certain tolerance as defined in your deal ticket. This is useful in reducing order rejection in a volatile or illiquid market, or if you trade in larger size.
  • Market order:  If you want to increase the likelihood of being filled, irrespective of price, you can select Market Order.

2017-08-29 14_11_35-IG Trading Platform _ Spread Betting.png

To increase the chance of successful execution, the IG deal ticket will default to accept partial fills. If you use this feature, IG will only partially fill a trade as an alternative to outright rejection, and you will never be partially filled if an entire fill is possible.

We also offer a range of stops and limits so you can exit your open position at specific price levels. These include trailing stops which will follow your trade if the market moves in your favour, and guaranteed stops that will always be filled at the exact level you select (even if the market gaps over the level you selected). Regular stops are available too.

If you want to trade when the market gets to a certain level, use the order tab:

A stop order, once triggered, will be filled at the prevailing market price, however this could be a less favorable level than you selected.

A limit order will give you control over your entry point, but your entry level must be placed at a more favorable level than the current market. Once triggered your entry level will always be the price you selected or better.

 

How does IG price Cryptocurrency?

Bitcoin and Ether is priced by taking a number of different price feeds from some of the largest exchanges and liquidity providers, and wrapping the IG spread about the best bid and offer (sell and buy price) in real time.

We price cryptocurrencies in a similar way to how we price our FX markets.  There is a video below which is worth watching, especially from the 2 minute mark, which explains our currency pricing model.

 

What impacts Bitcoin and Ether spread?

At IG we know that spread is an important factor for our clients, and we have worked hard to create some of the narrowest in the industry for FX, commodities, futures and other asset types. We are continuing this with crypto currencies but there are unique factors affecting these digital assets which mean that the difference between the buy and sell price (the spread) is larger than normal.

The market is still in its infancy and liquidity is relatively low. The majority of exchanges we deal with (which are some of the largest exchanges in the world) only have a few coins available at the touch price. For example, if you were to deal 1 CFD contract for Bitcoin (USD) your trade would be the equivalent of buying or selling 100 coins on exchange.

Cryptocurrency is priced on multiple exchanges, but there isn’t a singular ‘best bid and offer’. Therefore you get a number of different quotes which need to be taken into account. The list below is an example of the divergence in price on Bitcoin/USD at the moment of going to print for some of largest exchanges by volume (for the preceding 24 hours).

 

Exchange

Pair

24hr volume

Last traded price

Exchange 1

BTC/USD

$158,317,000

$4215.40

Exchange 2

BTC/USD

$66,580,500

$4212.43

Exchange 3

BTC/USD

$56,507,600

$4220.00

Exchange 4

BTC/USD

$52,349,100

$4220.10

Exchange 5

BTC/USD

$25,996,400

$4236.93

Exchange 6

BTC/USD

$22,151,800

$4347.95

Exchange 7

BTC/USD

$18,488,400

$4299.81

Exchange 8

BTC/USD

$11,558,100

$4216.61

Exchange 9

BTC/USD

$6,298,700

$4209.35

Exchange 10

BTC/USD

$4,844,130

$4263.70

 

 

What is the overnight funding on Cryptocurrency?

Bitcoin (BTC) funding will be charged at 0.0416% daily for any position that is open at 10pm (London time). Bitcoin Cash (BCH) funding will be charged at 0.0556%% daily for any position that is open at 10pm (London time).

Ether (ETH) funding will be 0.0556% daily for long and short positions daily for any position that is open at 10pm (London time).

There is no TomNext rate in the same way as there is for other currency pairs, so this value incorporates the primary risks for IG in offering Bitcoin. These include low liquidity at touch price, exchange risk, wallet risk, and the costs associated with cold storage.

 

Do I need a wallet to trade Cryptocurrency markets with IG?

No. With IG you are simply speculating on the price movement of Bitcoin and Ether, rather than holding the underlying asset.

 

When are your Cryptocurrency markets available?

Bitcoin, Bitcoin Cash and Ether USD markets are available from 8am on Sunday morning through to 10pm on Friday night (London time / market holidays permitting). Other markets (EUR and GBP) will open at 9pm Sunday (London time).

 

What is IG’s policy on Blockchain hard forks?

We base the price of our Bitcoin and Ether contracts on the underlying market, made available to us by the exchanges and market-makers with which we trade. In the majority of instances when a Blockchain forks, only one ‘survives’ and the old version is then discontinued by the community.

In the event that one version isn’t discontinued – known as a hard fork – we will generally follow the Blockchain that has the majority consensus of cryptocurrency users, and will therefore use this as the basis for our Bitcoin and Ether contracts.

IG reserves the right to determine which Blockchain and cryptocurrency unit has the majority consensus behind them. If the hard fork results in a viable second cryptocurrency becoming tradeable on exchanges we have access to, then in our absolute discretion, we may create an equivalent position or cash adjustment on client accounts to reflect its value, however we will have no obligation to do so.

When a hard fork occurs, there may be substantial price volatility around the event, and we may suspend trading throughout if we do not have reliable prices from the underlying market.

 

Final notes and list of links 

I hope people have found this interesting. We will continue to answer questions below, and of course post links and interesting articles which may help with fundamental analysis. Periodically we will also update a list of useful locations to check news, so if you would like to submit a link, please do so below.

 

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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Hi

 

Ether (ETH) funding will be 0.0556% daily for long and short positions daily for any position that is open at 10pm (London time)?

So 20% a year funding for long positions? Do you earn the same on short positions? 

 

Best

 

Y

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Hi  , congratulations on your first post on the community. 

 

So although there are many similarities with Cryptocurrency classic FX pairs such as GBP, USD and EUR, (namely how we price them, and how they are used in the underlying market) the overnight funding isn't quite the same. On regular FX there is a possibility that you could receive a overnight funding as a positive payment into your IG account, whilst on crypo there isn't 

 

On normal FX pairs there will always be an interest rate differential between the two currencies. This is known as the TomNext rate which takes into account the cost of borrowing one currency and the benefit of holding another. For example if you were to go long GBPUSD you would be buying GBP (and receiving the interest on it) whilst borrowing to sell USD (and paying to borrow this, in much the same way as borrowing via a bank loan). 

 

Cryptocurrency is different as there is no interest rate differential or TomNext rate between the underlying crypto and the standard currency pair. There are however costs on IG's side to offer this as a leveraged trade. There is the basic margin costs, as well as risks and back end costs with holding crypto securely in cold storage. This is the same for Long and Short, and therefore you wouldn't receive and overnight funding adjustment for shorting crypto.

 

I hope this clarifies things, but let me know if you have any further questions. 

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Additional links added to the Mega Thread fundamental analysis list - keep them coming folks, either via linking in the comments section here, or by sending me a direct message.

 

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I asked the very same question on the web chat recently and it appears that no stops are triggered whilst the market is offline. That means the price is evaluated at 8:00am on a Sunday and, if the price is over (or under in long positions) the stop level, the stop is triggered at the current price! If it gapped on Saturday and the price is well beyond the stop, you could face a major loss.

 

Hopefully someone from IG can confirm and comment. The underlying BTCUSD market for instance is open 24/7 but we are not able to trade it through the platform which means we are forced to close trades in a Friday night or face significant risks.

 

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Thanks James

 

You mention the price varies by exchange - but what exchange does IG follow? I'm consistently watching The IG bitcoin price not fall as far as it does on other exchanges I'm watching, but then The IG bitcoin price keeps pace with other exchanges when rallying

 

As a bear it's very frustrating, can you shed any light on the price feed source that IG uses to price BTC in USD?

 

Thanks in advance

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  • 4 weeks later...
  • 4 weeks later...

Hi there, you mention that the overnight funding rate is 0.0416%. Is that applied to the closing price of BTC everyday or the original buy in price? If so, will this funding amount change daily?

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rhl111 wrote:

Hi there, you mention that the overnight funding rate is 0.0416%. Is that applied to the closing price of BTC everyday or the original buy in price? If so, will this funding amount change daily?

Hi - this will be applied every day at 10PM GMT in the same way as our FX overnight funding charges and will be dependent on the price of bitcoin (or any crypto) at that time. Hope this clarifies everything but let me know if you would like any further info. 

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They just announced yesterday they will be trading on weekends from 8 am till Sunday 10pm

During the week I have been able to trade from 4 in the morning till midnight

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Do you mind referring me to that particular announcement? I don't seem to be able to trade on Bitcoin today which Saturday evening - it says markets are closed.

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Sorry i copied the email below I see it is only from 18 Nov

 

rom 18 November, you’ll be able to trade on Saturdays as well as Sundays, on the FTSE, the Germany 30, Wall Street, bitcoin, bitcoin cash and ether.

 

Our new weekend hours across indices will be 8am on Saturdays to 10.40pm on Sundays (UK time). Any weekend index position held through Sunday’s close will be rolled into a weekday contract. Please note that stops and limits on weekday indices are not affected by weekend trading.

 

Our cryptocurrency markets will open at 8am on Saturdays, and remain open until 10pm on Fridays (UK time). Please be aware that any attached or unattached stops or limits can be triggered during this new trading session.

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