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Q: How Can Someone Make Money on BitClout?

Money can be made through rewards on your “creator coins", by holding on to your own creator coins, and by buying other creator coins and then waiting for the price to go up.

Q: What Can You Do With $CLOUT?

A service called BitSwap allows for exchange from $CLOUT to Bitcoin and Ethereum. $CLOUT is also listed on Blockchain.com

Jan

2022

What is BitClout and How Does It Work?

By Matthew Zeitlin | Growing Wealth, invest, Investing | Comments Off

Reputation is, in some sense, the ultimate asset — it’s associated with an individual person, it can be degraded quickly and it’s hard to build up, but once it’s established, can be converted into all sorts of value.

This is where BitClout steps in. BitClout, also known as DeSo (which stands for “Decentralized Social”), is a combination social network and cryptocurrency exchange, where individuals can create accounts that have their own coin associated with them, and users of the exchange can buy and sell those coins to express their opinion about the individuals who issue them. BitClout also has its own cryptocurrency called $CLOUT, which is used to buy those coins.

How Does BitCloud Work?

BitClout aims to use cryptocurrency and blockchain technology to create a kind of digital permanence. Each BitClout profile is intended to be associated with one person, giving them the ability to mint and profit from “creator coins.”

These creator coins are meant to be non-fungible tokens (NFTs) — digital images that are on the blockchain and thus have a fixed, non-replicable physical identity — giving people the ability to profit from their creation and trading. But these coins aren’t necessarily created by the account associated with them, which is one of the more intriguing (or controversial) aspects of BitClout.

Who Has a BitClout Profile?

When BitClout launched in March, 2021, there were already 15,000 accounts pre-loaded onto the site without any involvement by their supposed users. In less than a month, over $200 million worth of Bitcoin was deposited onto the platform despite little indication that many of the celebrity “users” of the service would ever opt into it.

As it turns out, some of BitClout’s “users” have since opted in. Several high-profile technology and cryptocurrency influencers and businesspeople rank highly on the network, including some who have actually verified their accounts, including venture capitalist Chamath Palihapitiya, entrepreneur and former CTO of Coinbase Balaji Srinivasan, and Coinbase founder and chief executive Brian Armstrong.

Who Is Behind BitClout?

Many users claimed their BitClout profile by tweeting something along the lines “Just setting up my BitClout,” with the hands and diamond emoji following.

This was a reference to two things: the first the notion of having “diamond hands” as the holder of a speculative or volatile asset like a cryptocurrency or memestock refusing to sell (the idea being that diamonds are very hard and thus someone with “diamond hands” wouldn’t “fold”). It’s also a reference to BitClout’s mysterious CEO. While the leader of the company has done several interviews with reporters, they have yet to reveal their identity.

But BitClout’s investors are quite well known and identifiable. They include Coinbase Ventures and the Winklevoss twins, two of the biggest names in crypto, as well as Andreessen Horowitz and Sequoia, two of high-profile Silicon Valley venture capital firms.

That there would be anonymity associated with BitClout is not surprising. BitClout is both inspired by and deeply enmeshed with the world of Bitcoin, whose creator Satashoi Nakamoto remains anonymous to this day.

How Can Someone Make Money on BitClout?

While BitClout claims to avoid some of the more negative aspects of mainstream social media networks, the idea is that money can be made by driving engagement or tracking those who do. Here’s a breakdown of the different ways a person could potentially make money on BitCloud.

1. Through rewards on your “creator coins”. According to BitClout, these tokens “allow users to support their favorite creators by buying their coin, a little like a combination of AngelList and Patreon.” Like NFTs and ERC-20 tokens, creator coins are built on top of a different cryptocurrency product and are connected to a mainstream crypto, in this case Bitcoin.

Every user has creator coins and they can be bought and sold with $CLOUT, the BitCloud cryptocurrency. With your own creator coins, you can make money through rewards that flow specifically to you. These are called “founder rewards,” and the default is 10% — meaning you would get one tenth of every purchase of your coins. On the other hand, this makes the coins more expensive for others to buy and may discourage users from buying them.

2. By holding on to your own creator coins. The idea is that the community would reward the content you create or whatever you do off the platform by bidding up the price of your creator coins, thus increasing the value of your holdings.

3. Buying other creator coins and then waiting for the price to go up. This can be done by buying some of the more expensive coins and hoping the price shoots up after the individual has real world success that makes them more popular.

While it may seem that these money-making opportunities are more for boldface names than for regular people, there have been reports of users buying up very cheap coins or making money from selling their own coins even if there’s no association with celebrities. That said, these money-making opportunities come with a fair share of risk — it’s entirely possible that a person wouldn’t make any money, or might even lose money.

What Can You Do With $CLOUT?

One of the major complaints about BitClout when the service launched was that there wasn’t a way to turn your $CLOUT back into Bitcoin, let alone dollars. A workaround emerged — a service called BitSwap that allows for exchange from $CLOUT to Bitcoin and Ethereum. $CLOUT is also listed on Blockchain.com .

How Much Is $CLOUT Worth?

As of January 7, 2022, the price for $CLOUT is around $76 and the overall $CLOUT market cap is just under $824 million. In theory the value of $CLOUT, which is necessary to navigate BitClout and buy creator coins, is a good indicator of the overall health and use of the BitClout ecosystem.

The Takeaway

BitClout is a combo social media and cryptocurrency platform that allows users to create their own creator tokens and trade the tokens of other users, thus indicating the popularity of a given user and driving up (or down) the price of the tokens.

Photo credit: iStock/Luke Chan

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Jan

2022

What Is USD Coin (USDC)? A Guide to the Stablecoin

By Brian Nibley | Growing Wealth, invest, Investing | Comments Off

U.S. Dollar Coin (USDC) is one of the most popular stablecoins — a type of cryptocurrency that keeps its price pegged to the same price as another asset, in this case, the U.S. dollar.

Stablecoins have a variety of use cases and continue to grow in terms of trading volume and market cap. In 2021, the stablecoin market was worth about $130 billion, making USDC the second-largest stablecoin in circulation.

How Does USDC Work?

USD Coin runs on Ethereum, which is a programmable blockchain. The coin was created to be a form of digital money that wouldn’t be subject to wild price swings.

USDC is an ERC-20 token, which means it conforms to a certain set of programmatic standards that developers must follow to have their token issued on Ethereum. ERC-20 is the standard for utility tokens, which serve a specific function. In a sense, a stablecoin like USDC can be thought of as a type of utility token, in that it acts as a substitute for dollars within the digital asset space.

Dollar-denominated assets back the issuance of USDC tokens at a 1:1 ratio. For each coin in circulation, there is an equivalent amount of assets.

Who Created USDC?

USDC was created through a collaboration between Coinbase, the largest U.S.-based cryptocurrency exchange, and Circle, a financial services firm that is backed by some large financial institutions such as Goldman Sachs.

Based in Boston, Circle started in 2013 as a way to quickly and easily send money. The company quickly found its way into crypto and announced that they had acquired crypto exchange Poloniex in April 2020.

Price of USDC

The price of USDC remains pegged at $1. However, because the price of anything is determined by buyers and sellers, it can fluctuate slightly from time to time.

Sometimes investors try to eke out small gains by selling USDC on crypto exchanges for a few fractions of a penny higher than $1. Some traders might be willing to buy USDC at the slightly higher price if they want to exchange a different currency for one pegged to the dollar immediately.

Why Does USDC Have Value?

USDC is thought to have value because of the assets backing it. Circle backs each coin with cash and cash equivalents. For every new U.S. Dollar Coin created, there is supposed to be an equal amount of dollar assets held at Circle.

With the growing popularity of decentralized finance (DeFi) and centralized lending platforms, demand for USDC continues to rise, as the coin makes it easy for people to conduct financial transactions without leaving the crypto ecosystem.

People who don’t have access to the traditional finance system — who are sometimes referred to as the “unbanked” — may also benefit from USDC. Rather than needing a bank account, which can be difficult to get, USDC users only need an internet-connected device and a wallet that supports ERC-20 tokens.

Why Use USDC

There are several reasons someone might choose to use a cryptocurrency with a stable value:

• As a means of payment. If an individual wants to make a payment using crypto, they can rely on USDC to have a consistent value across time, without the sometimes-extreme price fluctuations that are common among cryptocurrencies.

• As a way to take profits. Traders like stablecoins because they can lock in gains while remaining within the crypto ecosystem. This may also potentially delay some of the taxable events associated with selling cryptocurrency for fiat currency (note: this is not tax advice).

• As a way to earn interest. Some platforms offer users interest payments in exchange for USDC deposits. Celsius and Vauld are among those that reward users for offering their USDC as collateral to be lent out to other users. It’s worth noting that there is risk involved with this activity.

• Making transparent donations to charity. People can use USDC to make charitable contributions that can be seen by everyone.

Advantages and Disadvantages of USDC

There are advantages and disadvantages to using USDC stablecoin. This chart outlines the biggest pros and cons.

Pros	Cons
Price stability	No potential for price appreciation
Lots of liquidity	Depending on the current state of the Ethereum network, transaction fees can be high
Good reputation and is backed by Circle’s assets	Fees for withdrawing USDC from exchanges can also be high

How Can I Buy USDC?

Investors can buy USDC on any crypto exchange that offers trading for the token. You will need some U.S. dollars or cryptocurrency that trades against USDC to get started.

To buy USDC, do the following:

1. Find an exchange that trades USDC. Many exchanges have trading pairs that include USDC against Bitcoin and other cryptocurrencies.

2. Create an account on the exchange.

3. Fund your account. Tip: depositing cryptos can be faster than depositing fiat currency like U.S. dollars.

4. Exchange the currency you used to fund your account for USDC.

The exact mechanics will look slightly different depending on the specific exchange, but these steps outline the general process.

How to Sell USDC

Selling USDC involves the same steps as buying. Once an exchange account has been set up, it’s simply a matter of placing a sell order instead of a buy order. USDC can often be sold for other cryptocurrencies or regular U.S. dollars. Note that depositing or withdrawing U.S. dollars typically requires additional user verification and linking a bank account.

Can You Stake USDC?

USDC is not a proof-of-stake token, so it can’t be staked. However, there are crypto lending services that allow investors to deposit their USDC and get paid interest in return. Like a bank, the platforms lend out the USDC at interest and pass on some of the profits to the depositor.

Unlike traditional savings accounts, some crypto lending platforms offer interest rates of anywhere from 8% to 12% or more. As with any investment, there are risks involved, and investors would be wise to do their own research first.

The Takeaway

USD Coin (USDC) can provide an easy way to transfer crypto into dollars without the friction typically associated with using real U.S. dollars. The coin can serve as a bridge between the traditional financial system and the blockchain-powered open financial system.

USDC can be exchanged back into crypto if desired. Some lending platforms also offer attractive interest rates on USDC deposits. One drawback, however, is that because USDC exists as an ERC-20 token on the Ethereum network, the token can be subject to high gas fees at times.

Photo credit: iStock/Prostock-Studio

Jan

2022

A Guide to Sharding in Crypto

By Brian Nibley | Growing Wealth, invest, Investing | Comments Off

Sharding is a method of making a database more manageable for computers. This technique has been used in many modern applications but its use in blockchain is still relatively new.

Sharding is important when it comes to crypto because many networks have difficulty scaling. Some of the largest blockchain networks, like Ethereum, are considering sharding as a potential way to manage their rapidly growing number of users and transactions.

In this guide to crypto sharding, we’ll explore the basic concept of sharding and how it could be applied to blockchain technology.

What Is Sharding?

Sharding is one potential solution to the problem of scaling a blockchain network. Sharding involves splitting a blockchain into multiple pieces, or shards, and storing them in different places. By storing the data across different computers, the computational burden on each can be reduced. This allows the network to process a larger volume of transactions.

A typical peer-to-peer (P2P) network such as a blockchain involves multiple full nodes (computers) that each record copies of the entire chain’s history. Using sharding, it’s possible for nodes to function without having to maintain all of that data at once.

How Does Sharding Work?

Sharding involves splitting a large database of the same type into multiple databases. Because this makes for an algorithm that can be more easily generalized, it’s possible to implement sharding at either the application level or the database level.

Sharding has another name — horizontal partitioning. The term horizontal in this case refers to the traditional layout of a database. A database can be split horizontally, with rows of the same database being distributed across multiple nodes, or vertically, with different information in a separate database.

Vertical partitioning involves drawing a logical split within an application’s data. This is often done at the application level, with a piece of code routing commands to a designated database.

Distributed Ledger Technology and Sharding

A distributed ledger is a database that stores information on multiple servers that are distributed throughout different locations. Blockchain technology involves using a type of distributed ledger that aims to be decentralized.

Sharding can be implemented on databases like the ones maintained by distributed ledger technology (DLT). In this case, the database is typically a record of transactions, along with quite a lot of pertinent data, including:

• The time each transaction was sent

• Its transaction hash (a unique number identifying the transaction)

• Which block the transaction was confirmed in

• The amount of currency sent

• The public address of the sender and receiver

With millions of users sending millions of transactions, as time goes on, full nodes have to manage a larger and larger database.

Scalability and Sharding

One of the biggest problems faced by blockchains is scaling. Scaling refers to being able to grow the number of users and transactions on a network.

When a new project becomes popular quickly, its network often gets congested, resulting in high transaction fees as people compete to have their transaction processed in the next block (users can adjust the fee they pay to miners in exchange for processing a transaction. When everyone wants to send a transaction, they might be willing to pay more and more, bidding up prices).

Sharding is one of many proposed solutions to this problem. A network that utilizes sharding can reduce the burden placed upon its nodes, allowing them to function more efficiently without an increase in computing power.

How Sharding Is Done

The details of how sharding is implemented get very technical. Those who understand distributed ledgers, coding, and databases might already have an idea of how it works. Others will have a lot of research to do if they want to learn more.

Sharding is typically done on proof-of-stake (PoS) networks, as opposed to proof-of-work (POW) networks. In the PoS consensus mechanism, nodes validate transactions based on the amount of tokens they have staked. Sharding would involve stakers dealing with different shards of the same blockchain.

Implementing sharding on proof-of-work (PoW) networks is very difficult. Nodes would have difficulty validating transactions with only the information from a single shard.

Blockchain Nodes and Sharding

The computers that facilitate transactions in a peer-to-peer (P2P) network like a blockchain are referred to as nodes. The most common type of node is an archival full node. Full nodes archive a copy of the blockchain’s entire history. For larger networks like Bitcoin and Ethereum, this requires quite a lot of memory and computing power.

The tasks of a node include:

• Processing transactions

• Recording transactions

• Broadcasting transactions

These require computing power, storage, and network bandwidth, respectively.

With sharding, full nodes no longer have to store or process the entirety of the network’s activities. Instead, each node only has to maintain data related to its shard.

Shard Sharing

The information of a shard can still be shared with other nodes. This maintains the security and decentralization of the network because all participants can still see all the ledger entries. They just aren’t required to store and process every bit of information.

Is Sharding Necessary?

Sharding is not always necessary. Only networks that are having difficulty scaling are likely to consider sharding. Where other solutions will suffice, developers may opt to forgo sharding due to the additional complexities it can add to an application.

Another method of scaling that has been growing in popularity lately is the use of layer-2s. A layer-2 is a solution that involves processing transactions off-chain, separate from the base layer of the ledger. This can decrease transaction times and decrease fees dramatically.

Bitcoin’s Lightning network is one example of a layer-2 solution. Lightning allows for instant transactions that cost a fraction of a penny.

Pros and Cons of Sharding

There are advantages and disadvantages to using sharding in cryptocurrency. It can be a great way for some networks to scale, but there are still some unknowns, and most developers believe it might not work for every blockchain.

Pros of Sharding	Cons of Sharding
Allows for greater scalability	Difficult for proof-of-work protocols to implement
Reduces the processing and memory burden placed on full nodes	Makes the database and its applications more complex
Works well for proof-of-stake networks	Mostly untested for blockchain technology, meaning there are some unknowns surrounding security

The Takeaway

Sharding was being discussed a lot several years ago as a potential scaling solution. Recently, layer-2s are increasingly being looked at as an alternative.

Bitcoin’s Lightning and Ethereum’s layer-2 solutions — have both seen increasing adoption lately. It’s worth noting, however, that if Ethereum upgrades to Ethereum 2.0 and adopts proof-of-stake, sharding will become the main method used for scaling.

FAQ

Does ETH 2.0 have sharding?

After a series of delays, ETH 2.0 still hasn’t been launched as of December 2021. If ETH 2.0 does launch at some point in the future, then the network would likely adopt a proof-of-stake consensus mechanism and look to use sharding as its main scaling solution.

Is sharding in crypto always needed?

No, sharding is not always necessary. Because sharding can make things more complicated, developers sometimes opt for other solutions to the problem of scaling. This could simply involve getting a more expensive and powerful computer. Adding additional caches or database replicas can also work as a solution for applications that are bound by read performance. A database can also be vertically partitioned according to functionality.

Photo credit: iStock/Poike

Jan

2022

What Is Fibonacci Retracement in Crypto Trading?

By Brian Nibley | Growing Wealth, invest, Investing | Comments Off

A retracement level is the price at which a stock or cryptocurrency tends to see a reversal in its trend. Fibonacci retracement is a popular tool in technical analysis that helps determine support and resistance levels on a price chart.

What Are Fibonacci Retracement Levels?

Fibonacci numbers are a series where each number equals the sum of the two previous numbers. The most basic series is: 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377 etc.

When it comes to technical analysis, investors use Fibonacci Replacement Levels, expressed as percentages, to analyze how much of a previous move a price has retraced. The most important Fibonacci Retracement levels are: 23.6% 38.2%, 50% and 61.8%.

Some analysts refer to 61.8% as “the golden ratio,” since it equals the division of one number in the series by the number that follows it. For example: 8/13 = 0.6153, and 55/89 = 0.6179.

The other Retracement levels reflect other calculations: Dividing one number by the number three places to its right equals 23.6%. For example: 8/34 = 0.2352. Bitcoin traders often use 78.6%, which is the square root of 0.618,

Some prefer the 0.618 and 0.382 levels because these are the retracement levels analysts believe are most likely to generate a trend reversal. These levels are considered inflection points where fear and greed can alter price action. When an asset is trending upward but loses momentum, it’s possible that a pullback to the 0.618 price level could result in a bounce upward, for example.

How Does Fibonacci Retracement Work and What Does it Do?

There are several theories as to why the fibonacci retracement works. Some of these include:

• Fibonacci price levels reflect the effects of extreme fear and greed in the market. To use this to their advantage, traders might buy when people are panicking and sell when others are getting greedy.

• Fibonacci patterns are often observed in nature as well as in mathematics. For example: fruits and vegetables. If one would look at the center of a sunflower, spiral patterns could appear to curve left and right. Counting these spirals, the total often is a Fibonacci number. If one could divide the spirals into those pointed left and right, then two consecutive Fibonacci numbers could be obtained. Therefore, it’s thought that these patterns may be important in financial markets as well.

• The law of numbers: If a greater percentage of people practice Fibonacci crypto trading, then the likelihood of its accuracy increases.

At its core, a Fibonacci retracement is a mathematical measurement of a particular pattern. When it comes to Fibonacci in crypto, traders try to apply these patterns to price action to predict future price movements.

Who Created Fibonacci Retracements?

While traders commonly use Fibonacci in crypto today, the number sequences pre-date the invention of cryptocurrency by many centuries. Fibonacci numbers are based on the key numbers studied by mathematician Leonardo Fibonacci (or Leonardo of Pisa) in the 13th century, although Indian mathematicians had identified them previously. He was a medieval Italian mathematician famous for his “Book of the Abacus”, the first European work on Indian and Arabian mathematics, which introduced Hindu-Arabic numerals to Europe.

Formula

In an uptrend or bullish market, the formulas for calculating Fibonacci retracement and extension levels are:

UR = High price – ((High price – Low price) * percentage) in an uptrend market; where UR is uptrend retracement.

UE = High price + ((High price – Low price) * percentage) in an uptrend market; where UE is an uptrend extension.

For example: A stock price range of $10 – $20, could depict a swing low to swing high.

Uptrend Retracement (UR) = $20 – (($20 – $10) * 0.618)) = $13.82 (utilizing 0.618 retracement)

Uptrend Extension (UE) = $20 + (($20 – $10) * 0.618)) = $26.18 (utilizing 0.618 retracement)

If a stock pulls back $13.82 could be a level that the stock bounces back to reach higher levels than its swing high price, e.g. $20. In an uptrend, the general idea is to take profits on a long trade at a Fibonacci price extension Level ~ $26.18.

What Does a Fibonacci Retracement do?

Markets don’t go straight up or down. There are pauses and corrections along the way. To buy stocks in an uptrend, one would look to get the best price possible.

Some traders use Fibonacci Retracement to determine how much a stock could pull back before continuing higher. Traders can use these retracement levels to find optimal prices at which to enter a trade.

A swing high happens when a security’s price reaches a peak before a decline. A swing high forms when the highest price reached is greater than a given number of highs around it.

Swing low is the opposite of swing high. It refers to the lowest price within a timeframe, usually fewer than 20 trading periods. A swing low occurs when a lowest price is lower than any other surrounding prices in a given period of time.

Support and Resistance

Support is the price level that acts as a floor, preventing the price from being pushed lower, while resistance is the high level that the price reaches over time. Analysts often illustrate these as horizontal lines on a graph.

A support or resistance level can also represent a pivot point, or point from which prices have a tendency to reverse if they bounce (in the case of support) or retreat (in the case of resistance) from that level.

Learn more: Support and Resistance: What Is It? How To Use It for Trading

Limitations of Fibonacci Retracement

Fibonacci retracements in crypto or other markets may be slightly predictive. But over relying on them can be counterproductive for reasons such as:

• Fibonacci retracements, like any other indicators, could be used effectively only if investors understand it completely. It could end up being risky if not used properly.

• There are no guarantees that prices will end up at that point, and retrace as the theory indicates.

• Fibonacci retracement sequences are often close to each other, therefore it may be tough to accurately predict future price movements.

• Using technical analysis tools like Fibonacci retracements can give investors tunnel vision, where they only see price action through this one indicator. Assuming that any single indicator is always correct can be problematic.

A Fibonacci retracement in crypto trading could wind up being even less predictive than in other financial markets due to the extreme volatility that cryptocurrencies often experience.

Fibonacci Retracements and Bitcoin

Fibonacci retracements can also be used for trading cryptos such as Bitcoin (BTC), similarly to how they’re used in stocks. In this case, one would use the levels 23.6%, 38.2%, 50%, 61.8% and 78.6% to determine where the cryptocurrency price might reverse.

Crypto prices are very volatile, and leverage trading is common. Leverage is the use of borrowed funds to increase the trading position, beyond what would be available from the cash balance alone. Therefore, it can be important to have some reference as to when the price could reverse, to not incur major losses.

Using the Fibonacci Retracement Tool to Trade Cryptocurrencies

In order to get started with a Fibonacci Retracement Tool, a trader could find a completed trend for a crypto, say, Bitcoin, which could either be an uptrend or downtrend.

Below are some steps on how to use Fibonacci retracement tool:

1. Determine the direction of the market. Is it an uptrend or downtrend?

2. For an uptrend, determine the two most extreme points (bottom and top) on a crypto price chart. Attach the Fibonacci retracement tool on the bottom and drag it to the right, all the way to the top.

3. For a downtrend, the extreme points are top and bottom and the retracement tool could be dragged from the top to the bottom.

4. For an uptrend or downtrend, one could monitor the potential support levels: 0.236, 0.382, 0.5 and 0.618.

Fibonacci Retracement Example for Bitcoin

In December 2017, Bitcoin fell from $13,112 to around $10,800, within a short timeframe. After that, it rallied up to $12k twice, but did not break above that level until 2021. That indicates a bearish pattern, as it couldn’t break above its previous high. In technical analysis it is called a double top.

On the Fibonacci tool, the $12k resistance point coincided with the 50% level of retracement. When the price could not reach this level, it started to fall again. In this scenario, traders using Fibonacci Retracement might consider this a good time to exit a long position or establish a short position. A short trade is based on the speculation that the price of Bitcoin is going to fall.

By February, 2018, the trade materialized as Bitcoin continued its downtrend falling all the way to $9,270. The short trade would have worked and traders could have realized a profit from using the crypto Fibonacci Retracement tool, although those who managed to HODL for years after that would have made even more.

The Takeaway

The Fibonacci Retracement tool can help identify hidden levels of support and resistance so that analysts can better time their trades. Analysts believe this tool is more effective when utilized with types of cryptocurrency that have higher market-capitalization, like Bitcoin and Ethereum, because they have more established trends over extended time frames.They consider it less effective on cryptocurrencies with a smaller market capitalization.

FAQ

Does Fibonacci retracement work with crypto?

While the Fibonacci retracement tool is traditionally used for analyzing stocks or trading currencies in the forex market, some analysts believe it is also helpful in determining a crypto trading strategy.

How accurate is fibonacci retracement?

In crypto, Fibonacci retracement levels are often fairly accurate, although no indicator is perfect and they are best used in combination with other research. The accuracy levels increase with longer timeframes. For example, a 50% retracement on a weekly chart is a more important technical level than a 50% retracement on a five-minute chart.

What are the advantages of using fibonacci retracement?

Here are some benefits of using Fibonacci Retracement.

• Trend prediction. With the correct setting and levels, it can often predict the price reversals of bitcoin at early levels, with a high probability.

• Flexibility. Fibonacci Retracement works for assets of any market and any timeframe. One must note that longer time frames could result in a more accurate signal.

• Fair assessment of market psychology. Fibonacci levels are built on both a mathematical algorithm and the psychology of the majority, which is a fair assessment of market sentiment.

Photo credit: iStock/HAKINMHAN

Jan

2022

What is Altcoin Season? Why Does It Happen?

By Matthew Zeitlin | Growing Wealth, invest, Investing | Comments Off

2021 has been an especially volatile time for cryptocurrency. Led by Bitcoin, the whole sector has seen spikes in prices, with tremendous volatility along the way. Investors have also seen increased development of decentralized finance (DeFi) technology applications, and cryptocurrency ecosystems that allow people to trade and lend their tokens without the support of a traditional financial institution.

With all this activity and volatility, some have wondered what it will mean for the cryptocurrency ecosystem. Will Bitcoin continue to lead this sector? Will other coins rise up to take the top spot in the field? Insiders have already coined a phrase for the possibility of Bitcoin stalling out and other cryptocurrency products and token rising in value. It’s known as “altcoin season.”

Altcoins: What Are They?

Basically, altcoins are cryptocurrencies that aren’t Bitcoin or Ethereum. In fact, Bitcoin is so dominant in the field that even Ethereum is sometimes referred to as an altcoin.

Bitcoin is oldest and largest cryptocurrency, with a total market cap of $885 billion as of December 17, 2021. Ethereum is similar: a long track record, a variety of projects and systems built on top of it, substantial trading volume, and a high overall value of about $459 billion as of December 17, 2021.

Altcoins are just about everything else. Sometimes they’re tokens built on top of Ethereum for DeFi projects, sometimes they’re offered in an “initial coin offering” for use with a specific product, sometimes they’re spun up by developers because they think there’s something wrong or missing in the current crypto ecosystem. This could be variants or forks of mainstream coins (like Litecoin (LTC) or Bitcoin Cash), or a whole new type of coin with a specific usage (stablecoins like Tether or USDC), or tokens for use in a specific ecosystem, like XRP for use in Ripple.

When Does “Altcoin Season” Happen?

Altcoin season happens when there’s steady outperformance of tokens and coins that aren’t Bitcoin.

There’s no promise or guarantee that every runup in Bitcoin will turn into a downturn later or that altcoins will start outperforming the original crypto. In fact, it’s not uncommon for all cryptos to rise together, as excitement about the sector grows and new money goes into all sorts of coins looking for profits.

There are a number of theories for why altcoin season could potentially happen. One popular one is that Bitcoin investors could pocket their gains if Bitcoin values rose, maybe by selling some of it, and then move those gains into other cryptocurrencies.

They might do this for one of two reasons:

1. To realize gains. This might happen if the value of Bitcoin owned by an investor has gone up relative to the dollar or other fiat currencies or cryptocurrencies, and they want to spend some of those gains on things that can’t be bought with crypto itself.

2. Expectations of future growth change. After a large runup of Bitcoin, an investor’s projected future growth or value of an asset might change compared to the price of investing. So, with inflated Bitcoin values, it’s possible that altcoins could be a better investment going forward. And if enough investors and traders make that decision, they will be.

How Do You Know If It’s Altcoin Season?

You can’t determine altcoin season just by looking at the price of altcoins or Bitcoin or any other cryptocurrency in isolation.

Looking at their “market cap”, or the total value of all the circulating tokens, can be a better indicator of what’s going on with investor valuation of cryptocurrencies. This is because price isn’t just determined by investor interest or disinterest, but also by the number of outstanding coins.

How Are Altcoins Doing Relative to Bitcoin?

To tell if we are in altcoin season, we have to look at two things. The first is Bitcoin’s “dominance” vis a vis the rest of the crypto market as well as the performance of altcoins relative to Bitcoin.

At the time of writing in December 2021, according to CoinMarketCap, Bitcoin’s dominance is 41% of the total market. Near the beginning of this year, it stood at 70%. Bitcoin’s highest dominance was 96% in late 2013, Bitcoin’s lowest dominance was early 2018, when it stood at around 33%. Its lowest this year is around 40%, which it hit in May of this year.

Bitcoin has fallen in value by almost 40%, potentially giving a chance for altcoins to gain value in comparison. But we can also compare Bitcoin’s market value to that of altcoins. Despite the price increase of some altcoins, Bitcoin is still dominant.

• Bitcoin’s market value has grown from $176 billion to $885 billion.

• XRP, the cryptocurrency associated with Ripple, has had its market cap grow from $9 billion to just under $38 billion.

• Litecoin, a Bitcoin alternative founded in 2011 and thus one of the oldest altcoins, has grown from around $3 billion to $10 billion.

• Ethereum (ETH), the least alt of the altcoins, the most well established of all non-Bitcoin tokens, has grown from $29 billion to $459 billion.

Whether altcoin season is happening at all — and if so, whether it will continue — still remains to be seen.

The Takeaway

Altcoin season describes a time period when altcoins steadily outperform Bitcoin. There are a few ways to try to determine altcoin season, but it remains impossible to predict. Basically, you’ll know it when you’re in it.

Photo credit: iStock/Prostock-Studio

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