If you go to the Make Bitcoins page it is very clear that my opinion on Bitcoin and cryptocurrency trades has been negative. The only positive point I make is that I believe price arbitrage is possible (even today) if you are active on multiple exchanges, although even that is risky. Despite all of that over the last month I did put on my first cryptocurrency trade ever and I managed to make over 21% on a Bitcoin basis doing it (but only on a small amount of Bitcoins).
What made you even think about doing a cryptocurrency trade?
In short, the Bitcoin scalability debate (SegWit versus Bitcoin Unlimited) and likely activation of SegWit on Litecoin first made me interested in doing this cryptocurrency trade.
What is this scalability debate?
If you are active in the Bitcoin world today you will definitely know about the Bitcoin SegWit debate and conflict in the community. Everyone in the community is noticing that the Bitcoin fees are going up and transactions are not getting confirmations quickly as the blocks become full. There is generally no debate that Bitcoin needs to be scaled so that it can handle more transactions per second, the only question is how do we do that?
(Note I am not a technical person and the information I am sharing is from the research I did before placing the trade)
Today we arguably have two realistic solutions for the scaling issue; Bitcoin Unlimited or SegWit (either miner activated or user activated). The majority seem to be behind the softfork (and less risky) SegWit activation that from what I can tell would allow nearly double the amount of transactions that could occur in each block. This would mean we would be able to send more Bitcoin transactions per second and likely at a cheaper cost (plus some other positive technical changes). Bitcoin Unlimited is a hardfork (non reversible change) leaving the blocks open to change by the miners so that all transactions can fit into blocks.
With the current blocksize limit of 1MB it is very clearly being tested at the moment:
The second plot below shows how many transactions happen per block (blocks are released on average every 10 minutes)
It is not possible to give a precise amount of transactions that can occur per second in Bitcoin (as transaction sizes are different), however a max of 2,250 from the chart above is a good estimate. This means Bitcoin can handle less than 4 (2,250/600 seconds) transactions per second at the most. Compare this to Visa which currently averages 2,000 transactions per second and it is obvious that if Bitcoin is to compete head on with Visa we need to increase the blocksize.
The obvious trend is that Bitcoin transactions are on the increase and if you extrapolate further it is clear that there will be a desire for more and more transactions moving forward.
So why SegWit and not Bitcoin Unlimited?
Intuitively if you see the two plots and compare Bitcoin Unlimited to SegWit (and you are not familiar with the debate to date), I believe the logical choice would be Bitcoin Unlimited over Segwit. I mean SegWit sounds like we are just kicking the can down the road. Surely it will not take much time before the transactions per second and block size reaches the SegWit maximum again.
Before you send me a lot of hate mail, I am not a supporter of Bitcoin Unlimited (Although I have a HUGE amount of respect for Roger Ver and what he has done for the community to date and will likely do moving forward).
So again if you have been living under a rock, Bitcoin Unlimited has been taking a lot of punishment from the community, with the majority of anger aimed personally at Roger Ver for backing it. In the process of backing Bitcoin Unlimited Roger Ver is also helping block (from what I can tell) SegWit activation from occurring and attacking the Bitcoin Core Developers behind SegWit.
As a non technical Bitcoiner I am putting my trust in the majority of coders who believe that a soft fork (SegWit) is significantly less risky than a hard fork (Bitcoin Unlimited). To date we have already seen some issues with the Bitcoin Unlimited code that has scared people off. There is a lot of information explaining the nuances of Bitcoin Unlimited versus SegWit, that I will not try to explain any further here.
So in summary sure I want a lot bigger blocks (so we obliterate all other forms of money transfer systems) but I would prefer it is done safely. If that takes more time then so be it. Interesting to note that while this debate is ongoing Bitcoin is doing extremely well still!
What the hell does this have to do with your cryptocurrency trade?
In short I am a fan of SegWit and believe if done safely that it will be another big catalyst for Bitcoin price appreciation. However, Bitcoin SegWit activation is a long way off activating and it does not look like it will occur anytime soon.
Now if you have heard of Litecoin (once referred to as the silver to Bitcoin being gold) you might know that early in April it was close to activating SegWit and as such the price was sky rocketing in anticipation.
Plot of Litecoin/Bitcoin price from March through April 2017
So my trading plan was to buy some Litecoin before Segwit activation occurred on Litecoin and sell after SegWit had activated on Litecoin. I am sure there were a lot of people placing this trade/bet and maybe the market had already fully priced it in.
However, at one stage the miners had looked to halt the activation from happening and the Litecoin price was going down sharply. Then the creator of Litecoin was very verbal on Twitter about the issue with miners (who have the ability to help or block SegWit activation) and eventually I believe he even met with some of the key miners and they all agreed to activate SegWit.
After they were in agreement the price did appreciate significantly before a lot of speculators (myself included) dumped Litecoin back to Bitcoin or elsewhere.
So what was my exact trade?
So my exact trade was sending 0.2 Bitcoins to Poloniex and converting as much of that as possible to Litecoin. I converted the total 0.2 Bitcoin balance and received 19.289 Litecoins on the 6th of April. My plan was to leave my Litecoins in Poloniex until Litecoin activated within a few days and then sell the Litecoin back for Bitcoin immediately.
Then the price of Litecoin dropped around 10% from when I bought them. I watched the creator of Litecoin on Twitter start publicly attacking the miners that refused to activate SegWit and he also mentioned that he would try to convince everyone to get on board. I took this as a sign that it would activate and decided to hold on to my Litecoins. As it turns out, after I bought the Litecoins the activation level dropped from around 75% (the level required for SegWit to activate on Litecoin) to the mid 60’s as one of the major miners publicly announced that they would not support SegWit.
I estimated that it would likely take a few more weeks before Litecoin activated (if at all). I knew that I should try and earn some interest on my Litecoins while I waited for Segwit to activate. I then sent the Litecoins to the best short term interest earning site for altcoins (that I know of and have used for the last year) Crypto-Games. I invested the Litecoins into the bankroll which requires a minimum period of 21 days (if you want to avoid the divest fee).
If you want to learn more about altcoin casino bankroll investing see the post on Understanding Bitcoin Gambling Investing here (it also applies to altcoins not just Bitcoin).
Near the end of the 21 day period Litecoin SegWit had infact activated and I withdraw my Litecoins from Crypto-Games (having made a handsome 4.2% on my investment there in just 21 days) and sent them to my Poloniex account.
As soon as the Litcoins landed into Poloniex I converted them back to Bitcoins. So in total 0.2 Bitcoins had turned into 0.242 Bitcoins in about 24 days. Incredible 21.1% return as a percentage but extremely speculative. You can see all the trades on Poloniex below:
My cryptocurrency trade conclusion
This may be the worlds longest post to explain how I made a messily 0.042 Bitcoins! It was my first speculative cryptocurrency trade so it felt like I was trading with a lot more money. I do not plan to do any more speculative trades at this stage but just watching the volume on Poloniex of people trading and borrowing Bitcoins, it is clear there is a lot of people out there doing it!
What I will continue doing is lending Bitcoins to people who want to trade on margin at Poloniex. So far it is looking very prosperous and I have already written about my first experience Making Bitcoins Trading At Poloniex.
Are you a cryptocurrency trader? If so I would love to hear from you about how you are making money trading!