Crypto Trading Lesson 1 – Understanding the Fundamentals: Probability

Trading is a multifaceted activity that necessitates a profound understanding of various concepts and strategies. While the ultimate objective of trading is to generate profits, achieving this goal entails more than just the basic principle of buying low and selling high. The core concepts of trading encompass probabilities, risk management, opportunity identification, relative mispricing, and more.

In this first lesson, we will delve into the concept of Probability, a fundamental aspect of trading, which includes the Win Rate (Win/Loss Ratio), the Odds Ratio (Risk-Reward Ratio), and the Risk of Ruin (Position Sizing, Bankruptcy Rate).

Win Rate (Win/Loss Ratio):

The win rate in trading refers to the proportion of trades that yield a profit. It’s calculated by dividing the number of winning trades by the total number of trades.

For instance, if a trader executes 10 trades and 8 of them yield a profit, the win rate would be 80% (8 profitable trades / 10 total trades = 0.80 or 80%).

If the potential loss and gain in a trade are equal, a higher win rate is generally more desirable. However, it’s important to note that a high win rate doesn’t necessarily equate to overall profitability. When the potential loss differs from the potential gain, another concept comes into play: the odds ratio.

Odds Ratio (Risk-Reward Ratio):

This is the ratio of potential profit to potential loss in each trade. A favorable odds ratio, where the potential profit is high and the potential loss is low, can offset a lower win rate, as the profits from successful trades outweigh the losses from unsuccessful ones. Conversely, an unfavorable odds ratio can diminish the profits from a high win rate.

For example, let’s say you’re trading a particular cryptocurrency and you’ve identified a potential trading opportunity. You’ve decided that you’re willing to risk 100 USDT on this trade because, based on your analysis, you believe the price is going to go up. You set your stop-loss order 100 USDT below your entry point. This is the amount you’re willing to risk. On the other hand, you set your take-profit order 300 USDT above your entry point. This is your profit target. In this case, your risk-reward ratio is 1:3. You’re risking 100 USDT for the potential to make 300 USDT.

Risk of Ruin (Position Sizing, Bankruptcy Rate):

This refers to the likelihood of losing a significant portion of your trading capital to the point where trading becomes unsustainable. The risk of ruin is influenced by factors such as the size of each trade relative to your total capital, the riskiness of the trades you make, and the number of trades you execute. Effective position management and capital management can help to mitigate the risk of ruin.

By deeply understanding these concepts and applying them to your trading, you can enhance your chances of success and mitigate your risk of loss. Remember, trading is not a one-time event, but a long-term activity. It’s crucial to ensure that, like a casino, the odds are consistently in your favor over the long run. The rest hinges on discipline and how to identify opportunities where probability is on your side.

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Coinbase CEO Criticizes Singapore’s Aim to Become a Web3 Hub at Expense of Crypto Trading

While speaking at the Singapore FinTech Festival 2022 on November 3, the CEO of U.S.-based crypto exchange Coinbase, Brian Armstrong, raised concerns that Singapore wants to become a forward-looking regulator, but is not welcoming cryptocurrency trading.

Armstrong stated: “Singapore wants to be a Web3 hub, and then simultaneously say: ’Oh, we’re not really going to allow retail trading or self-hosted wallets to be available.” He then said: “Those two things are incompatible in my mind.”

Armstrong further said: “Crypto should not be treated at a disadvantage; they should be treated equally with other financial service regulations.”

Comments by Armstrong came after Coinbase obtained in-principle approval from Singapore Central Bank to offer digital payment token services in the city-state last month.

Meanwhile, Sopnendu Mohanty, Chief Fintech Officer of the Monetary Authority of Singapore (MAS), and Ravi Menon, the Central Bank’s Managing Director who were present at the event responded to Armstrong’s concerns.

Mohanty stated that retail investors today are “exposed to risks they do not understand they are taking.” He said the Singapore central bank believes that Web 3.0 is the future, but wants to ensure that money trading within the ecosystem is a safe currency. Mohanty explained that while the regulator doesn’t worry about internet protocols, it cares about consumers and wants to ensure they are protected.

On the other hand, Mr. Menon responded that MAS “wants to develop the city-state into a ‘crypto hub’ fueled by instant settlements, tokenized assets, and programmable money, not ‘speculating in cryptocurrencies’.”

Menon said Singapore wants to be a crypto asset hub but does not want to be a hub where trading and speculating in cryptocurrencies take place.

Menon further explained that “real value in the crypto industry comes from tokenizing assets and placing them on a distributed ledger for use cases that increase economic efficiency.”

Menon’s comments at the conference came after officials in Hong Kong announced at their own annual gathering, the Hong Kong FinTech Week, a series of policies to re-attract digital asset investment.

The announcement signaled that Hong Kong has joined the race to become Asia’s main financial hub.

On Monday this week, Hong Kong launched an overhaul of crypto regulations that puts it on course to legalize retail trading. The policy even gave firms the chance to start futures-based crypto exchange-traded funds. Officials are also willing to review property rights for tokenized assets and the legality of smart contracts.

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Fintech Uala Rolls Out Crypto Trading in Argentina

Uala, a fintech company based in Argentina, on Friday launched Bitcoin and Ether trading for its customers in the country.

Andres Rodriguez Ledermann, the Vice President of Wealth Management at Uala, said the new service at first will be rolled out to a few thousand customers. He, however, said the services will be available to all of the firm’s 4.5 million Argentine users in the coming weeks.

Rodriguez said while the company plans to launch the service in Mexico and Colombia where it also operates, regulatory matters need to be analyzed and addressed before such operations.

According to the report, Uala is the first market participant to roll out crypto trading in Argentina since the local central bank in May barred two banks from enabling its users to access crypto.

Rodriguez disclosed that in order for the firm to comply with current regulations in the country, Uala established a special company to offer its crypto service – Uanex, which is based in England and has the Latin American crypto firm Bitso as its crypto liquidity provider.

In early May, the Argentine central bank banned unregulated cryptocurrency transactions in traditional banks. The central bank instituted the ban, saying that digital assets are not regulated in the country.

The announcement came a few days after Argentina’s biggest private bank, Banco Galicia, and the largest 100% digital bank in Argentina, Brubank SAU, started offering digital assets trading services, including Bitcoin, Ether, and USDC stablecoin on their platforms.

The ban means local users had to use centralized crypto exchanges or trade directly through over-the-counter exchanges.

Argentina has been grappling with high inflation and the devaluation of its currency, the peso, for years. In March alone, the country’s monthly inflation rate rose to 6.7%, surpassing forecast data. As a result, locals have begun investing in cryptocurrency to protect their savings from shrinking purchasing power. Some employers also allow to pay up to 20% of an employee’s salary in cryptocurrencies.

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Revolut Adds 29 New Tokens to Serve Clients in US

British fintech giant Revolut is deepening its foothold in the United States and has announced the addition of 29 new tokens to serve its customers.

The tokens, which include Avalanche (AVAX), Solana (SOL), and Dogecoin (DOGE), are an avenue for the company to compete for the growing market share in the country.

“Today, we’ve more than quadrupled our token portfolio to give our customers access to a much more diverse crypto offering,” Revolut global business head for crypto Mazen Eljundi said in the announcement, adding that exchange services on its platform are commission-free up to \$200,000 a month.

Revolut is exploring avenues to compete with its counterparts in the US, including Gemini and Kraken, amongst others. The trading firm is also mulling the plans to add more tokens to the suite should it get the needed greenlight from the New York Department of Financial Services (NYDFS).

To offer more valued added services in the long run, Revolut also hopes to launch staking services to complete its generous no-commission trading offering.

Revolut is primarily a fintech firm but is growing strategically as a crypto payments firm. Besides its ambitious push into the US, the firm announced the launch of its cryptocurrency exchange offshoot in Singapore earlier in August. The Singapore move came after the firm tapped the in-principle approval from the Monetary Authority of Singapore (MAS).

As part of its entry into new markets, education and proper awareness are crucial to the company as it looks to offer its services in a socially responsible way.

“We plan to provide educational features in the coming months to help customers better understand the trends and risks associated with cryptocurrency,” said Deepak Khanna, head of wealth and trading at Revolut Singapore, “We believe the regulatory strengths in Singapore and proactive industry engagement are key to serving clients with the highest standards.”

In complement, the firm launched the Learn and Earn campaign featuring Polkadot in July and it is open to all users.

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Fidelity to Offer Crypto Trading to Retail Customers

Fidelity Investments plans to launch Bitcoin trading for retail customers on its brokerage platform, The Wall Street Journal reported the matter on Monday, citing people with familiar sources.

The Boston-based investment management company has more than 34.4 million individual brokerage clients on its brokerage platform. Due to this huge customer base, the firm is exploring allowing these retail clients to trade Bitcoin on its brokerage platform.

During a panel discussion at the SALT New York conference on Monday, Mike Novogratz, CEO of crypto investment firm Galaxy, said he had heard Fidelity was moving to offer cryptocurrency to retail customers.

“A bird has told me, a little bird in my ear, that Fidelity is going to shift their retail customers into crypto soon enough. I hope that bird is right,” Novogratz said.

Fidelity responded to a request for comment, saying: “While we have nothing new to announce, expanding our offerings to enable broader access to digital assets remains an area of focus.”

The trillion-dollar asset manager launched its Bitcoin-trading business for institutional investors and hedge funds in 2019. One year later, the firm launched its Bitcoin index fund, which amassed over \$125 million in investments in May this year.

Betting on Crypto Investing

In April, Fidelity Investments made headlines when it started allowing investors to add Bitcoin to their retirement accounts.

Fidelity’s decision to let its clients incorporate Bitcoin into their retirement accounts was a landmark first for major retirement plan providers. Fidelity Investments is the country’s largest 401(k) provider.

In May, the crypto winter set in, and the industry suffered nearly \$1 trillion in losses over a month. Despite that, Fidelity Digital Asset Services, a subsidiary of Fidelity Investments, launched plans to double its headcount on the bet that institutional investor interest in crypto would persevere.

Fidelity’s digital assets arm intended to hire 110 tech workers and 100 customer service employees as it believed institutional crypto trading demand would increase.

During that, Fidelity said falling crypto prices did not affect the company financially, although the flow of new customers slowed down. Regardless, the company maintained its commitment to investing in crypto trading technology.

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Revolut Launches Cryptocurrency Exchange Services in Singapore

British Fintech firm, Revolut has launched a digital currency trading service in Singapore.

As reported by the Business Times of Singapore, the platform’s users will now be able to buy, sell and hold as many as 80 different digital currencies.

The launch of the digital currency trading services comes following the in-principle approval the London-based fintech firms received from the Monetary Authority of Singapore back in April. According to the report, Revolut will let its users change 27 different fiat currencies, gold and silver, into digital currencies of their choice without attracting foreign exchange fees.

Fees, however, will be incurred in general for core transactions and will be charged based on the tier level of the customer. As pointed out, customers with standard tiers will pay 2.5% in fees, while premium and metal customers will pay 1.5% in fees.

“We plan to provide educational features in the coming months to help customers better understand the trends and risks associated with cryptocurrency,” said Deepak Khanna, head of wealth and trading at Revolut Singapore, “We believe the regulatory strengths in Singapore and proactive industry engagement are key to serving clients with the highest standards.”

Revolut comes off as one of the few outfits that have permission to operate crypto exchange-related services in the country as the Monetary Authority of Singapore (MAS) is becoming more strict with crypto-hinged regulations. The collapse of Terraform Labs, Vauld Group, and Three Arrows Capital, all of which have ties to Singapore, has even made the MAS more cautious in a bid to protect consumers.

Known for its customer-centric offerings, Revolut said its presence in Singapore is growing across the board, with its customer base growing by as much as six-fold since the outbreak of the coronavirus pandemic. The fintech company also revealed that its revenue run rate has more than doubled in the past 12 months, a situation that serves as a very good ground for its business in both the country and globally.

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Top Brazilian Investment Broker to Roll Out Crypto Trading Services in August

XP Inc., a leading Brazilian investment brokerage firm, plans to establish a crypto trading platform by mid-August for long-term objectives.

With a customer base of 3.6 million, XP plans to offer token trading of Bitcoin (BTC) and Ethereum (ETH) first on its crypto platform dubbed Xtage. Later, the firm will add ten additional cryptocurrencies by the end of December.

XP acknowledged it was looking at the long-term picture by establishing these services despite the crypto market experiencing headwinds.

Lucas Rabechini, XP’s director of financial products, noted:

“You can say ‘the volume has been weak, there will be few orders,’ but we see this market systematically growing over time, and our long-term view is not just focused on price, but also technology.”

Rabechini added that they had created a swift order execution platform in partnership with Nasdaq Inc. to cement the company’s commitment to blockchain technology.

XP employees started testing Xtage in early July, with plans underway to roll out to clients with significant investment profiles by next month, according to Rabechini.

More Brazilians continue jumping on the crypto bandwagon based on factors like runaway inflation rates.

A year after setting foot on Brazilian soil, Bitso, a Mexican crypto exchange, has already reached one million users. This milestone was achieved earlier than expected, Blockchain.News reported.

Furthermore, a recent study by crypto exchange KuCoin revealed that 26% of Brazilians had invested in cryptocurrencies in six months.

With inflation in Brazil doubling over the past year to hit 10% annually, the survey suggested that young people who represented a majority of the population without bank accounts were seeking shelter in cryptocurrencies as an alternative option.

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Paraguay Senate Passes Bill to Regulate Crypto Mining and Trading

The Senate of Paraguay, a South American nation, on Thursday, approved a bill to regulate cryptocurrency mining and trading in the country.

The passage of the law is part of an approval made in December last year, but was modified in May by the Chambers of Deputies (the lower house of Paraguay’s bicameral legislature) and therefore returned to the upper chamber (the Senate) for further considerations.

Both chambers have now approved the bill and so it must be submitted to the executive branch, which has the power to approve or veto it.

The proposal modified by the Chamber of Deputies and accepted by the Senate designates the Ministry of Industry and Commerce as the main law enforcement authority to penalize individuals or firms conducting mining or offering crypto services without obtaining legal authorization.

The bill further delegated powers to the Secretariat for the Prevention of Money or Asset Laundering to be in charge of supervising the entire investment process conducted by crypto firms. Besides that, the bill designates The National Electricity Administration to be responsible for enabling the energy supply while the National Securities Commission is tasked with overseeing commercial activities involving digital assets. This involves licensing and overseeing crypto mining companies operating within the country. The proposed law does not make any cryptocurrencies legal tender.

The bill states that individual and corporate mining firms are expected to request for approval to use industrial electricity consumption and then apply for a business license. The proposed legislation also creates a registry for any individual or firm seeking to offer cryptocurrency trading or custody services for third parties.

The new legislation also expects crypto exchanges to register their businesses as virtual asset service providers with the anti-money-laundering agency of Paraguay.

Expanding Crypto Legal Framework

The latest Paraguay’s bill appears to build on previous legislations. In July last year, Paraguay became the second country to propose a bill to make Bitcoin legal tender after El Salvador announced the crypto as legal tender last June.

However, the bill was quite different from that of El Salvador. A leaked draft of Paraguay’s crypto bill showed that the country had no intention of making Bitcoin or any other cryptocurrency legal in the country.

Instead, the nation’s focus was on creating a regulatory framework, especially when it comes to taxation. The aim of the legislation was to create a legal certainty, financial and fiscal in the businesses derived from the production and trading of digital assets.

Unlike El Salvador, Paraguay has had a lot of the same concerns that some other nations have had with crypto entities — that of taxation. The nation wanted to ensure that crypto companies are brought under its tax regime and to have traceability for such transactions and investments.

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Nigeria Releases New Rules Classifying Crypto as Securities

In a move that might boost crypto trading in Nigeria, the nation’s Securities and Exchange Commission (SEC) has rolled out “rules on issuance, offering platforms, and custody of digital assets” for virtual firms, according to Bloomberg.

The rules offer more clarity on digital assets’ trading in a nation that already sits among the largest crypto markets globally.

As a change of tone, the nation’s central bank had prevented commercial lenders from undertaking crypto transactions or operations last year.

Owen Odia, Luno’s Nigeria country manager, noted:

“The regulations could act as the precursor for a surprise move from the central bank to reverse its approach, providing critical foundations for mass crypto adoption across the country.”

According to Paxful, a Bitcoin peer-to-peer (P2P) marketplace, Nigeria has the largest crypto transaction volume outside the United States.

Moreover, a recent study by crypto exchange KuCoin revealed that Nigerians were entering the crypto space because of the lack of affordable financial services and high inflation rates, given that 35% of them were engaged in this sector in the last six months.

The research suggested that cryptocurrencies were filling the gap in the traditional financial market because Nigerians were using them as an alternative for storing and transferring assets.

The KuCoin study also noted that P2P was a favored strategy among Nigerians, given that 65% of crypto investors in the nation made fiat deposits to cryptocurrencies through P2P platforms. Therefore, the latest development might accelerate crypto adoption on Nigerian soil.

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American Bank Inks Deal with Bakkt, Offering Trading & Holding of Tokens

To offer customers the option of accessing Bitcoin and Ethereum using their bank accounts, American Bank, a community bank headquartered in Allentown, Pennsylvania, has partnered with Bakkt.

Through the strategic partnership, American Bank clients will be able to buy, sell, and hold the two largest cryptocurrencies based on market capitalization by using the Bakkt crypto connect solution expected to be launched in the second quarter of this year.

Moreover, American Bank will utilize Bakkt’s educational resources and digital asset platform for cost-effective crypto access.

Sheela Zemlin, Bakkt’s chief revenue officer, welcomed the collaboration and stated:

“Research has indicated that consumers would prefer to access crypto from their existing bank, and we’re excited American Bank is partnering with Bakkt to provide customers a simple on-ramp to cryptocurrency within their trusted bank relationship.”

As consumer interest in crypto grows, American Bank seeks to render security services to its customers spread across fifty states.

Mark Jaindl, American Bank’s President and CEO, stated the bank is always looking for ways to enhance our customers’ banking experience:

“Bakkt’s robust capabilities create an entry point for us to drive engagement with our customers and seamlessly integrate cryptocurrency into our existing digital banking platform. We’re proud to say that we’ll be the first bank headquartered in the Lehigh Valley to offer access to crypto trading.”

More banks are eyeing rolling out crypto services as demand soars. For instance, Goldman Sachs, a leading global investment bank, recently revealed plans to avail a “full-spectrum” of crypto investments through derivatives, physical Bitcoin, or traditional investment vehicles.

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