Exchange Coins - Crypto Academy S5W1 - Homework Post for @imagen

in hive-108451 •  2 months ago  (edited)

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1.) Perform a complete analysis of the currency of some exchange. Not allowed: BNB, KuCoin, Cake and Uniswap.

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I will be analysing the GateToken of the Gate.io cryptocurrency exchange. The currency is native to the aforementioned cryptocurrency Exchange and is useful in facilitating liquidity across different currencies. This is usually made possible through services in cross chain atomic swap protocols. The GateToken(GT) is unique to the Exchange and is also native to the public chain which is the GateChain of the same network.

The GateChain provides trading experience with high performance together with fascinating features like fast transactions and low transaction fees. The token was developed in order to increase processing times, bring about zero commission rates for every single transaction when users avail themselves of the opportunity of leveraging these zero commission rates for their transactions by simply holding GT in their account wallet balances anytime they make any transaction on the exchange.

Important Statistics Of The GateToken

ParameterStatistics
GateToken Price$6.44
Price Change (24h)$0.2926
24h Low / 24h High$6.17 /$6.57
Trading Volume (24h)$10,250,053.55
Volume / Market Cap0.02052
Market Dominance0.02%
Market Rank#153
Market Cap$499,502,603.72
Fully Diluted Market Cap$1,927,188,173.76

Use Cases Of The GateToken

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The GateToken is actually similar to the native tokens of other major cryptocurrency exchanges. It serves a lot of important purposes which are mostly user oriented some of these include:-

  • Discount for trading fees:- Holding the token on the native cryptocurrency exchange means that discount would be granted to its holders across the crypto lending, futures trading and spot trading platforms.

  • Hold and Earn:- There is also a HODL and Earn service provided on the Gate.io platform where users are able to generate passive income by simply holding the GateToken as an asset in their wallets. The interests are usually accruable on a monthly basis and come with high rates of returns without any penalties or fees for early withdrawal.

  • Gas fee:- The GT token is equally useful as gas to enable operations on the GateChain network.

  • Listing Vote:- The GateToken can be held in order to obtain voting rights so that holders can participate in the governance of the system by voting for upcoming projects that have not even been listed on the exchange. The GT token submitted in this process usually corresponds to a single vote and you can vote with as many tokens as you possess.

The token can be quite a very good investment. The Gate.io exchange has been a long-established platform ranking number 11 on coinmarketcap exchanges list. Therefore, holding its native token in your portfolio could yield more in the future. There is a strong team behind the token since it was established by the developers of the cryptocurrency trading exchange. Furthermore, there is a buyback and burn program which means that the total number of the tokens would decrease with time and this could be favorable to its value and worth over time.

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2.) Make a purchase equal to at least US $ 10 of the currency you explained above. You must make some movement with that currency within the exchange that created that currency. Show screenshots and explain in detail the steps to follow. Example: transfer of funds, Staking, participation in a Launchpad, trading in futures, etc. Indicate the reasons why you chose that option (operation) on that platform.

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In this section I am going to be purchasing some GateTokens on the Gate.io cryptocurrency exchange. Then, I will transfer it to the margin trading platform from the spot trading portal where I will make the purchase.

Having created an account on the Gate.io cryptocurrency trading platform and having transferred some USDT to the exchange I will now proceed with this exercise.

  • First, I have to log in to the exchange by filling in the details as shown below on the website at https://gate.io

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  • Next, I have to include the email verification code

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  • This successfully logs me into the crypto exchange platform

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  • Having gained entrance to the site I clicked trade and selected spot trading

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  • Through the spot trading portal I opened an order to purchase 2.691 GT at the rate of 6.3165 USDT. The order was filled and is displayed below:-

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Transferring To Margin

I will now make some movement within the exchange by transferring the asset from the spot trading account to my margin account in order to sell it.

  • First, I went back to the home page and clicked on transfer as shown

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  • Next, I selected to transfer from spot account to margin account and included the size of assets I wished to transfer. I clicked confirm.

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  • The transfer had been done successfully as shown below

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I will simply hold the asset and see how it performs in the next 24 hours when I will trade it on the margin trading platform of the Gate.io crypto exchange.

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3.) Show the return on investment in time frames of 0, 24 and 48 hours from the moment you bought. Take screenshots where you can see the price of the asset and the date of capture.

After 24 Hours

I simply held the position waiting for 24 hours to observe what the condition of the price action would be. I opened the buy order by 04:39:23 CST 2021-11-20. I came back to check it by 01:49:50 2021-11-21. This is summarily shown below:-

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When I returned to the market the second day, I discovered that the price had moved from around $6.48 and experienced a downwards breakout which brought it as low as around $6.2. Out of fear I had to close the position at $6.2061. Unfortunately, I was unlucky because by 04:20:00 CST 2021-11-20 the price had continued upwards after this major corrective move and even went as high as $6.4744 as displayed on this chart below:-

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3.1) Has the asset's price acted independently or does its price strictly follow the correlation with Bitcoin?

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I decided to put the two screenshots of BTC/USDT and GT/USDT together above to observe the evolution of the two prices after 24 hours from 2021-11-19 21:00:00 UTC + 1. This was around the time I made the purchase.

From the two price charts you will observe that the movement of the two prices in relation to USDT actually correlates. GT price movement seems to follow that of King BTC.

First, the two charts - inside the boxes - begin with a bullish progression. Suddenly, the two charts go into a ranging market in the meantime - a period of low volatility. This is followed by a slight downward correction which is sharply followed by a deeper downward breakout of price.

Unfortunately, the sellers could not sustain the downtrend or at least the breakout was probably an induced sell trap of smart money traders. Finally, in this period - after the downward fakeout - a bullish breakout occurs with prices actually taking a bullish turn. These scenarios are observed in the GT price chart in correlation with the BTC price chart, as well.

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4.) What is futures trading?

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Futures trading is a term that is used to describe a form of trading were highly professional traders engage in the trading market by undertaking a form of agreement in what is called futures contracts which makes it possible for them to either buy or sell an asset in gain or loss at a price which is agreed upon for a future date. With these futures contracts comes the advantage of being able to secure a particular price for the cryptocurrency asset. This would help to guard against or protect the asset from price fluctuations that could turn against its current price in a negative way.

For illustration, a trader who anticipates that the price of Litecoin would go up gets into a futures contract by going long or trading on the buy side. He sells the contract when the price goes up to his anticipated level. Equally, a trader who expects that the price of Cardano will depreciate can engage in a sell futures contract by shorting the ADA market. When the price eventually goes down, such a trader would profit by closing the contract at that low level. The assets purchased or traded are not usually owned by the traders. Rather, these contracts always come with values that peg the price of the asset to their real values in the crypto market.

Advantages Of Futures Contracts

Some of the advantages include:-

  • Huge numbers are traded daily so it involves a market which is very liquid

  • Relatively, there are low commissions and costs of transaction compared to your profits

  • You can profit from whatever move the market makes whether upwards or downwards

Disadvantages Of Futures Trading

Some of the associated demerits include:-

  • Using a high leverage can mean that you lose so much in a futures contract when the price goes against you since you cannot control the future price

  • You could lose all your money when your position is liquidated in a situation whereby price goes against you and you are unable to and up additional margins to prevent liquidation

  • In some form of futures trading a date of expiry is always set in which date your position will be unfailingly closed whether in your favour or not

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5.) What is the margin market?

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Margin trading is a term that is used to describe a form of trading in cryptocurrencies where it is possible for cryptocurrency traders to be able to borrow money using the assets they already have as a sort of collateral thereby making it possible for them to hold trading positions that are larger than what they could have held ordinarily. Usually, this process is facilitated through what is called leverages. These leverages make it possible for assets to be purchased in a proportion that can be larger than its original size by as much as 2X, 5X, 18X, 25X or even 125X.

For instance, a trader could have $40 and wishes to make use of 3:1 leverage in order to borrow $80 so that he can hold a position that is worth $120. However, in this situation it wouldn't matter if the trade is in your favour or not as you would still have to pay back the $80 as well as the trading fees. The exchange would get back its money intact by deploying the use of a certain liquidation level where your position would be closed and all your money lost if the trade is going against you in such a way that the borrowed funds would not be eaten into.

Advantages Of Margin Trading

There are a number of advantages with margin trading. Some of these include:-

  • By making use of the leverages available you can maximize your position for higher returns even with small capital

  • It makes it possible for you to have larger purchasing power because of the leverages and this means more trading opportunities

  • You may not have to pay additional taxes when paying back the interests accrued on your margin positions

Disadvantages Of Margin Trading

Some of the disadvantages associated with this type of trading include:-

  • You could make more money by investing on margin but you equally stand to lose more in an unfavorable trade

  • It is not all cryptos that may be available as options for margin trading

  • It comes with payable interest and platforms like Binance charge this interest every hour

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6.) What happens to the cryptocurrencies of an exchange when they suffer from a hack or it turns out to be a fraud? Present at least 2 real life examples.

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In a situation whereby an exchange is hacked, the exchange could lose all or some of its cryptocurrencies and could eventually go out of business. A good example is with Mt. Gox cryptocurrency exchange. The exchange which had been launched in July, 2010 in Shibuya, Tokyo Japan became the largest cryptocurrency trading platform globally and was processing over 70% of all transactions on Bitcoin worldwide.

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However, in February 2014 the cryptocurrency exchange which was the largest in the world as at then suspended all trading activities, shut down its website and exchange and then filed a case for bankruptcy protection. The exchange started liquidation proceedings by April 2014. This was because the exchange had been allegedly hacked and over 850,000 bitcoins domiciled with them had been lost to fraud and theft.

In another scenario, if the token turns out to be a fraud or rug pulls then investors could have just lost their money. A most recent example is with the Squid game crypto token scam. This was claimed to be a digital token that was said to have been inspired by a Netflix Squid Game series of South Korean origin which lost all its value overnight in an apparent scam.

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The Squid Game came out as a play to earn asset and its price had been seen to have soared by thousands of percents in just days. Unfortunately, people were not allowed to resell their digital assets as was noted by a report on BBC. The developers of the game accumulated over $3.38 million based on Gizmodo website figures. The price had soared to over $2,856 and suddenly crashed to below 1 cent and investors had just lost their money to scammers who simply went off the market.

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CONCLUSION

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Most of the exchanges, especially the largest ones, have created native tokens in order to cater to the needs of their users in a whole lot of ways. Binance, KuCoin, PancakeSwap Uniswap and Gate.io are very handy examples in this regard. The Gate.io exchange created its token in order to cater to a lot of user needs which include its use to ensure discount on trading fees, holding and earning on it, using it as gas fee and also using it to obtain voting rights on the network.

Some of these tokens can be purchased and invested in a few ways. Some of the ways of investing them include trading them on Futures, engaging in margin trade, liquidity mining, staking and even crypto lending. Futures and margin trading are advanced levels of trading that should only be left for professionals. One of the interesting advantages of futures trading is that you are able to trade on the move of the market on both sides whether bearish or bullish.

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