The Application Of Risk

Risk is an elusive concept to cover, and certainly a much misunderstood one. It is defined in different ways for different purposes but it is critical to fully understand what constitutes risk in order to find sustained success in any speculative venture.

Depending on the context, risk can mean the expectation of volatility and illiquidity: This market is one of great risk. It can also be an albeit abstract measurement of the likelihood of success or failure: I believe this is a low-risk proposition. Lastly, risk can be a calculation related to exposure and downside versus upside potential: I have £5,000 at risk here, though my returns could be as great as £15,000. This latter definition is the one most commonly used by traders, but I believe an understanding of them all is particularly useful for profitable speculation. Only by seeing the full picture of market volatility, exposure and risk versus reward can we then come to some sort of conclusion on the second definition; whether our current speculations will prove successful. In fact, part of the full picture of risk is illuminated by the price-history of the market, depicting where, in the past, similar scenarios to those we are presently expecting have seen success or failure.

This post will, I hope, serve as foundational material for those who are unfamiliar with applying the many aspects of risk to their speculative positions. I will run through the process for each of the three relevant definitions of risk and how they each relate to the full picture.

Firstly, however, I’d like to emphasise the most essential point concerning risk: Particularly when speculating in the cryptosphere, the thing that determines whether one masters risk management or not is whether one invests money they cannot afford to lose. If you start out with non-discretionary income, you’ve already lost the game. The other components of risk management are only relevant if your speculations are comprised of money you can afford to lose. If this is not the case, the likelihood is that no amount of searching out low-risk, high-reward opportunities is going to save you, as your emotions are inextricable from your positions.

For those that the above applies to, stop reading and reorganise your portfolio until it resembles something that you could lose the entirety of tomorrow and it would not affect your quality of life. For the rest of you, let’s crack on.


Risk, as in volatility and illiquidity:

When a market experiences high levels of volatility (as is the case with all cryptocurrencies), it is said to be risky. Similarly, when a market is highly illiquid, there is inherent risk in exposing your capital to said market, as there is a possibility that, once a position is entered, it would be very difficult or costly to exit until market conditions improve sufficiently.

These aspects of risk management are critical to one’s speculative positions, as they are very much linked to personality and thus the quality of the decisions one makes. If you are highly risk-averse by nature, entering a position in a more volatile and illiquid market is perhaps not the brightest idea; if you are risk-tolerant, an illiquid market may not bother you and high volatility may not affect your trading decisions. In either case, having a clear understanding of these aspects of risk prior to entering a new position is a contributing factor to the likelihood of success.

But how can one determine volatility and illiquidity as a component of risk management? Most commonly, these are abstract terms for the general market participant, relative to the more concrete calculations one makes for exposure and reward-to-risk. However, simple calculations can be made to make things clearer.

For volatility:

  1. I tend to first determine the duration that I’m expecting to hold a position for. In my case, this almost always tends to be over a month. We’ll use a month for the purposes of clarification.
  2. Given this trade duration, I collate (in a spreadsheet) 30 days of historical price data for the coin I’m interested in using Coinmarketcap’s Historical Data tab.
  3. I delete everything except the Close Price data.
  4. I then calculate the average Close Price for the 30 days. This is my benchmark figure.
  5. Using this average Close Price, I calculate the percentage change from it to the highest Close Price during the month.
  6. I do the same for the lowest Close Price, also.
  7. For example, if the average price was $1, the highest price was $1.50 and the lowest price was $0.30, this would give me figures of 50% and -70%.
  8. The final step is to multiply these figures together to find a volatility ratio for the given duration. In this case, it would be -0.35 over the past 30 days.
  9. The closer to 0, the less volatile the market during that period of time, and vice-versa.

This process is particularly useful for cross-comparing the volatility of altcoins over the same time-period. It is rudimentary in its methodology, but gives us some form of concrete figure to apply to our risk management. Those that are risk-averse may opt to only enter positions in coins that have volatility between 0 and -0.1, for example.

For liquidity:

  1. This is even simpler than the calculations made for volatility. The first step is to calculate the buy support across listed exchanges for the coin you’re interested in, within 10% of the current price. Calculate this in BTC-denomination.
  2. Now divide this figure by the market cap of the coin (again, use the BTC figure).
  3. Multiply the result by 100 to get the buy support as a percentage of the market cap.
  4. Anything lower than 0.1% is highly illiquid. Anything higher than 1% is highly liquid. Most altcoins tend to be between these two figures.
  5. Do this once a day for a week and calculate the average to get a more reliable figure.

Now, the most important thing to do with this information is devise a benchmark that works for your personal relationship with risk. And stick to it. For some, this will be a commitment to only entering positions in coins with greater than 0.5% liquidity and between 0 and -0.05 volatility. Just make sure you know what works for you.


Risk, as in likelihood of success or failure:

This second definition of risk is, as mentioned earlier, more abstract than the other two. We often use low-risk synonymously with high-probability in everyday conversation, or high-risk synonymously with low-probability. The utility for speculators comes from finding historically similar scenarios to those we are expecting to profit from and evaluating their successes and failures. To make this clearer, let’s use a simplistic example:

First we must define the terms of the position we are considering. Let’s say I am considering an entry on X at 3000 satoshis. I am anticipating prices above 6000 satoshis, and would consider my trade idea incorrect below 2000 satoshis (which would be my soft stop-loss). I am willing to hold the position for 3 months.

Given these points-of-reference, we would simply backtest the trade using the coin’s price-history. Every time price reaches 3000 satoshis, we would enter an imaginary trade; does price reach 6000 satoshis? Does it reach it within 3 months? How many times would the position be stopped out? Ask all the relevant questions and compile an historical evaluation of your trade idea. If we’re looking at a trade that has been successful 80% of the time in the coin’s price-history, it gives us some degree of confidence that our own position will be successful, also. Of course, to be able to evaluate your idea to this degree, you first need to know all the critical information regarding exposure, entries, exits and risk versus reward. As such, the most important aspect of risk management outside of using capital you can afford to lose is found in the third definition.


Risk, as in exposure and returns:

Risk management for traders is mostly concerned with this third definition of risk that concerns all things quantitative, and for good reason. For me, calculating exposure is a prerequisite to entering a new position. It is the primary element upon which the rest of the trade is structured. Speculating without a clearly defined plan for capital exposure is a sure-fire way to wipe out your portfolio, and we don’t want that, if we can help it…

I will, at a later date, be writing an in-depth post on position sizing, which itself is a integral part of managing exposure, but for now let’s consider the basics. You could, of course, create an intricate plan of position sizing based on the volatility and liquidity calculations I mentioned earlier – almost as though you’re basing your risk on, well… risk itself. Riskception. But for the purposes of this post, let’s stick to the most common method of determining position size, which is focused on market cap or network value, however you like to refer to it:

  1. Firstly, you need to calculate the value of your portfolio. This is the base figure that you will use to calculate exposure for a new position. Let’s say it is 10 BTC, or ~$40,000 at current prices.
  2. Now, figure out whether the coin you are considering a position in is a microcap, lowcap, midcap, highcap or megacap. These are arbitrary terms, of course, but I can only offer my approach here. I categorise these using the following figures: microcap = 0-25 BTC; lowcap = 25-250 BTC; midcap = 250-2500 BTC; highcap = 2500-25,000 BTC; and megacap = 25,000 BTC or higher. These, again, are subjective numbers based on my own experiences in the space. If you wanted to use $ figures (though I advise against it, as these are heavily dependent upon the price of Bitcoin), then I’d opt for 0-$250k for a microcap; $250k-$2.5mn for a lowcap; $2.5mn-$25mn for a midcap; $25mn-$250mn for a highcap; and $250mn or higher for a megacap.
  3. Now, for each of these market cap-based groups, I have a different band of exposure based on the original value of my portfolio prior to entering the position: 0-1% for microcaps; 1-3% for lowcaps; 3-5% for midcaps; 5-10% for highcaps; and 10% or more for megacaps. I do not commit to the minimum percentage exposure within these bands, but I explicitly do not exceed the maximum for the given market cap. For example, I might choose to only allocate 5% of my capital to a megacap, but I would never allocate 5% of my capital to a microcap.
  4. Of course, there are some caveats here. Firstly, this approach is known as fixed-risk, wherein one allocates a fixed percentage of capital to a position often in lieue of setting a stop loss (but not always, as we’ll come to shortly). The position is then held until: it reaches its target price(s); it fails to reach its target within the predetermined duration of the trade, at which point it is exited; or, the coin dies. This is a common approach with microcaps and lowcaps, but makes less sense when one is concerned with the larger coins.
  5. When it is these larger coins that are being considered, the bands of exposure are still used, but a stop-loss (hard or soft) is added as a second risk-mitigator. My approach to stop-losses is that they should be based on technical factors rather than predetermined percentages, such as the break of long-term support or something similar, but it is often useful to have a maximum percentage stop-loss in place. For example, let’s say we were looking to enter a position in ABC. ABC is a highcap and so our capital exposure is a maximum of 10% of the value of our portfolio. Further, since it is a highcap, we choose to place a stop-loss. The maximum we are happy to lose is 25% of the initial capital, and thus a stop-loss is placed 25% below the average entry price. This equates to 2.5% of the value of our portfolio, which is our maximum capital loss.

Now, there are numerous other avenues one could go down when devising an approach to risk management, but I believe this approach will suffice for most. The issue is that stop-losses can and must (in my opinion) be linked to the risk versus reward of the trade. So let’s discuss the final aspect of risk for this post: returns.

The goal in investing is asymmetry – Howard Marks

Asymmetrical opportunities are the real secret to profitable speculation and proper risk management. Finding opportunities that present returns many multiples greater than the potential risk is what is so special about this space – they are ubiquitous.

Reward is almost always predicated on the price paid for the position, which is why buying low is so important. It allows for the low-risk (here meaning minimal amount of capital loss), high-reward opportunities. The most important thing to take away about risk versus reward is to exclusively go after opportunities that offer at least twice the reward against the risk. So, if, after calculating your capital exposure and your stop-loss, you have a maximum capital loss of 2.5% of the value of your portfolio (as in the earlier example), then your opportunity must present a reward equating to 5%. This is why the fixed-risk approach is suitable for the smaller altcoins; the potential rewards are so large that the trades are often asymmetrical in our favour despite the potential loss of the entire position.

Now, to conclude this post, how do we tie it all together? Well, what you can do is create a risk framework that all future trades must adhere to, and this would be based on your own level of risk tolerance. For example, you could decide to only enter positions in coins that have 0.5% liquidity, between 0-0.1 volatility over the past 90 days, at least one instance of success of a similar scenario in the coin’s price-history and at least 3:1 reward-to-risk. Play around with the numbers to see what works for you – the important thing is to have a consistent framework to which you always adhere.

I hope this post has proved useful. Feel free to leave any comments and questions below and I’ll get back to you!


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Market Outlook #16

Market Outlook #16 (16th December 2018)

Hello, and welcome to the sixteenth instalment of Market Outlook, and the final blog post for 2018. As of tomorrow, I will be taking the remainder of the year off. That being said, I’ve got a lot of interesting material planned for the New Year, including more Coin Report and Market Outlook posts, but also some one-off ideas, like a lengthy discussion of ‘risk’ and all that comes with it; an article on passive income in the cryptosphere and its numerous pitfalls; and a post detailing my thoughts on why the price paid is the most important part of any trade or investment, particularly in this space.

But, for today, I will be covering the past week’s price-action in Bitcoin, Monero and Ethereum, as well as taking a look at how beautifully Waves has played out. I hope you enjoy the read!

Bitcoin:

Price: $3308

Market Cap: $57.645bn

Thoughts: In last week’s Market Outlook, I mentioned that a failure to breakout above the $3750 resistance would likely send price towards $3200. From the 4H chart, we can see that a double top formed at this resistance level, and price has since remained below the short-term trendline resistance, dumping below the local low from last week. Zooming out to the Weekly, we can see that price is in a precarious position, sitting just above a swing-low that has been untouched for over a year at ~$3000. There is a high likelihood that we, at least momentarily, sweep those lows before forming any significant reversal, especially considering the orderblock that lies below it. However, volume has been decreasing as new lows are made, implying that sell pressure is decreasing and that a bottom is likely nearby…


Monero:

XMR/USD

XMR/BTC

Price: $39.82 (0.01218 BTC)

Market Cap: $662.031mn (202,881 BTC)

Thoughts: Monero has reached an interesting spot against the Dollar this past week, finally dipping into the weekly bullish orderblock and trading below the equilibrium (50%) point of the range that formed back in summer 2017. When price last traded in this area, it was shortly followed by an injection of heavy volume and significant upwards momentum. Looking at XMR/BTC, the Weekly has broken below trendline support for the first time in two years, sweeping below the low that formed late in August, into a bullish orderblock. This breakdown from such a significant area of support is not great for bulls… but it could be price manipulation to coax retail holders into capitulation. We’ll see what the case is over the next week or two; if price can catch a bounce on high volume and break above the trendline resistance and back above the trendline support, this was likely a false breakout; if price fails to find support here, it is quite likely that we see 0.01 BTC broken.


Ethereum:

ETH/USD

ETH/BTC

Price: $86.64 (0.02655 BTC)

Market Cap: $8.995bn (2,757,251 BTC)

Thoughts: ETH/USD continues to experience decreasing volume alongside its decreasing prices, with peak sell pressure occuring weeks ago. The 4H chart shows a breakout above short-term trendline resistance, but the equal lows make me wary. I wouldn’t get too hopeful for a reversal until the Daily closes above $100. ETH/BTC, however, is in a great area for buyers, trading at an area of signficant prior resistance turned support. Price is still trading below trendline resistance, but a period of high volume during the dump to 0.0245 BTC indicates that this may have been the bottom against Bitcoin. Short-term support has formed at 0.0258 BTC, but it will take a higher time-frame close above 0.028 BTC before this could be confirmed as a bottom.


Waves:

WAVES/BTC

Price: $2.47 (75502 satoshis)

Market Cap: $246.898mn (75,502 BTC)

Thoughts: I first mentioned Waves in this Market Outlook series in the 10th instalment, when it formed a double bottom below 25k satoshis. Following this, I mentioned it a couple of weeks later, in the ‘Altcoin Special‘ post. Prices then bounced from the low-volume selloff, breaking out of the downtrend on high volume. In the 14th Market Outlook, prices were above 35k satoshis, and we have since seen a continuation of the reversal, with a steep increase over the past week. Waves is now trading above 75k satoshis, over 3x where it was in that first post, in the depths of a macro bear market. Opportunities are everywhere for further price-action such as this to follow. Selling any positions in Waves here is probably a wise idea, given the heavy resistance ahead.

That concludes this sixteenth Market Outlook. I hope you’ve found some value in it. See you in the New Year!


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Coin Report #8: Arionum

N.B: This Coin Report has been selected by the readers of the blog, with Arionum winning the poll with 41% of  the ~2,300 votes. Congratulations!

Welcome to the eighth Coin Report. In today’s report, I will be assessing the fundamental and technical strengths and weaknesses of Arionum. This will comprise of an analysis of a number of significant metrics, an evaluation of the project’s community and development and an overview of its price-history. The report will conclude with a grading out of 10. I hope you enjoy the read!

Introduction

Having only recently completed a Coin Report on Bismuth, I found it rather amusing that this next one – as selected by the community – will be on Arionum, for reasons that will become evident as the report progresses. In short, both projects are unique, first-of-their-kind cryptocurrencies, written from scratch in their respective languages. As such, I feel as though chance has given us a good opportunity for a true and thorough cross-comparison. This report will follow the regular template in its composition, but it would be negligent not to draw comparisons where appropriate.

As mentioned above, Arionum is one of those rare cryptocurrencies that is built from the ground up, and thus I was quite excited to find that it had won the community poll. That being said, aside from this singular fact, I knew relatively little about the project prior to conducting my research for this report. Having now completed this research, there is much to be excited by but certainly areas where improvement is required; eerily enough, these areas correspond with those of Bismuth.

I hope this report will prove objective where it must be and fair on more subjective matters. For those who’d like to learn a little more about Arionum prior to reading this report, here are some primary links:


Fundamental

General:

Name: Arionum

Ticker: ARO

Algorithm: Argon2i + SHA512

Sector: PHP Blockchain Platform

Exchanges: Mercatox

Arionum was launched in January 2018 – oddly enough around the time of the market peak – with no premine and no ICO. It was written from scratch in PHP; the first cryptocurrency of its kind. The coin operates using a Proof-of-Work consensus mechanism on a combined Argon2i + SHA512 hashing algorithm. It also operates using masternodes with a collateral of 100,000 ARO. The Proof-of-Work phase is expected to last ~8 years from launch, with the block reward beginning at 1,000 ARO and decreasing by 10 ARO every 10800 blocks. We’ll dig into supply emission and the block reward schedule a little later.

Of all the coins I have written reports on, Arionum has the least available price-history, with data going back only four months – to the beginning of August. Despite that, Arionum has experienced two short market cycles, setting an all-time high of 734 satoshis ($0.048) at the end of October. Price has since dropped off, setting a local low of 236 satoshis late in November. More on this in the Technical section.

Arionum, as a project, is primarily concerned with streamlining the development process for those familiar with PHP, relative to other programming languages. Further to that, and more applicable to the layman user, Arionum seeks to drastically reduce transaction costs and improve upon the scalability issues found in Bitcoin. Lastly, its future is concerned with developing a graphical interface for asset creation, allowing less technical users to develop their own digital assets and currencies.

That should suffice as a general overview of the project; onto some metrics:


Metric Analysis:

Below are listed a number of important metrics, all of which are accurate as of 13th December 2018. For anyone reading this who has yet to read a Coin Report, it might be worth reading this section of the first report, where any potentially unfamiliar terms are explained. For any terms or metrics specific to this post, I will provide explanations besides the figures.

Metrics:

General:

Price: $0.012 (341 satoshis)

Exchange Volume$67,581

Circulating Supply: 115,801,450 ARO (I have used the figure found on the block explorer for this, as there is a discrepancy between it and the figure found on Coinmarketcap)

Total Supply: 115,801,450 ARO

Maximum Supply: 545,399,000 ARO

% of Max. Supply Minted: 21.23%

Network Value: $1.341mn (394.88 BTC)

Network Value at Max. Supply: $6.32mn

Category: Midcap

Exchange Volume-to-Network Value: 5.04%

Average Price (30-Day): $0.014

Average Exchange Volume (30-Day): $48,992

Average Network Value (30-Day): $1.048mn

Average Exchange Volume (30-Day)-to-Network Value: 4.67%

% Price Change USD (30-Day): -57.7%

% Price Change USD (1-Year): N/A

USD All-Time High: $0.048

% From USD All-Time High: -75.6%

Premine % of Max. Supply: 0

Premine Location: N/A

Liquidity (calculated as the sum of BTC in the buy-side with 10% of current price across all exchanges): 0.575 BTC

Liquidity-to-Network Value %: 0.15%

Amount Available on Exchanges: 2,146,982 ARO

% of Circulating Supply Available on Exchanges: 1.85%

Update: I have been informed that the all-time high was actually $0.23, as sourced via https://www.livecoinwatch.com/price/Arionum-ARO

Supply Emission & Inflation:

Block Reward Schedule: Block rewards began at 1000 ARO, and decrease 10 ARO every 10800 blocks (~30 days). 8 years 4 months for entire PoW phase. Current block reward = 880 ARO for 7491 more blocks (~21 days).

Average Block Time: 4 minutes

Current Block Height: 122109

Annual Supply Emission: 107,838,480 ARO (367.73 BTC at current prices)

Annual Inflation Rate: 93.12%

Circulating Supply in 365 Days: 223,639,930 ARO

Staking & Masternodes:

Note: I have used this source for some data on masternodes. For further info on Arionum’s masternodes, take a look here.

Masternode Price: $1,158.86

Masternode Collateral Size: 100,000 ARO

Masternode Count: 427

Supply Locked in Masternodes: 42,700,000 ARO

Masternode Count Growth (30-Day): N/A

Masternode ROI (Annual): 83.34%*

Masternode Reward / Block Reward: 33%

Masternode Network Value$494,832

MNV / Network Value: 36.87%

*To calculate annual ROI based on current active masternodes: (Annual Supply Emission x (Masternode Reward / Block Reward)) / Supply Locked in Masternodes = (107,838,480 x 33%) / 42,700,000 = 0.8334 =83.34%

Distribution:

Address Count: N/A

Supply Held By Top 10 Addresses: 12.91% (discounting 1st-richest, which is Mercatox and contains ~13mn ARO)

Supply Held By Top 20 Addresses:  17.36%

Supply Held By Top 100 Addresses: 30.03%

Inactive Address Count in Top 20 (30 Days of No Activity): 10

Analysis:

There’s a mountain of material to cover here, and I’ll begin with the General metrics, before moving on to sequentially unpack the rest.

Firstly, let’s take a look at the price-and-volume-related metrics: Arionum is currently trading at a Network Value (here meaning price x circulating supply) of $1.341mn, or 394.88 BTC. This would place it in the lower-midcap range of altcoins. The Average Network Value for the past 30 days is a little lower at $1.048mn, despite the price of Bitcoin decreasing significantly in the past month, indicating that Arionum has been faring well against Bitcoin recently, as we shall discover a little later. The Exchange Volume for the past 24 hours comes in at $67,581, whilst Average Exchange Volume is ~$49k. This gives Arionum an Exchange Volume-to-Network Value of 5.04%, and an Average EVNV of 4.67%. This is very impressive. In prior reports, I have mentioned that I tend to look for altcoins with 1% or greater for these metrics as a sign of significant interest, but current market conditions have made such scenarios sparse. Well, Arionum seems to have plenty of interest despite such conditions and despite the fact that it is only traded on one exchange: Mercatox. Further, Arionum actually beats out any coin previously reported on with regards to this particular metric, with Stakenet coming in second place with 2.33% EVNV and 1.48% Average EVNV. As I say, this is a promising start.

The next point-of-interest from the General metrics is Liquidity and the metrics relating to supply available on exchanges: Arionum has Liquidity of around 0.15% of the Network Value, which places it in the middle of the pack relative to other coins reported on. Further, there is a little over 2.1mn ARO available for purchase in the Mercatox orderbooks, which equates to 1.85% of the circulating supply. Of the four coins I have previously calculated this metric for, Arionum has less of the circulating supply available than three of them, suggesting that there is a relatively high inclination towards holding ARO. The masternode returns may be a contributing factor to this, as I’ll highlight shortly.

A final point to highlight from the General subsection before we move onto Supply Emission & Inflation: there is zero premine, which I always like to see.

Now, calculating supply emission and inflation metrics is fairly straightforward for Arionum, as it has a simple block reward schedule. Using an average block time of 4 minutes, a current block reward of 880 ARO and a decreasing block reward of 10 ARO every 10800 blocks, the supply emission for the next 365 days works out at ~107,838,480 ARO, or 367.73 BTC at current prices. This equates to an annual inflation rate of 93.12%. Without doubt, this is rather high and a little worrying for those of us who are potentially looking to turn a profit on a position in Arionum. In fact, this is the highest inflation rate for any coin I’ve reported on.

But how does the supply emission relate to the volume that Arionum is generally trading? Well, with an annual supply emission of 367.73 BTC at current prices, average daily supply emission works out at almost exactly 1 BTC, or ~$3398. Arionum’s trading volume (Exchange Volume) for the past 24 hours is ~1988% greater than this supply emission, and its Average EVNV is ~1442% greater. This is ample trading volume to cover the supply being minted daily, and thus current prices should be sustainable if current levels of volume persist. Thus, any decrease in price should generally be attributed to either smart-money distribution or weak-hand distribution, rather than to miners dumping their rewards, and this could be more precisely determined using rich-list analysis. This is also roughly 5 times greater volume-to-supply emission than I found in Bismuth, despite Bismuth having half the annual inflation rate of Arionum.

Moving onto masternodes, Arionum offers an annual return on its masternodes of 83.34%, calculated using figures for current active masternodes, annual supply emission and the percentage of the block reward that is distributed to masternodes. This is a very high return, and unsurprising given the high inflation. It is actually the highest annual ROI of any masternode from previous reports.

Next, let us consider the strength of the Arionum masternode network: with 427 active masternodes and a collateral size of 100,000 ARO, this gives us 42.7mn ARO locked in masternodes. This equates to a Masternode Network Value of $494,832, which is 36.87% of the Arionum Network Value. This is indicative of a moderately strong masternode network, as it is stronger than the masternode network of Bismuth and Stakenet but weaker than Bulwark and ALQO.

Finally, let’s take a look at Distribution:

As Arionum states in its whitepaper, “the goal is to be… democratically spread across non-professional miners.” In short, decentralisation is key, and this seems to be a point of strength for the project. Discounting the richest address, which is owned by Mercatox and contains ~13mn ARO, the top 10 richest addresses control 12.91% of the supply. The top 20 control 17.36% of the supply and the top 100 control 30.03%. This is slightly more decentralised distribution than Bismuth, which (discounting its richest address, which is owned by Cryptopia) had the top 10 controlling 16.44% of the supply.

Let’s dive a little deeper into the Arionum rich-list. 10 of the top 20 addresses have been inactive for the past 30 days, whilst the 4th, 10th, 13th, 17th and 19th-richest addresses are in active accumulation. Only the 11th-richest is distributing at current prices and the remaining addresses have shown negligible activity recently. This shows that the vast majority of the richest holders are either accumulating or holding at present, which is a good sign.

That concludes this section on metrics. Let’s dissect the Arionum community:


Community:

There are two primary aspects of community analysis: social media presence and Bitcointalk threads. I’ll begin with the former before moving on to the latter.

Social Media:

Concerning social media presence, there are four main platforms to examine: Twitter, Facebook, Telegram and Discord.

Arionum is present on all four platforms. To begin, let’s look at the various social metrics that I calculated from the Arionum Twitter and Facebook accounts:

Twitter Followers: 1994

Tweets: 174

Average Twitter Engagement: 2.1%

Facebook Likes: 36

Facebook Posts (30-Day): 0

Average Facebook Engagement: N/A

As usual, I will be using RivalIQ‘s social benchmark report for evaluation purposes.

Firstly, I’d like to point out that despite Arionum having a Facebook page, it seems to be out of use, with no posts showing since April. This isn’t great, as it suggests that the team thought Facebook important enough to create a page but not important enough to spend the time it takes to maintain it.

That being said, Arionum does seem to have some solid engagement on Twitter. It has quite a small audience of just under 2,000 followers (relative to Bismuth’s ~7k followers) and the team are relatively inactive with less tweets than any other project I’ve written a report on besides Dero. But, their Average Twitter Engagement rate is 2.1%, which is stronger than all except Dero, funnily enough. The engagement level is roughly 3x that of Bismuth.

Further, using the RivalIQ report, we can see that Arionum has 45.65x more engagement than the average across all industries, and over 161x greater engagement than the Media industry. The engagement is certainly promising, but the audience is small.

Now, moving onto Discord, Arionum has 3023 members in its group, which is slightly larger than Bismuth’s group. 53 new members joined in the past week, which equates to 1.75% weekly growth. There are plenty of channels available under relevant subsections for all manner of topics, which I like to see as it ensures accessibility for newer users. Further, there is an FAQ channel with all resources clearly linked.

With regards to the content of the group, Announcements seems to be updated more regularly this month than previously, with an update every two or three days in December but only one update in November. Development is fairly active with some discussion taking place on a daily basis, most recently concerning a phishing incident that occured a few days ago and led to some users of the web wallet and Android wallet losing their funds. Suggestions is currently on the topic of Ledger integration for Arionum, which would be great to see. I found very little of interest in Marketing, which may explain the smaller audience across platforms for the project. There is a lot of action occuring in the OTC channels; this makes sense given that there is only one listed exchange.

As usual, General is the most popular channel, with near-constant conversation taking place. Of late, this revolves around the phishing incident, understandably. There is a little talk on the need for new exchange listings; a listing on Cryptopia is confirmed. Much of the back-and-forth is currently about convenience versus security, and many feel as though the team’s decision to disable the affected wallets is a step backwards for the project as it dramatically reduces the potential userbase to only those with some degree of technical proficiency, given the PHP codebase. I’m inclined to agree, though there is a GUI Lightwallet available for Windows users. There is also some degree of backlash arising around communication and the team not using the community to its full capacity to assist with the project. The positive here is that the community certainly seems willing and engaged. Finally, there is some talk about a cross-platform wallet currently in development for Mac, Windows, Linux, iOS and Android, which sounds promising. Overall, the group is highly active but, at present, in minor crisis.

Unlike its engaged Discord group and Twitter account, Arionum’s Telegram group follows the footsteps of its Facebook page, with 392 members but only a handful of daily messages. In general, the Telegram doesn’t seem to be used for much besides the odd support query. Strangely enough, this is exactly what I found to be the case with Bismuth – a strong Discord and a neglected Telegram.

BitcoinTalk:

The Arionum BitcoinTalk thread was created on January 8th, 2018, and has since generated 2175 posts spanning 109 pages in 339 days, giving an average of 6.4 posts per day. However, in the past 90 days, the thread has had 183 posts via ~40 individual posters, giving an average of a little over 2 posts per day, suggesting that activity has died down of late. That being said, 183 posts in the past 3 months is still more activity than most of the coins I’ve previously reported on.

That concludes the section on Community. Onto Development:


Development:

For the following Development analysis, I will be evaluating project leadership, the website, the roadmap, the whitepaper, the wallets and finally providing a general overview:

Project Leadership:

There is no clear information on the team displayed on the website, and there are 4 contributors to the Github. An FAQ on the forum shows that there are 3 core developers, with 27 years of programming experience between them, specialising in PHP and Linux. There is very little expertise in marketing and none in project management. I would like to see this balanced out a little; perhaps adding a marketing specialist or an operations manager would assist in growing the userbase.

Website:

The website is fairly well designed and branded, and it is informative for new users, with a thorough overview of the project displayed and relevant resources linked. There is also a dedicated forum, which is a plus. That being said, it looks a little amateurish relative to the websites of other cryptocurrencies (a problem I also found with Bismuth’s website). Further, there is no clear link to the Arionum wallets. In general, I’d like to see a redesign for the website and a regularly updated blog.

The block explorer, in contrast, is fantastic. It is highly functional with a plethora of useful features and a visually appealing interface. More of this, please.

Roadmap:

There is no roadmap to be found on the website or the BitcoinTalk thread, which is highly disappointing.

Update: I missed that there is a text-based roadmap in the BitcoinTalk announcement. Everything besides the payment processor and the assets system has been achieved.

Whitepaper:

https://www.arionum.com/wp.pdf

The Arionum whitepaper is more like a lightpaper, as it is only 2 pages in length. I know I like my whitepapers concise rather than lengthy but this might be a little too brief. The whitepaper is in need of proof-reading and makes little mention of the future direction of the project; of its goals and aims;  or of its unique features. Its redeeming quality is that it does talk briefly about Arionum’s advantages over Bitcoin, with regards to dynamic block sizes, fixed fees and a CPU-optimised hashing algorithm. It also mentions that Arionum will be developing a graphical interface for asset creation, in an attempt to alleviate the problems faced by non-technical users in creating their own digital assets and currencies. There needs to be much more detail on such an interesting aspect of development such as this.

Overall: again, rather disappointing. It seems as though the resources and platforms that are most useful in growing a userbase (social media, roadmap + whitepaper) are neglected by the Arionum team.

Wallets:

With regards to wallets, there is a CLI for Windows, Mac and Linux, as well as a GUI Lightwallet for Windows and Mac, a web wallet and an Android wallet. The latter two are currently disabled due to the phishing incident.

General:

Generally, it is quite difficult to judge the development progress of the project without a corresponding roadmap or a detailed whitepaper. Obviously, the stand-out achievement is writing the blockchain from scratch in PHP; a first for any cryptocurrency. But, since this point, there doesn’t seem to have been any stand-out development achievements, and, if there are, they’re well-hidden.

Looking forward, the graphical interface for asset creation piques my interest but, again, there must be more detail available for those that come across Arionum in order to grab their attention and grow the coin’s userbase.


Technical

Despite having only four months of available price-history, the Arionum chart exhibits two short-term market cycles. Price initially formed a local high at ~700 satoshis before dropping off to form its all-time low at 77 satoshis, completing its first mini market cycle. Price then formed a short-term accumulation range between 180 and 230 satoshis before breaking out, climbing above the pivot are around 330 satoshis, all the way to new all-time highs at 735 satoshis. We have since seen a similar drop-off to that of the first cycle, though this time price has formed a higher-low around 230 satoshis – the breakout level from the previous accumulation range. Minor levels of prior resistance continue become new support levels as ARO/BTC has climbed for the past couple of weeks, with price now sitting within that pivot area.

A swing trade could possibly be available here, with ~30% of downside if a soft stop is placed at that local swing-low ~230 satoshis. There is ~120% of upside potential to the all-time high, giving a reward-to-risk of 4:1. However, for those looking for more of a long-term position, buying below this pivot area has generally been rewarded and volume has continued to steadily rise for the past few months. Inflation is naturally a worry, but the trade volume is certainly sufficient to sustain current prices.


Conclusion

This report is now approaching 4,000 words, and it is time to draw it to a close.

My final grading for Arionum is 6 out of 10. It is quite clear that there is promise here, not only with regards to the project being written from scratch and being the first of its kind, but also in the engagement shown on Twitter and in the Discord group, as well as the strength shown in many of the metrics. But there is a lot to be improved on.

Lastly, here is a link to a Google Sheets file with any significant data from previous reports compiled for cross-comparative purposes. I will keep this updated as I continue to write these reports.

I hope this report has proved insightful and that you’ve enjoyed the read! Please do feel free to leave any questions in the Comments, and I’ll answer them as best I can.


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