Return Of The Day Traders

Laura Shin, Forbes Staff

At the end of the 20th century, there was no better indicator that the dot-com bubble was about to burst than the millions of everyday people–dentists, lawyers and bank tellers–armed with cheap PCs and internet connections who abandoned their day jobs to trade newly born internet stocks like Excite and Books-A-Million, based on the rantings in message-board posts.

Token bubble traders have it even easier. Middlemen, regulators and tax reporting are easily avoided. Trading is 24 hours, including weekends. E-brokers have been replaced by “exchanges”–some 70 at last count–that offer “makers” and “takers” margin trading, pairs trading and derivatives, charging transaction fees that generally range from zero to 0.3%. One San Francisco exchange, Kraken, says it hired 100 customer-service people in May and June and has more hiring planned. “It’s been really crazy,” says founder Jesse Powell. “We’ve had about five times growth in terms of new signups this quarter versus last, and last quarter was already a pretty significant jump over the previous year.”

No wonder. Newly minted coins are now being crowdfunded at a rate of about 20 per month, and never before has there been an initial-offering market that has risen so fast, with such volatility.

Ethereum, which has the status of Google or Apple in the crypto-world, trades on average 5% or more of its $30 billion float each day, compared to about 0.5% for Apple. Ethereum is up fortyfold year to date, and it’s not unusual for it to move more than 10% in a day. There’s good action even in the less popular coins. Rubycoin, for example, was hatched in 2014 and purports to be an untraceable savings-account coin that pays 5% interest. Like a Pink Sheet penny stock, it recently traded only $37,000 in a day, but gained 9%.

Virtually all of the exchanges offer leverage of up to 5-to-1. So if you bought $10,000 of an ICO like supercomputer-network coin Golem, which ran up 5,000% in its first seven months, you would have $2.5 million. Not enough? Leverage of up to 100-to-1 can be found.

Take the case of Alan Aronoff, a 47-year-old San Franciscan who has dabbled in the music business most of his life, playing in bands and, at one point, owning a private nightclub. In May 2016, Aronoff put $10,000 into Bitcoin–$8,000 of which came from a special 15-month zero-rate cash advance from his credit card. After the Bitcoin exchange he was using got hacked, Aronoff defected to Kraken with $8,500 in Bitcoin and began leveraging his positions. He bought Ether at $7 per coin in December 2016, as well as Golem and Gnosis in early 2017. He began watching the BTC/USD and ETH/USD markets 16 hours a day, sleeping as little as possible and barely leaving his house so that every time his gains hit certain thresholds, he could trade. “I’m kind of OCD,” he says. Within six months, he turned his $8,500 into $7.5 million–a return of 88,000%.

Another new crypto-millionaire is Sean Ironstag, administrator of the Facebook group Advanced Crypto Asset Trading. The 37-year-old former forex trader likes to brag about his exploits: “I used to stand on rooftops and scream revolution-type shit and travel around the world,” he says, mentioning his visits to Egypt and Syria during the Arab Spring. Ironstag trades more actively than Aronoff, having scored big wins in coins like Augur’s REP, Game, Litecoin, Ripple and Dogecoin, an alternative currency based on a meme about a Shiba Inu dog. Ironstag netted 1,500% in Dogecoin and ultimately turned $15,000 into $3 million in less than two years. Thanks to a connection, he was recently invited to famed trader Michael Steinhardt’s estate in Bedford, New York, where he took the opportunity to educate a group of Wall Street titans about the future of finance. “An entire, like, sector of, like, archaic finance knows now they’re becoming irrelevant,” Ironstag says. What’s next for Ironstag? He’s launching a hedge fund and a crypto boot camp that he says will be folded into a crypto holding company he plans, modeled after Berkshire Hathaway.