CCE Cryptocurrency Trading & Investment 5 — Questions and Answers
Question 1: What is 'wash trading' in cryptocurrency markets?
- Converting crypto to fiat to avoid taxes
- Simultaneously buying and selling to artificially inflate volume (Correct answer)
- Moving assets between wallets to obscure transaction history
- Trading with borrowed capital on margin
Correct answer: Simultaneously buying and selling to artificially inflate volume
Wash trading involves a party simultaneously buying and selling the same asset to create the illusion of high volume and market activity, which is manipulative and illegal in regulated markets.
Question 2: Which Fibonacci retracement level is most widely watched as a key support/resistance zone?
- 23.6%
- 50.0%
- 61.8% (Correct answer)
- 78.6%
Correct answer: 61.8%
The 61.8% retracement level, derived from the golden ratio, is considered the most significant Fibonacci level and often acts as strong support during pullbacks in uptrends.
Question 3: What risk does 'concentration risk' describe in a crypto portfolio?
- Risk from holding too many different altcoins
- Risk from over-allocating to a single asset or correlated group (Correct answer)
- Risk from keeping funds on a centralized exchange
- Risk from using high leverage on a single trade
Correct answer: Risk from over-allocating to a single asset or correlated group
Concentration risk arises when a portfolio is heavily weighted in one asset or a group of highly correlated assets, making it vulnerable to a single adverse event.
Question 4: In a bull market, what is 'profit taking' and how can it affect price?
- Buying more assets to capture upside momentum
- Selling appreciated holdings to realize gains, creating downward price pressure (Correct answer)
- Borrowing against crypto to invest in new assets
- Setting buy orders below the current market price
Correct answer: Selling appreciated holdings to realize gains, creating downward price pressure
Profit taking is when investors sell rising assets to realize gains; widespread profit taking creates sell-side pressure that can cause temporary price pullbacks even in uptrends.
Question 5: What does 'liquidity' refer to in the context of a cryptocurrency exchange order book?
- The total market capitalization of all listed assets
- The ease with which an asset can be bought or sold without significantly moving its price (Correct answer)
- The percentage of circulating supply available for trading
- The speed at which transactions are confirmed on-chain
Correct answer: The ease with which an asset can be bought or sold without significantly moving its price
Liquidity describes how quickly and efficiently an asset can be traded; a deep order book with tight bid-ask spreads indicates high liquidity and minimal price impact per trade.
Question 6: Which tax treatment applies to cryptocurrency held for more than one year in the United States?
- Ordinary income tax rates
- Long-term capital gains tax rates (Correct answer)
- Self-employment tax rates
- Gift tax exclusion rules
Correct answer: Long-term capital gains tax rates
In the US, crypto assets held longer than one year before sale qualify for long-term capital gains tax rates (0%, 15%, or 20%), which are lower than ordinary income rates.
Question 7: What is 'market capitalization dominance' (e.g., BTC dominance) used to assess?
- Bitcoin's transaction fee share of total network revenue
- Bitcoin's market cap as a percentage of total crypto market cap (Correct answer)
- The number of wallets holding Bitcoin versus altcoins
- Bitcoin's mining hashrate compared to all proof-of-work chains
Correct answer: Bitcoin's market cap as a percentage of total crypto market cap
BTC dominance measures Bitcoin's share of the total cryptocurrency market capitalization; rising dominance often signals risk-off rotation into BTC, while falling dominance may indicate altcoin season.
CCE Cryptocurrency Trading & Investment 5
What is 'wash trading' in cryptocurrency markets?