Crypto Assets Diversification - Crypto Academy / S4W4 - Homework Post for @fredquantum

in hive-108451 •  3 years ago  (edited)


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It is a great honour to me to take part in this great lecture by Prof @fredquantum. I must say it is a great lectures for me.


Question 1

Crypto Assets Diversification


Crypto asset diversification is simply a strategy by crypto investors to disperse their funds or invest funds in several crypto assets.

Anyone who is willing to invest in the crypto must always understand that it is a risky investment and also a rewarding investment scheme.

Since as an investor, I cannot really predict which of the cryptocurrency will rally or surge in a few weeks, a few month or a few years to come, it is ideal to spread the invested capital to several crypto assets which I feel has a good prospect after I might have carefully undergone a good technical and fundamental analysis of the crypto assets

Therefore crypto asset diversification will help the investor to not be in a complete loss should incase one of the invested project fails.

Crypto asset diversification is therefore a great way of managing investment risks in the crypto space.

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Question 2

Benefits/effects of Crypto Asset Diversification


Risk Control: The ideal benefit of crypto asset diversification is to put the risk involved in the investment under a good managerial control. This simply means that the risk of losing everything in the investment will be reduced as some of the assets might likely bring good returns on investment while some might be in a loss.

Protection From Overall Loss: Investing every bit of capital in one project is very risky to some extent. But the idea of diversification will protect the investor from the short falls of some of the invested crypto assets.

Profit maximization: Crypto asset diversification positions a trader on a great profit if a higher percentage of the invested assets performs very well. Ofcourse every investor is supposed to always have a positive mindset before embarking on any investment.

Effect

Time Demanding: One of the effect of asset diversification is that it is very time demanding in that the investor needs to first invest his or her time to ascertain the health of assets to invest in as different asset research demands quality time for each.

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Question 3

4 Crypto Assets Diversification according to the 1 - 4 Rule and my Reasons of Choosing Them


I am of the strong opinion that cryptocurrency investment should be a long term investment. This means that I am a long term investor and I love to HODL my assets and I could HODL it for a period of 1 year or more and not get tired.


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My verified Binance


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My reservoir on Binance

The four assets I would love to build my portfolio in are Bitcoin, Ethereum, SOL and Hive and I will be distributing $60 across each of them.


Bitcoin

Bitcoin is known to be the first cryptocurrency that had ever existed. Its growth over the past years has really wowed a great number of persons and that has made so many persons troop into investing in the coin.


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Coinmarketcap.com

As of today, Bitcoin still records the highest number of persons trading the coin and that is what makes the coin to be ranked as the first in the coin market.


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Tradingview

Studying the health of the coin over the past months, Bitcoin has been tackling the $45,000 resistance level which it successfully broke the level in the month of August but retested back to $43k last month.

As of this month, Bitcoin made a great move, breaking the $45k resistance and it is expected to hit $63k before the end of October, and $135k by the end of December.


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Binance

Since I am HODLing the coin and I intend to keep it for some time, reason why I did not use stop loss.

Ethereum


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Tradingview

Ethereum is ranked the second in the coin market. The past few days has been a great one for Ethereum as there has been an aggressive buying of the coin. And of course more buyers means higher surge in price.


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Coinmarketcap

Ethereum is currently trading at $$3,285.38 with a market cap. of $386,886,238,780 and a trading volume of $20,759,164,234.
This coin has a great prospect and there soon will be a great bull comeback for Ethereum.


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Binance

I placed a buy order.

Solana


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Tradingview

Solana is one of the fastest growing blockchain. The SOL token has had so much investors trooping into the network as a result of the good performance of the token over the past few days.


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Coinmarketcap

SOL token is currently trading at $158.66 with a market cap. of $14,255,697,559.64 and a trading volume of $4,325,875,467.07.

Investing in SOL now won't be a bad decision to make.


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Binance

My buy order is placed

Hive

Hive is the native token of the Hive blockchain. 28 days ago, hive made a great move, reaching its all time high of $1.06


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Coingecko

As at the time of making this post, hive was seen trading at a price of $0.62 with a market cap of $222,930,810 and a trading volume of $4,281,570.


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Tradingview

Hive is one of the token with a good prospect for me and investing in it now is not a bad decision at all.


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Binance

My buy order is placed


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Binance

In all these tokens I have invested in, my intention is to HODL them and they are a long term investment, that is why I did not use my stop loss.

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Question 4

Arbitrage Trading in Cryptocurrency and its benefits


Arbitrage trading is simply the process of buying an asset low in a particular market and selling the asset at a higher price or selling the asset at a price slightly higher than the amount that asset was bought in another market.

This trading strategy perfectly works when it is done very quickly and it must be done strategically. This trading strategy is possible because there are some liquidity variance or liquidity difference in every exchange. This is means that each exchange has a number of persons buying and selling a particular crypto asset and this process of buying and selling determines the current price of that crypto asset in that exchange. That is why in most cases, the price of an asset in particular exchange is a bit higher than the price of that same crypto in another exchange.

This is a low risk trading strategy of taking advantage of market variance of the price of an asset. It is less riskier than day trading or swing trading because day trading and swing trading makes use potential price action to determine the profit of traders but Arbitrage trading makes use of current price valuations.

A simple example is buying BTC from Coinbase at $100 and selling the BTC on Binance for $103. It means I have now made $3 profit just for being a middle man or an Arbiter .

Benefits of Arbitrage Trading.

  • Arbitrage trading offers a minimized level of risk during trading. This means that there is lesser risk involved in the trading.

  • It is a quick-profit kind of trading which a trader makes his or her profit in just few minutes without having to wait for too long.

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Question 5

How to Take Advantage of Exchange Arbitrage


For this question, I will be comparing the current price of same asset on different exchanges. So in this case, I will be comparing the price of TRX on Binance and the price of TRX on Poloniex.


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Binance


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Poloniex

From the screenshots above, TRX was trading at the rate of $0.0932 on Huobi and the rate of $0.0933 on Binance. To take advantage of this market variance, I could quickly purchase the TRX at the price of $0.0932 on Poloniex and then sell it at the price of $0.0933 on Binance. Though in this case, the profit is so little so in real trade, i will have to look out for a potential market variance.

This swift trade would earn me a little profit of which if I strategically do this for some more times in a day, my profit would accumulate.

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Question 6

Triangular Arbitrage in Cryptocurrency. How to Identify Triangular Arbitrage Opportunities and the Risks Involved.


This trading strategy, also known as three point arbitrage or cross currency arbitrage is the type of trading strategy where a trader makes profit from the variance between three assets. This is done by trading a particular asset lets say asset X for asset Y, then trading asset Y for asset Z and finally trading asset Z back to asset X. This cross currency trading has to be done very quick when the market price of a particular asset is undervalued and the other is overvalued.

How to Identify Triangular Arbitrage.

The idea of trading with the triangular arbitrage is to make profit and the equation below could be of employed.

Let Q1, Q2, and Q3 represent the assets to be traded.

Q1/Q2 x Q2/Q3 x Q3/Q1 = 1

Since the aim of a trader is to make ideal profits, it is therefore pertinent to achieve profit that is atleast 1 tenth of the actual capital.


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Designed with PicsArt

Below is a practical example where I performed a real triangular arbitrage trade using Steem, BTC and ETH.


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screenshot from Binance

I first started with a capital of 182 Steem and sold it for the purchase of 0.00188006 BTC at the rate of $0.00001033


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screenshot from Binance

I then used the purchased 0.00188006 BTC to buy 0.001876 ETH at the rate of $0.069249


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screenshot from Binance

And then I used the purchased ETH to get back to my base which is Steem and i purchased 183 steem at the rate of $0.0001483.
I ended up earning an extra 1 steem after the transaction fees had been deducted.

Risks Involved in Arbitrage Trading

  • In some currency pairs, the transaction fees charged by the exchange rate could sip the little profit generated.

  • If the trade is not timely executed, the trader could be in a loss.

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Conclusion

Cryptocurrency investment is one of the most rewarding but yet risky form of investment anyone could think of. That is why it is of great importance to have a good knowledge of risk management to maximize profit and minimize risk and this lecture offered by distinguish Prof. @fredquantum is a great one for crypto investors like myself.

Thank you.

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Dear @davosimple. Thanks for attending the Steemit Crypto Academy Season 4 Week 4. Let's take a look at the breakdown of your performance below.

Grading Basis Score
Content Structure 2/2
Originality 2/2
Clarity of Language 2/2
Compliance with the Topic 2/2
Quality of Analysis 1/2
Total 9/10

Feedback/Suggestions

  • Great work by you on this.

  • Great work on your investments but you haven't given enough on their analysis.

  • Your analysis on triangular arbitrage is quite good but more creativity would have made it stand out.

  • Overall, you performed well. Thank you.

Total| 9/10

Thanks so much distinguished Prof. Your class expanded my knowledge horizon about investment. I will give my best in the next class

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