Crypto Asset Diversification - SteemitCryptoAcademy S4W4- Homework post [@fredquantum]

This is my submission for the Assignment assigned by Professor @fredquantum. The session was about a very famous investment technique Crypto Asset Diversification (CAD)

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1. Explain Crypto Assets Diversification.

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Crypto Asset Diversification is a very famous technique for Investment and it is considered the best way to divide your investment into multiple things. In simple words, if you have $100 to invest then it is not advisable to invest all the money in a single asset rather than this we should invest in multiple assets. So what will happen if you invest all your money in a single asset and due to some reasons (Crash, Fud News) if that asset goes down by 50% or even more so you may be rekt at that time.

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The way best way to keep your investment secure is to divide it into multiple parts for example if you have $100 to invest and in your watch, you have 5 coins then invest 20% in each coin equally in this way suppose if only 3 coins go in your direction and rest hits Stop loss however in this case you will be overall in profit. Being an Investor our first motto is to lose small when you are wrong and win big when you are right so that you can be profitable in the end. This is very very important in Crypto because we may see such a crash where the Price is down by 40-60% is not a big deal, I still remember this happened to me one-time last year, my all investment was in ETH only and the entire market crashed by almost 40% from that time I always prefer to diversify my investment into multiple coins.

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Points to be taken care of before making Investment-

Fundamental Analysis:- This became a very important aspect when it comes to investment investing in strong projects will help you to hold it for the longest time even if the market is not going in our favor. Fundamental Analysis involves the study related to the Project's Team, Total Supply, Current Value, Vision & Use Cases.

Technical Analysis:- Technical Analysis is another important aspect that will help us to get the perfect entry in any asset and it involves the study of the charts on the basis of Historical data.

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Fundamental Analysis tells us in which asset we should invest where Technical Analysis tells us when to Invest.

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Strategy for CAD Investment: - SIP (Systematic Investment Plan)

Now we understood we should always diversify our investment in multiple assets, I would like to talk about a very popular Strategy named SIP (Systematic Investment Plan) and I believe this is the best investment strategy for long-term investors.

I would like to mix 1 to ka 4 Strategy with SIP to make it more powerful and maximize the gain. In the SIP what we do first we will shortlist the top 4 coins after the Technical and Fundamental Analysis and buy them on every dip. Basically, this applies when you want to invest some money on the monthly basis for the long-term investment however here we will take only two entities.

Let's suppose there is a Person A who has a $1000 budget to invest and he shortlisted 4 coins as follows- DOT, SOL, BAKE, AVA and here is other details-

DOT- Current Price= 28.00
SOL- Current Price= 138
BAKE- Current Price= 1.746
AVA- Current Price= 2.709

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*All prices are in USDT pair *

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What we can do here as we are expecting BTC may go further down so what we can do is to take 50% entry right on the current price and can save the rest 50% amount for the good averaging. In this case, what will happen is we can get accumulate on the lower prices also we will not have regret that we have missed the opportunity to buy the asset.

Person A will buy all 4 coins worth $500 each $100 on the current price and the rest will save for the second entry. The second entry should be in any logical place like any major support zone. Here is the next major support of the above coins-

DOT- Current Price= 25-26
SOL- Current Price= 122-128
BAKE- Current Price= 1.12-1.50
AVA- Current Price= 2.20-2.40

These all the projects above mentions are very good fundamentally and can give a massive gain in the future. Applying a SIP strategy to such projects can be a fortune changer for an investor.

Note: I personally use this technique to get into an asset (at least 2 entries) and if you are a long-term investor and believe the market then you can go all in one time.

2. What are the Benefits/effects of Diversifying one's assets?

Everything has some good points as well well negative points so in this section I will be discussing the benefits of CAD first then I will tell you one small drawback which is not a drawback actually. CAD will help us to be in overall profit in long term rather than multiplying your Captial by 1x or 2x or sudden down by 50-60%. lol... The growth from CAD strategy is slow but steady.

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Reduce Risk:- This is the best part of CAD strategy as we are dividing our investment into multiple currencies after studying them very well and it happens some coins hit the target early and the rest takes time so we are in profit. Suppose we have $100 and invested into 4 coins equally amount in which 2 coins performs well and rest 2 hits stop loss or 1 coin is down by 50% however our entire portfolio will not be in too much loss because our rest coins are doing great. If we invest $100 in a single coin and if it dropped by 50% then we will be rekt where if we diversify then our loss would be 10-20% max.

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Reduce ROI:- As we are diversifying our investment into multiple coins so it may happen that one of them give 100% return and that time we will think I should have invested my all money in this coin to multiply my Capital, however, in the long run, this is not a good idea and what if it crashed. In this situation if only 1 coin performs to 100% and the rest are at breakeven even then our capital gain would be 25% rather than 100% (in the case of 1 coin all in.).

3. Construct Crypto Assets Diversification according to the 1 - 4 Rule - Choose 4 crypto-assets (State the reasons for choosing them), discuss each of the assets, and perform a detailed fundamental/technical analysis on them. Invest a part of at least 15 USD into each of the assets based on the diversification constructed earlier, proper stop loss and take profit levels must be put into place. A real trade on a centralized exchange is expected here. (Graphics/Screenshots/Charts are required). Note that: You are expected to show your verified account screenshot, your reservoir, and the steps involved while investing (For example, if you are investing a part of 15 USD at a time, then, the reservoir must have been 60 USD clearly shown, you can use Fiat or Stablecoin for construction).

I would like to use my KuCoin wallet to implement the 1-4 Rule in practical investment. I have transferred $60 in the wallet that I will be investing in DOT, HYVE, SOL, AVA. I will be taking the entries on the Market Price and Stoploss on the Daily Closing basis.

1. DOT- https://polkadot.network/

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Fudamental Analysis: Polka Dot is one of my favorite Cryptocurrencies for long-term investment, It is founded by the Ethereum Co-founder Gavin Wood. It uses the same code as Ehereum to create the ecosystem however it focuses on two major problems in the Ethereum blockchain High Gas fees, Slow transaction along with this it also focuses on the Parachain concept that will help to provide ore scalable ecosystem for the Dapps. There is nothing wrong if we say Dot is Ethereum Killer and in the long run, I can easily see Dot more than $400. It launched at $2.00 in the year 2020 and made a high of $50.00 in the last bull cycle.

Technical Analyis:
IN the technical part you can see currently DOT is sitting at its demand zone also creating a Triangle and if it gets broken it can easily give the target the high of the triangle or even we can see a new high.

Let's Place Order for this -

Entry Price: 28.281
Stop-loss: Daily Closing below 23.00
Target: 39 in Short term and 200+ in long term

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2. HYVE- https://hyve.works/

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Fudamental Analysis: HYVE is a KuCoin gem and also a very good project for long-term investment as it focuses on Solving the current problems available in our Freelancing world websites like UpWork, Freelancers.com, PeoplePerHour etc. It eliminates High commission fees, Data Leaks, Slow Settlement, One PayPal payment, Low Reach, Lack of Trust . The team is also good and I believe this can give a massive gain in the future. Also, I have personally invested in this project.

Technical Analyis:
From the technical point of view, it is at the major demand zone and also creating a triangle which can easily give 255 gain in the short and in the long term we can expect a new high at least. We are getting a very good Risk Reward too.

Let's Place Order for this-

Entry Price: 0.3294
Stop-loss: Daily closing below 0.29
Target: 0.49 in short term and $1 in long term

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3. SOL-https://solana.com/

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Fudamental Analysis: This is the most trending coin nowadays as we have seen Whales were pumping. This is one of the Very good projects in the Crypto Space. Solana was founded by Anatoly Yakovenko which aims to provide developers a platform where they can develop Apps in Fast & Low Cost and the best part of Solana is it has the Fastest Transaction Speed. The team is super active here and actively working to bring more and more uses of this Blockchain. In the long run, we can expect a good gain from this Coin and I believe this is the right time to accumulate this coin.

• Solana is all about speed, with 400 millisecond block times. And as hardware gets faster, so does the network.
  source

Technical Analysis:
From the technical Point of view, this looks very good and currently bouncing from its major support zone which is 122-128. Also, it is making a very good triangle pattern which can easily give a target of 20-30% in short term and even 100-200% in the long run as initially it was listed at $25 and made almost 10X in just 2 Months.

Let's Place Order for this-

Entry Price: 136.91
Stop-loss: Daily closing below 100.00
Target: 200 in Short term and new all time high in long term

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4. AVA-https://www.travala.com/

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Fudamental Analysis: Travella is the project that allows us to book Flights, Hotels & Activities with the help of their native Token AVA and this is really a great thing for the Crypto Adoption to travel the world without having Cash or little cash. I love the idea of this project and also it is backed by Binance which makes it even more strong fundamentally. As soon as Covid thing will finish the Travel will surely gonna boom and I believe this project can give us massive gain the long term.

Technical Analysis: The Technical part of AVA is not that impressive however we can see there could be two very bullish patterns if things go right Inverse Head & Shoulder or Cup & handle pattern. Also, it is sitting on the demand zone and can be a massive gain in the next bull cycle.

Let's Place Order for this-

Entry Price: 2.6962
Stop-loss: Daily closing below 1.38
Target: 5.5 in Mid term and new All time high in long term

4. Explain Arbitrage Trading in Cryptocurrency and its benefits.

Arbitrage is a concept where we take advantage of the price differences in various exchanges and it is unrated in Crypto trading especially however I think if anyone having good capital, can identify the opportunity and earn good money. it can be also a source of passive income because the different prices will be there on various exchanges.

In Simple words, Arbitrage Trading is the process of buying any asset at a cheaper price from one exchange and selling on the other exchange at a higher price.

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Benefits-

a)Easy to trade: Arbitrage trading is very easy to do as it requires just monitor the price differences between the asset on different exchanges. We need to Buy from exchange A, transfer it to Exchange B and Sell it, after excluding the Transaction fee whatever gain we will get from the difference would be our profit.

b)Low Risk: It is low-risk Trading because you don't need to keep looking at the chart and small fluctuation won't impact you too much and even you hold the coin in your spot wallet if you think it can go a bit higher.

c)No Technical & Fundamental Analysis requires: It doesn't require any Technical or Fundamental Analysis, we can simply play with the price and can take advantage of the price difference. We don't need to spend hours to analyze the chart then wait for the perfect entry, Stoploss, and Exit.

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Drawbacks-

a)Liquidity: This problem occurs on small exchanges where you can see a big difference between the Buy/Sell orders so it is always advisable to check the liquidity before transferring the amount on the exchange. You ay stuck with your funds on the exchange.

b)Captial Requirement: To generate a passive income we require good Capital so that after paying the transaction fees we can get some good money in our hands.

5. Discuss with illustration how to take advantage of Exchange Arbitrage.

As we know Arbitrage Trading is the process of buying any asset from one exchange at a lower price and selling it higher on the other exchange. This is the pictorial representation of Arbitrage trading-

source

Here I got the opportunity in ADA/USDT pair.

Let me explain the complete process of how I am going to make a profit here-

Step:1- I will be buying 100 ADA worth of $206(2.06 * 100=206) from Biannce.
Step:2- Transfer it to Bithumb and let's suppose the Transaction fee would be 1 ADA.
Step:3- I will Sell 100 ADA at the Rate of 2.12 that will give me total worth =(2.12 * 100= 212.

I will make a $12 profit from this trade excluding Transaction Cost & Trading Fee and even if I will add these charges however I can easily get $8-10.00 from this trade. This is how an Arbitrage trader takes advantage of the price difference and earns passive income.

6. Creatively discuss Triangular Arbitrage in Cryptocurrency. How to identify Triangular Arbitrage opportunities and the risks involved.

This is another great option for Crypto traders and in this Arbitrage trading, we don't need to transfer any funds to other exchanges. In Triangular Arbitrage Trading, we identify the Price difference between pairs, and in this kind of trading, we need to make 3 trades total in different pairs.

Step:1- I will be buying 100 ADA worth of $206(2.06 * 100=206) from Biannce.
Step:2- Transfer it to Bithumb and let's suppose the Transaction fee would be 1 ADA.
Step:3- I will Sell 100 ADA at the Rate of 2.12 that will give me total worth =(2.12 * 100= 212.

Let me show you in practical trading how it works-
I found the opportunity in BTC/USDT, EUR/USDT, BTC/EUR. Let's suppose I have 1 BTC that I will be using for Triangular Arbitrate Trade.

In the above pictures, you can see the price of BTC in USDT pair is 41281 and 35669 in EURO pair. this is where we will play with the pairs.

Trade: 1-(BTC/USDT) Here for selling 1 BTC I will get 41281 USDT.
Trade: 2-(EUR/USDT) now I will buy EUR worth of 41281. As per the current price I will get 41281/1.157= 35,679 EUR.
Trade:3- (BTC/EUR) I will buy 1 BTC back as per the current price it will worth only 35,669 EUR.

In this process of Triangular Arbitrage trading, I making a profit of around 10.00 EUR.

Risk Involved:

It has a little bit of risk with the price function and any sudden momentum may lead to failure of our calculation.

Conclusion

CAD is a very useful and powerful technique when it comes to investment even I personally use this technique for Swing Trades. Whatever trade I have shared today in the assignment is my personal trades as I am building my position in strong coins for the next Bull cycle. Arbitrage is another great technique to make money especially for those who don't want to mess with Technical Analysis. The session presented by Professor was really amazing and I enjoyed doing the assignment.

If you have any query then feel free to discuss with me in comment.

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Don't get Stressed, Stay Blessed.