Crypto Academy / Season 3 / Week 3- Homework Post for Professor @allbert - Topic: DCA to create a Portfolio.
Philosophically, there is actually nothing like a "come back" in a cryptocurrency investment, after a trader has incurred loss. Assuming on future investments he is able to make enough profit that will cover up the loss he incurred in his first investment, we can't actually say he didn't lose anything. This is because, if he had made profit in the first investment, the second investment would have made him more richer instead of bringing him to just a break-even point.
Looking at the whole idea of "crypto-investing" in this light, it's very important that the trader pays so much attention to carry out a fundamental analysis about the currencies he chooses to make up his portfolio before he invests in them so as to reduce loss as much as possible. He also needs to have a trading strategy that will help reduce his loss as much as possible.
In today's lecture, professor @allbert while teaching on the topic "DCA to create a Portfolio" has explained to us factors to consider when creating our investment portfolio and how to use the DCA investment strategy, below is my response to the assignment he gave after the class.
Question 1: SELECT TWO CRYPTO, PERFORM FUNDAMENTAL ANALYSIS, AND BASED ON YOUR FUNDAMENTAL ANALYSIS EXPLAIN WHY YOU CHOSE THEM. EXCLUDE BTC, ETH, RUNE. DEVELOP AND JUSTIFY YOUR ANSWER. BE ORIGINAL.
There are basically three types of analysis a trader carries out before investing on a crypto asset. They are: technical, fundamental and sentimental analysis. Unlike technical analysis, Fundamental analysis doesn't involve the use of candlesticks and charts, rather it is based on the believe that the price of an asset is influenced by economic factors like the white paper of the project, government policy, new company deals, events e.t.c.
To answer the question above, I will be carrying out a fundamental analysis on Cardano and Tron, and using the analysis I will show why I believe it's worth investing on them.
Tron is a cryptocurrency which runs on the Tron blockchain ecosystem. The Tron blockchain was founded by a non-profit organization headed by Justin Sun, named the "TRON Foundation" in the year 2017. The cryptocurrency Tron (TRX) is currently ranked 25th by the Coinmarketcap.
First, we must understand that what's gives credibility to any currency is it's acceptability. The greater the level of acceptance, the higher the currency grows in value. Based on wise planning and probably calculated goals, the founders of the TRON blockchain have set up several products and services traded in the Tron Ecosystem, all of which accepts Tron (TRX) as their native currencies. These projects further increased the value of Tron(TRX).
Some of the actions a user can perform in the blockchain includes creating of DApps, receiving and transferring TRX on their customized TRON wallets and lots more. Also, the user gets to participate in the votes carried out in the blockhain. Considering this, we can see that the system is actually decentralized, and the fact it allows the user to create DApps at will, it gives room for both creativity and growth.
Considering the security aspect of the blockchain backing TRX, it has been consistent and accurate since the beginning. I believe that this accuracy must be due to the fact that the storage data is not secured by an independent third party.
Based on these attributes of the TRON blockchain, it's not surprising that TRX has grown exponentially within a short while. As of the time of this post it's worth $0.05738, and it has a market capitalization of $4,123,344,408.20, and a trading volume of $589,752,995.95 in the last 24 hours.
Also, based on estimation it is believed that the number of TRON registered users are more than 20 million. I believe this high-user number is due to the fact that the operational fees in the TRON blockchain is quite low when compared to that of other blockchains.
Reasons Why I chose TRON
1.The team working on the cryptocurrency:
Tron has a very strong work team. The first member of the team is Justin Sun, who is the founder of TRON. As a visionary wealthy man, who was once a representative in the Ripple board, Justin Sun has both the experience and initiative needed to take TRON to a great height.
Another member of the team worth mentioning is Kilson Young, a well know programmer who have worked for a lot of software companies in China.
A team lead by these two great men is one worth investing in, because it's definitely going to yield a profitable project.
2.Price of the currency:
Those who invested in Bitcoin during the start up of Bitcoin are the lucky ones. Currently the price of Bitcoin is about $33,000 and only very few persons can purchase 1BTC. Tron is has a sound white paper with good development team, although it's worth $0.05744 currently, it will surely be worth hundred/thousands of dollars in the nearest future, thus it's best to buy it now it's very affordable.
3.Security
The ecosystem runs on blockchain, thus it's secured. Also, every action done by both the developers and the users can be seen by all, so no one gets cheated.
4.Meeting all goals at expected dates:
Since it's introduction, Tron have always achieved their goals at the time they said they will. This consistency is a sign that the currency has come to stay and it's worth investing in.
Cardano (ADA) is another cryptocurrency that have caught my attention. They have been consistent in growth since the beginning. The cryptocurrency Cardano (ADA) runs on a proof-of-stake decentralized blockchain platform named Cardano.
One of the ways of knowing a prospective cryptocurrency is based on how consistent they have been in keeping to their road map. Cardano has a road map, which have been summarized into "five eras" called: Byron, Shelley, Goguen, Basho, and Voltaire. Each of these eras is said to be completed after a certain number of new features have been added in the block chain.
Looking back at the progress Cardano has made since it's introduction in 2015, we can see that it has been consistent in keeping to it's roadmap. Today, cardano has grown to become one of the best platforms for smart contracts in the crypto world. Infact, it several DApps are launched on this block chain. I believe this is because of the number of experts working on the project.
Looking at these attributes of the Cardano block chain, it's not surprising that ADA has grown exponentially within a short while. As of the time of this post it's worth $1.24, and it has a market capitalization of $39,749,181,113, and a trading volume of $1,561,081,163 in the last 24 hours.
Reasons Why I choose Cardano
1.The team working on cryptocurrency:
How strong or experience a team that is working on a project is, determines whether the project is going to be successful or not. Luckily, Cardano has that. The name of the person who developed cardano is Charles Hoskinson. This great developer is one of the co-founders of Erhereum, this shows how experienced he is on the matter. A project managed by someone like that it definitely going to be more prosperous in the future than it is today.
2.Security:
The Cardano ecosystem runs on blockchain, thus it's very secured. Also the system is transparent, thus every action done by both the developers and the users can be seen by all.
3.Price of the currency:
Based on research conducted by experts, its believed that Cardano is one of the cryptocurrencies that has the potential to get to the level Bitcoin is today. This sound promising, as it indicates that Cardano will definitely be worth hundreds or thousands of dollars in the nearest future, thus it's wise to invest now.
4.Meeting all goals at expected dates:
Cardano has been consistent in keeping to their road map. This is an indication that the developers are really dedicated and the currency has come to stay.
Question 2:- THROUGH YOUR VERIFIED EXCHANGE ACCOUNT (SCREENSHOT NEEDED), MAKE A REAL PURCHASE OF ONE OF THE CRYPTOCURRENCIES SELECTED IN THE FIRST ASSIGNMENT AND EXPLAIN THE PROCESS. THE MINIMUM INVESTMENT MUST BE 5USD (MANDATORY) AND MUST PRESENT SCREENSHOTS OF THE VERIFIED ACCOUNT AND THE WHOLE OPERATION
Below is a screenshot showing that my Binance account is verified.
To illustrate how I make real purchase on my binance account trading, I will be buying ADA using BUSD, using my Binance app, version 1.38.2. The steps I took in buying the cryptocurrency are described below.
Step 1:
First, I opened my Binance App after installing it on my phone. When the app opens, an interface comes up indicating that I should put in my password and email for my Binance Account.
After filling the required information, I clicked on Log in, after which the Binance home page opens up.
Step 2:
To check if I have enough money for the transaction, I clicked on "Wallet" as shown in the screenshot below,
When I did, a new page opens up revealing that I have $33.4 worth of BUSD. Since that amount can buy ADA worth more than $5 as instructed by the professor, I continued.
Step 3: (Buying Proper)
To buy ADA, I clicked on the "Trade" sign which is located below the home page as shown below
Immediately, the trading section pops up. When it did, I clicked on "spot".
Step 4:
Since I want to buy ADA using my BUSD, I will select the ADA/BUSD currency pair by clicking on the cryptocurrencies pair already on that page (in this scenario, it was TRX/BUSD).
When I clicked on the already selected pair, the search space where I can search/select the pair I wish to buy comes up.
Step 5:
After searching and selecting the cryptopair I wish to trade (ie ADA/BUSD), the spot trading interface for ADA/BUSD comes up. Since I already have BUSD and I wish to use it to buy some ADA, I will click on buy.
[Screenshot]
Step 6:
When I clicked on buy, I was asked to set the limit of the transaction. I selected "market price" because I want the transaction carried out as quick as possible.
Step 7:
After selecting the limit, I was asked to input the volume of my BUSD I wish to use in buying ADA. I chose half of my BUSD volume which amounts to $16.70.
Step 8:
Since I have selected all the required trade parameters, I clicked on "Buy ADA".
Few seconds later after I did, I saw that my transaction was successful. below is the receipt of my transaction.
Step 9:
To check if the ADA I bought have been sent to my wallet, I clicked on "wallet" just below the page.
When I did, I observed that it has been included in my wallet portfolio.
Question 3: FINALLY, MAKE A SIMULATED EXERCISE, USING THE DCA METHOD TO PERFORM THE PURCHASE OF TWO ASSETS AND PRESENT CHARTS SHOWING THE DATA OF DAYS IN WHICH THE OPERATION WAS PERFORMED, PRICE OF PURCHASES, AVERAGE PRICE, SELL POINT, PERCENTAGE OF PROFIT OR LOSS. (INCLUDE SCREENSHOTS)
DCA which stands Dollar cost averaging, is a crypto investment strategy which suggests that instead of investing all the money you wish to invest in one trade, it's better to invest divide the money evenly and invest it in several trades, so that you won't lose everything incase one transaction goes wrong.
The main ideology behind this idea is the popular axiom "do not put your egg in one basket". DCA is a very easy and straight forward strategy, thus, most newbies in crypto trading use this strategy.
I will be carrying out a simulated trade on Cardano (ADA) and TRON(TRX) using DCA strategy.
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Let's assume an investor has $100 to invest using the DCA strategy over a period of 5 weeks (from 9th of June to 14th July): Below is a detailed chart showing when he bought and sold ADA.
Note: The red arrows represents position of buying while the green arrows represent position of selling. This is further illustrated in the table below.
| Week | Cost | Purchase Price | Units (ADA) |
|---|---|---|---|
| 9th June | 20 | 1.635 | 12.247 |
| 16th June | 20 | 1.55 | 12.90 |
| 23 June | 20 | 1.25 | 16 |
| 30 June | 20 | 1.375 | 14.54 |
| 7th Jul | 20 | 1.41 | 14.18 |
Where units are gotten using the formula:
Unit = Cost/(Purchase Price)
Average Purchase Price = (Sum of purchase price)/5 = $1.4436
Total number of ADA bought using the DCA strategy= 69.867 ADA.
Assuming the trader made the purchase in one transaction on the first day (9th of June 2021). He would have only bought:
100/1.635 = 61.16 ADA.
Assuming he sold today @1.24.
Total Revenue from selling = 61.16 * 1.24 = $75.8384
Cost = $100
Percentage loss = (Cost - Selling)/Cost * 100.
= 24.166% loss.
| Week | Sell Price | Units (ADA) | Sell$ |
|---|---|---|---|
| 16th June | 1.55 | 12.247 | 18.98 |
| 23rd June | 1.25 | 12.90 | 16.125 |
| 30th June | 1.375 | 16 | 22 |
| 7th July | 1.41 | 14.54 | 20.356 |
| 14th July | 1.24 | 14.18 | 17.588 |
Where $Sells are gotten using the formula:
$Sells = Units * (Sell price).
Average Sells Price = (Sum of Sells price)/5 = $1.365
Total Revenue= $95.049
Percentage loss = (Cost - Selling)/Cost * 100.
= 4.96% loss using the DCA strategy.
Note:-
Comparing the two losses incurred, you can see that using the DCA strategy, the trader incurred only a 4.96% loss (due to the fact he is investing in a downtrend market), unlike the trade in which he invested everything and lost 24.166% of his investment.
Let's assume an investor has $100 to invest using the DCA strategy over a period of 5 weeks: Below is a detailed chart showing when he bought and sold TRX.
Note: The red arrows represents position of buying while the green arrows represent position of selling. This is further illustrated in the table below.
| Week | Cost$ | Purchase Price | Units (TRX) |
|---|---|---|---|
| 9th June | 20 | 0.0748 | 267.34 |
| 16th June | 20 | 0.07182 | 278.47 |
| 23 June | 20 | 0.0582 | 343.6 |
| 30 June | 20 | 0.0671 | 295.42 |
| 7th Jul | 20 | 0.0643 | 311.04 |
Where units are gotten using the formula
Unit = Cost/(Purchase Price)
Average Purchase Price = (Sum of purchase price)/5 = $0.067364
Total number of TRX bought using the DCA strategy= 1495.87 TRX.
Assuming the trader made the purchase in one transaction on the first day (9th of June 2021). He would have only bought:
100/0.0748 = 1336.89 TRX.
Assuming he sold today @ $0.0643.
Total Revenue from selling = 1336.89 * 0.0643 = 85.96
Cost = $100
Percentage loss = (Cost - Selling)/Cost * 100.
= 14.04% loss.
| Week | Sell Price | Units (TRX) | Sell$ |
|---|---|---|---|
| 16th June | 0.0718 | 267.34 | 19.195 |
| 23rd June | 0.0582 | 278.47 | 16.207 |
| 30th June | 0.0677 | 343.6 | 23.26 |
| 7th July | 0.0643 | 295.42 | 18.995 |
| 14th July | 0.0586 | 311.04 | 18.226 |
Where $Sells are gotten using the formula:
$Sells = Units * (Sell price).
Average Sells Price = (Sum of Sells price)/5 = $0.06412
Total Revenue from sells = $95.89
Percentage loss = (Cost - Selling)/Cost * 100.
= 4.11% loss using the DCA strategy.
Note:-
Comparing the two losses incurred, you can see that using the DCA strategy, the trader incurred only a 4.11% loss (due to the fact he is investing in a downtrend market), unlike the trade in which he invested everything in one trade and lost 14.04 % of his investment.
Assuming the trade was in the uptrend direction, I believe the trader would have made remarkable profits.
It essential that a trader carries out a fundamental analysis on a cryptocurrency before investing in it. This is because there are thousands of cryptocurrencies in the world, some of which are legit while some are just shitty coins created by dubious people. If a trader carries out a fundamental analysis before each investment, he further reduces his probability of making a loss.
In the same vein, the DCA strategy is a wonderful tool, very simple to use but yet powerful. No matter how advanced a trader becomes in crypto trading he should never forget this little strategy that always works all the time, who knows, it might save him from an unbearable loss.
Thank you so much Professor @allbert for the lesson. I truly learnt a lot sir.
Hello, @whileponderin, Thanks for participating in Steemit Crypto Academy season 3 week 3.
Thanks you Professor @allbert, for the review.