Good day my steemit friends. What a wonderful feeling to be with you today, as we engage in the fourth week of this seasons crypto academy.

I will be answering the questions of homework task given by @fredquantum who thrilled on the topic Crypto Assets Diversification.

Explain Crypto Asset Diversification.

Crypto asset Diversification .may also be regarded as Investment portfolio. This is a strategy used in investment that requires spreading your investment capital into various crypto Assets rather than one. It can also be defined as the act ofploughing our funds into different assets such that it mitigates our risk in the case of non performance of one or more of the assets.

For so many that have been there for quite some time.in crypto world, they will attest to the volatility of the crypto market, and how putting all your investments in one asset, have made them lose so much money.

So this crypto Diversification is about investing in several crypto Assets known as portfolio with the same investment capital. To illustrate, assuming we have the sum of $200 to invest in the crypto market. Instead of purchasing only one coin, we will divide the $200 into five places and invest in 5 different crypto asset at the same time. That means that the sum.of $40, will be invested in each coin.
This helps to spread the risk of the investment, since not all will under-perform at the same time.

The more our crypto portfolio is diversified, the more it will be able to follow the entire market. A diversified portfolio will apart from reducing our risk, will also enhance our returns from the market than a concentrated portfolio.

In crypto diversification, we need time to study and make more research in order to invest wisely. Our diversification in this case will be across several blockchains classified according to their purpose. There are about five different blockchains or crypto currencies platforms we should think of when forming our crypto portfolio. They are

Payment Coin

These are coin majorly used as a means of payments or transfer of value. They were among the first set of coins before the introduction of smart contracts. Some of the coins in this category are

1. Bitcoin
2. Ripples
3. Litecoin
4. Bitcoin cash.

Like we know, we are already using these to make payments.

Stable coins

These are coin that peg their value to a known asset(Gold) or fiat(USD). They provide stability in its value in the crypto market, even though their returns are not much. So when we invest in these type in coins, it will help maintain its value despite dips in the market and easier to convert other coins to them since converting to fiat takes a much longer process.
Examples of these type of coins are

1. USDT
2. BUSD
3. PAXG
4. TUSD.

Security tokens

These are the types of tokes that can stand in for so many things. It can represent your share in a crypto company, it could also be a bond issued to you by a company an could even represent your voting rights. These are possible these days because some securities have been digitized and are now on blockchain.

Utility Tokens

These are tokens that acts as a gateway to a service or product. For example, Bnb is a utility token for Binance, Ether is a utility token for the ethereum blockchain, etc. They are used to pay transactions fees for the transactions done in their ecosystem. They can also be used to raise funds for the company.

Governance token

These are the type of token that if you own them, you will receive voting power on a project and even a share of the profit. Just like a utility token, its value is dependent on the success of its project.

Financial products

This is about investing in financial products that are available in various blockchains. We earn return on investments in these financial products. They may be staking. We can see many of these in Binance app.

So we can see the various crypto diversification from which we can build our portfolio, however the choice of whichever one we choose to be among our portfolio is entirely dependent on the individual after making his own research.

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

The benefits of diversifying one crypto assets are as shown below

● It reduces the overall risk and volitility of the market.

● The profits offset the losses in the market, thus keeping our position intact.

● it can open up the opportunity of making more profit from the market in the long term.

● we will be able to keep the entire market in check.

The disadvantage of crypto asset diversification are

● It requires more time to do research on coins, we want to invest in.

● When we have a large portfolio understanding everything will be difficult.

● It will demand that we open several wallets and exchanges, which may be a burden sometimes, because of seeking for ways to safeguard their different keys.

● our profitability will also reduce on a coin that we invested just a little and it did very vell, compared to when the all the investment is in that singular asset.

● There is the possibility of losing our investments when we make the wrong choices of investment portfolio.

● Finally, what I may term is a major problem is that all altcoins are related to Bitcoin. When it moves, others moves, when it falls, others falls.

Construct Crypto Asset Diversification according to the 1-4 Rule - Choose 4 crypto asset (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. An actual 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). Kindly take note

For the cryptos that I will be using to illustrate the 1-4 rule, I am choosing the following cryptos

1. COTI

2. ADA

3 SOL

1. TRON.

COTI

Coti coin is currently ranked 122 in the crypto market and currently have a market cap of $506,396,723. The circulating supply is 868,672,118 while the total supply is 2,000,000,000. It was issued on the 04-06-2019. Why do I choose this coin for invest. From a fundamental point of view,

COTI is a financial technology platform with cross-chain interoperability and is built on its own blockchain known as DAG based chain. This fintech platform have been the brain behind many payment platforms and stable coins that are already in existence and are doing considerably well.

The company provides support and functionality to companies like Paypal and Alipay, while still allowing them to design their own rules, own their own payment system, in the process saving time, data and cost.

COTI have signed various partnerships and international clients and is presently generating their own revenues. It also have a very experienced team, high level investors, top advisors and a large global community.

So looking at their achievements so far and their fundamentals, i still believe the company is currently undervalued at is current price of $0.61(as at the time of writing) and have a great upside potential.

TRON

Tron coin is currently ranked 27 in the coin cap market with a market cap of $6,149,752,698 and a circulating supply of 71,659,657,369. Tron also have a total supply of 100,850,743,811. It is an open source platform that have a high TPS,. It also enables content creators to publish, store and still be the owners of such content. The content creators are rewarded in trx coin.

The blockchain is highly scalable and have very effective smart contract. It has a very reliable network structure and a high degree of decentralization agreement that comes with a reward distribution system.

It also allows contents such as online gaming to be published with the recent development of newer forms of DAPPs. Its native coin Trx is used to pay creators for their ingame assets and as a way of rewarding them, which they can use to pay for various services across the network. It prides itself of being among the cheapest blockchain ever, in terms of transaction fees. In fact, it is the world's fastest growing public chain

At its current price of $0.08559, it is a good buy and good investment. There are high expectations for this coin in the long term, and now is the best time considering the features of its blockchain as well as the management team.

In the next 2 months, all of us we be witnesses to the rapid price movement tron will experience.

ADA

ADA coin is the native token of cardano blockchain and currently ranked no 4 in the coin market with a market cap of $68,245,790,269 and a total supply of 33.1m. The main objective of this platform is to ensure security and reliability, faster and cheaper p2p transaction and a better smart contract feature.

It boast of being highly secure because of the programming language used which reduces the risk of malware attacks, uses an innovative POS algorithm and they have a very good relationship with governments and regulatory authorities. It also have a staking system where investors can earn by storing ADA.

The project team is very good and the project have a steady and stable flow of investors. The company wants to achieve full decentralization and aims at resolving many issues experienced in the crypto world. There approach to development and continuous improvement on the project have lured the best scientists and businessmen to them.

Presently, they have launched the third phase of their project and are quickly moving over to the fourth phase. So considering these strong fundamental, ADA is still a good buy at the moment. I am even expecting the price to climb to $5 in the last phase of this bull run.

SOL

Sol is a native token of Solana blockchain. It is blockchain built to enhance scalability and provide user-friendly apps for every ones use. It has over 400 projects spanning from DEFI, NFTs and more. It offers low transaction fees for both developers and users. The blockchain is very fast, the network are open to more applications to run freely on it and transactions will never stop.

It is currently ranked 7th in the crypto world with a market cap 9f $40,310,057,607 with a total supply of 505,121,217 coins.

We have seen the current movement of the price from $53 in August 2021 to the peak of $216 dollars recently and os having a correction presently. With the strong fundamental it has, the price will get to $400.

Investing in the 4 cryptos selected.

This is my verified account.

My USDT balance of $61

Buying COTI

Setting the take profit and stop loss.

Buying ADA

Setting Take Profit and Stop loss.

Buying SOL

Setting stoploss and take profit.

Buying TRX

Setting Stoploss and Take profit

You can see the coins I invested in below.

Explain Arbitrage Trading in Cryptocurrency and its benefits.

This is the type of trading whereby a trader takes advantage of the price difference between two exchanges or market on a particular asset and the price differences of about 3 cryptocurrencies. In this situation, the trader buys a particular crypto asset at a lower rate in exchange A and sells at a higher rate of the same asset in exchange B. The difference in price of the asset between the two exchanges becomes the profit of the trader. For a trader to make the most profit in this scenario, he needs to use substantial amount of money to do that.

We have some common types of Arbitrage trading and they are:

◇ Exchange Arbitrage

◇ Triangular Arbitrage

◇ Funding Rate Arbitrage

Benefits of Arbitrage Trading

● Arbitrage trading enhances the efficiency of the crypto market.

● it also reduces the gap in the price of an asset between two exchanges.

● It adds liquidity into the market since it is done mostly by institutional investors.

● Quick profit can be realised from the market.

Disadvantages

● Execution Risk

This occurs when the gap in price closes sharply even before the transfers are made. This can be caused by slow rate of execution, sudden volatility in the market, slippage, etc.

● Liquidity risk

This occurs when a trader does not have enough liquidity to go in and out of the market. He will get stuck in the market, which might result to some losses.

Discuss with illustration how to take advantage of Exchange Arbitrage.

Exchange Arbtration is the type of arbitration that involves two exchange platforms. Let say for example Poloniex and Roqqu exchange. In Poloniex ETH/USDT is trading at for $2,900, while on Roqqu, the same pair is trading at $3,000. You can see there is a whooping $100 difference between the two exchanges. So an arbitrage trader will buy low in Poloniex at $2,900, transfer to Roqqu, and sell at $3000. We can then imagine the profit he will from this transaction if he used huge amount of money.

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

This is a type of arbitration in which 3 crypto currencies are involved in the transaction. Traders take advantage of the cross crypto price difference, such that a crypto is sold for another asset, the new asset is now traded for another crypto, and then this crypto is used to trade or buy back the first crypto asset, in the process forming a triangular loop.

The trader needs to identify and analyze the price differences of the 3 cryptocurrencies he is considering, Looking at their bid and ask price.

Then the next thing is fast execution of the process of arbitration, since the market is very competitive. This type of arbitration happens within the same exchange.

Let us say for instance, I noticed that the value between ETH and Bitcoin is less than the value both cryptos have with Dash, I would first use my Dash to buy Bitcoin using the pair Dash/Btc by selling it off, after that, I would use my BTC to buy ETH using the pair ETH/BTC, the last stage is using the ETH to buy back DASH using the pair DASH/ETH.

By the time this triangle is completed, we will see that the value we will have in Dash will be higher than what it was before arbitrage process started.

Let us assume I have 1 Million Naira, the exchange rate for NGN, USD and EURO is as shown below

● NGN600/USD

● USD 1.11/EUR

● NGN700/EUR.

I will first buy dollar with the one million Naira, this will give me $1.667.

I will now use the dollars to buy Euros, which will give me € 1,502.

Then, I will finally use the EUR to buy Naira back, which will now give me NGN 1,051, 400.

Thus I am making a profit of N 51,400 from the transaction.

Risk Involved

There are some risk involved in triangular Arbitrage.

□ Price Volatility.

There may be sudden spike in prices which will automatically cancel the opportunity seen for triangular arbitrage.

□ Transaction fees

High transaction fees may end up taking the profits made from the transaction.

□ Slow transaction Execution.

Because of the slow nature of execution, such gaps in prices can close almost immediately thus putting the trader at the risk of running at a loss.

Conclusion

This lecture have taught me a lot on why I should diversify my crypto portfolio, in fact it is very practical in nature. I have also learnt about arbitrage, how it is done and various types of it. I even did a practical on investment diverisification that is still running in my exchange account.

Great thanks to @fredquantum for impact such knowledge to me.