Crypto Academy / S4W4 - Homework Summary [Advanced Level] - Crypto Assets Diversification (CAD)

in hive-108451 •  4 months ago 
It's with great pleasure I am writing again at the Academy. This piece is been composed to give the summary of the lecture I published last week and I believed many of the participants enjoyed the lecture.

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Made in Canva

In the just concluded week, we discussed the topic Crypto Assets Diversification (CAD) which is one of the investment strategies to keep one on the safe side of the investment. Under the topic as regards construction, I discussed Analysis which encompasses fundamental/technical analysis of assets before one chooses to invest in any cryptocurrency asset. We explained that analysis is the fundamental step to take to be satisfied with the assets in question and not to invest blindly.

Likewise, we talked about the 1-4 Rule as another strategy used while constructing crypto assets diversification. Using the 1-4 Rule, our available capital (reservoir) is divided into 4 different parts (pools,), and each part is invested into the assets (4) of selection. One of the benefits of CAD is that it mitigates risk on the side of investors and it comes with its other side which is reduced return on investment.

Many users were able to deal with CAD properly although a certain percentage failed the real transaction section as some didn't invest while some made an incomplete investment. Everyone's efforts were appreciated just that a certain grade was deducted for contents with no/incomplete transactions.

Solution to Triangular arbitrage

I added arbitrage trading as a bonus to the lecture and I will be talking about triangular arbitrage in detail here. Students were given the task to explore triangular arbitrage and how to properly identify a triangular arbitrage opportunity. Observations: Many people creatively explored triangular arbitrage but failed to explain how to properly identify it. Let's see a brief illustration below.

  • The first step is that one should be able to identify a clear difference in cross rate of the 3 assets before embarking on the journey of taking advantage of triangular arbitrage. We would consider 3 assets A, B and C while explaining this. Assuming the cross rates are as follows:

  • B/A = 0.9, B/C = 1.4, A/C = 1.6

  • From the above, the asset I'm starting with is A while I checked for triangular arbitrage opportunity through its cross rates with B and C.

  • The product of the cross rate of B/A = 0.9 and A/C = 1.6 should have a cross rate difference to B/C = 1.4.

    Now, 0.9 X 1.6 = 1.44

    Therefore, B/A.A/C is greater than B/C with 0.04 difference. And this implies a clear opportunity.

  • Now, assuming I'm going into the trade with 2000 units of asset A. Let's see;

    1. Using the pair B/A, I sold 2000 units of A for B and this gives me; 0.9 X 2000 = 1800.

    2. Using the B/C, I am selling the B asset for C, then we have; 1800/1.4 = 1285.7.

    3. Lastly, I am selling C for the initial asset (A) using A/C; 1285.7 X 1.6 = 2057.12.

  • At the end of the process, we have 2057.12 of A of which we started the process with 2000 of A. We can see that we now have 57.12 A as profit after taking advantage of the triangular arbitrage. See the graphic below for the entire process.
  • Triangular1.png
    Made in Adobe Photoshop

    In a real sense, Triangular Arbitrage doesn't come easily as expressed above, it often requires huge capital and a super-fast computer for execution. Note that: Be sure that you have clearly identified triangular arbitrage before you start the process to avoid risk.

    Statistics

    This section would be used to give the statistics of participation for the Season 4 Week 4 of the Crypto Academy as far as Crypto Assets Diversification (CAD) is concerned. A total of 53 homework was received and visited timely, below is the performance breakdown of the entries:

    CategoryValue
    Excellent19
    Very Good18
    Good6
    Average7
    Below Average1
    Plagiarized Content0
    Invalid2
    Total53

    Excellent represents grades within 9 - 10, Very Good for grades within 8 - 8.9, Good for grades within 6 - 7.9, Average for grades within 5 - 5.9, Below Average for grades below 5, Plagiarized are the contents that are found to have been copied from another source without proper reference and Invalid are incomplete articles/Users Powering down/Insufficient SP for the Advanced level. Let's see the distribution on the charts below.

    Week 41.png

    Week 42.png


    Top 3 Articles for the Week

    RankAuthorArticle's Link
    1@madridbgLink
    2@jehoshua-sheyLink
    3@kwadjobonsuLink

    Conclusion

    In conclusion, the overall performance of students for the week is quite great. Nevertheless, proper analysis of the homework task solutions cost a lot of students from making an outstanding article. With this, I'd like to encourage students to be more creative and kindly pay attention to your content structure before submission. Also, use Grammarly to take care of likely grammatical errors. Thanks for participating.

    Cc:-
    @steemitblog
    @steemcurator01
    @steemcurator02

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    Hello professor @fredquantum,

    You treated a very interesting topic last week. Both Crypto Assets Diversification and Arbitrage Trading are very important investment topics in crypto. I support the training of steemians to be able to profitably invest their payouts in crypto currencies. You presented a fantastic lecture on the topic. Thank you so much.

    Thank you for also selecting my post as one of the top posts for this week.

    Great piece up there. Thank you.

    Thanks so much for the well-detailed lesson. Also congrats to everyone who participated

    You are welcome and congrats.

    Thank you