COVID-19 and Crypto trading: How to make some spare change while on quarantine
In this story, I will show you how to make some pocket money while you stay at home during this COVID-19 pandemic. The volatility of cryptocurrencies (or cryptos for short) is going to be our fairy in this story. Volatility is not something to wish for in a currency, but there is still a long way before cryptos are going to become our daily currencies. So let’s use this time to make some profit out of this volatility.
Disclaimer: The information in this story represents the personal opinion of the author and it is not an advice for investing and trading cryptos. There are high risks of loss associated with trading cryptos. Any past performance, forecast or simulation of cryptos (and not only) is not necessarily indicative of the future performance. The author should not be held responsible for any loss associated with trading cryptos.
Assumptions
In this story, I am going to use Ethereum (ETH) and its valuation in US dollars (USD or $) for the last 7 days (shown in the cover image) as an example. Suppose we start with $1000 in cash. Let’s see how much (roughly) we could have made in the last few days.
Before trading, we need an exchange platform and we need to account for its transaction fees. There are many exchanges out there. Lately, I am using Crypto.com, but you can use Binance, Coinbase, Bittrex, among many others. Please do your own research before selecting an exchange platform.
In the case of Crypto.com mobile app, there is no fee when you buy crypto, but there is a 0.4% fee when you sell your crypto. If you are using Crypto.com Exchange, you can only exchange cryptos and there is a 0.2% fee for each transaction (either buy or sell). I am going to use the 0.4% fee when selling cryptos in my analysis below.
Approach
I like to call the following an “approach” rather than a “strategy” because it is not very complex. Basically, we are hunting “S” shapes in the crypto price. The bigger the “S”, the better. So what does the “S” mean? Initially, the price goes down and reaches a minimum after which is starts to grow. That minimum is the bottom of the “S”. The price grows, reaches a maximum and then starts to go down. That maximum is the top of the “S”. Note that here, we are talking about local minimum and local maximum.
Some things to consider:
- we wont be able to buy and sell exactly at the minimum and maximum, respectively. Depending on how often we can monitor the market, and how fast is the trading platform, we can be closer/further to/from those values.
- identifying the right “S’ is based on feeling and luck. You wont really know if it’s a big or small “S”. For example, the S4 in my figure has a slow growth of the ETH at the beginning (around $1 in value), followed by a sharp decrease from around $137 to around $131. It is up to you what to do in this case. You can either sell quickly to minimize your loss, or just hold in hope that the value will increase to at least your buying point.
Analysis
Let’s use the chart in the cover image which represents the price of ETH in USD for the last 7 days. I marked 4 regions (or “S” shapes) in this chart. Suppose we start with $1000.
For the first “S” (S1), the price of ETH dropped to $122.01, then started to grow. Suppose we managed to buy at $122.50, then we got 1000 / 122.5 = 8.163265306 ETH. The ETH grew to $130.71 before starting to decrease. Let’s say we managed to sell at $130, then we get 0.994 × 8.163265306 × 130 = $1054.86. Yay! We made almost $55. (Note that the 0.994 factor accounts for the 0.4% fee.)
For the second “S” (S2), the price of ETH dropped to $133.32. Suppose we managed to buy at $134, then we have 1054.86 / 134 = 7.872089552 ETH. The price increased to $141.45, but we managed to sell at $141. We get $1103.30. Not bad! We have a profit of $48.
S3 is a smaller “S” with a sharp decrease after reaching the maximum. The minimum is $138.12 for one ETH, while the maximum is $141.22. Let’s say we managed to buy at $139 and sell at $140. Then we increase our cash to only $1104.57. Note that we had to be very quick in selling the ETH. Let’s say we missed the opportunity to sell, then the next maximum is at $136.83. If we manage to sell at $136.5, our loss is around $26.
S4 is even worse. There is a $6 decrease for one ETH. If we have sold 10 ETH, then we would have lost $60. In other words, we must be very careful when we decide to buy feeling that a “big S” is coming.
Summary
In summary, trading cryptos may be a fun thing to do during this COVID-19 pandemic (and not only) when you stay at home and are bored. While this activity may bring you some extra cash (or cryptos), you need to be careful, know the risk, and be ready to lose sometimes also.
If you want to use Crypto.com, you could use my referral link https://platinum.crypto.com/r/4xk89fknkr to sign up for Crypto.com and we both get $50 USD.
