Competent maintenance of portfolio statistics and accounting for the result of transactions are the basis of cryptocurrency asset management. Real profitability is for most the final answer to the question of whether or not to get involved with a new type of asset. Accounting for transactions seems to be a non-trivial task, which involves taking into account a number of non-obvious details and features inherent in cryptocurrencies, writes RBC Crypto.
New position immediately in the red
When buying an asset for investment in fiat currencies, it is worth considering the difference in the purchase and sale prices (spread). Regardless of whether the user buys an asset on the P2P market or directly through the exchange service from a bank card, the difference in price can be several percent compared to the market one. Depending on the asset, this difference can be higher or lower.
Thus, any position opened from fiat currencies will immediately be in a small loss relative to the market rate, and before this position begins to make a profit, it will at least need to overcome the spread difference.
Working with relatively large amounts, you can find a smaller spread and better prices. However, as the amount of the purchase increases, so do the risks associated, for example, with the technical side of the exchange or manipulation by an unscrupulous seller. Separately, it is worth paying attention to the current state of the market. It is probably better to shop when the market is not experiencing sharp price fluctuations. High volatility, on the contrary, leads to an increase in the spread, as sellers do not want to remain in the red during sharp price fluctuations.
Bitcoin, dollar or ruble
It also makes sense to calculate the profitability of a portfolio and individual positions in different currencies (including bitcoins) that were used to buy a crypto asset for investment. A good example of statistical distortions is the period March-June 2022, when the price of the ruble rose against the dollar for several months in a row. Thus, demonstrating a profit in dollars, the asset could turn out to be unprofitable when recalculated if it was originally bought for rubles.
Most services and platforms for maintaining portfolio statistics allow you to measure profit not only in fiat currencies, but also in relation to the exchange rate of BTC, ETH, and sometimes BNB. This approach is suitable for more experienced users who choose Bitcoin or Ethereum as their base currency and have a good feel for market dynamics with market capitalization transition cycles between altcoins and Bitcoin.
Accounting for statistics regarding BTC, ETH and BNB is also used by optimistic technology advocates betting on the growth of cryptocurrencies in the future. For such users, the point of trading is to increase the number of coins in their wallets in the long term, so they attach less importance to the price fluctuation of cryptocurrencies against the dollar.
Commissions, rates and interest on loans
When purchasing an asset for investment not in the usual exchange services, but in decentralized (DeFi) services, you should always take into account the size of the commissions.
If opening a trade requires converting assets between multiple blockchains, especially when using Ethereum, it is worth budgeting for high fees. For example, converting a token from the Ethereum network to Polygon and back at the time of publication will cost $40, and switching from Ethereum to BNB Chain and back costs $80. It is also a key point in arbitrage and other trading strategies.
The payment of commissions is related to the technical features of the work of decentralized platforms. Each transaction takes place directly on the blockchain and requires a fee for its processing. Buying and selling cryptocurrencies on the usual (centralized) exchanges does not imply interaction with the blockchain until the user wishes to withdraw funds from his account to an external wallet. Accordingly, interaction with the blockchain and payment of the network commission will be carried out only at this stage.
Positions in the futures markets, leveraged markets, or leveraged positions from DeFi protocols require additional attention as loan interest and funding rates will change depending on market conditions.
This point is less relevant to margin trading on centralized exchanges, where interest on borrowed funds usually does not jump. However, this feature is present in asset-driven decentralized lending platforms, which are also used by many for leveraged trading.
Psychological features
Not everyone attaches importance to the unconscious “pulling” of statistics in favor of successful trades, while ignoring unprofitable ones. Often, new market participants draw an image of a successful trader for themselves and keep trade statistics publicly. Such public portfolios often look unrealistic and serve only to advertise services on the authors’ social networks.
The real statistics of a trader’s transactions can be analyzed only through the blockchain explorer, knowing the public address of his wallet, or having access to the full history of the trader’s transactions on a centralized exchange. But even in this case, there is no certainty that the trader does not manage other accounts, which may well be unprofitable.
From a psychological point of view, the artificial inflating of statistics, as well as impulsive trading decisions, can be influenced by several factors. Among them are external evaluation and comments, as well as the emotional effect of both profitable and losing trades.
Last but not least, determining the prospects of a trading strategy is influenced by taking into account the time for opening positions and their management. Unlike centralized exchanges, decentralized solutions still offer an extremely limited set of tools for automatically notifying users about the execution of orders, tracking the proximity of a possible liquidation (health factor) and other key metrics.
Source: Cryptocurrency
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