Live Crypto Investing: Value Averaging Strategy – Month 2
Last month I started investing in cryptocurrencies using the Crypto Value Averaging Strategy described here. This post is an update on how the strategy is going so far.
The usual disclaimer: investing in cryptocurrencies is super risky. This is not investment advice, it’s just what I’m doing. Only invest a very small portion of your investment portfolio in cryptocurrencies. If you have not read the original post relating to this then the below won’t make much sense, so please read it before moving on.
Crypto market update: September 2017
Anyone invested in cryptocurrencies during September knows that it wasn’t a great month. This was mostly down to:
- China banning cryptocurrency exchanges and Initial Coin Offering (ICO) Token sales.
- Jamie Dimon at JP Morgan saying that Bitcoin is a fraud.
The crypto market has gone up massively already this year so the price drops of September were a healthy correction in my opinion.
The chart below shows what happened to the price of Bitcoin in EUR over September. The first half of the month was bad but the second half was a lot better!
Bitcoin price in Euros September 2017
Looking back, it would have been great to buy Bitcoin on September 15th. But knowing that Bitcoin would go up after that would have been very difficult.
Starting the strategy on September 1st wasn’t ideal, but at least with Value Averaging (VA) I only invested small amounts in each crypto. As you will see in this post, I got some better bargains in October!
Trades with the Value Averaging (VA) strategy in October
The prices for all ten cryptocurrencies went down over the month. Because of the way VA works, in October:
- I spent more money on each of the ten cryptocurrencies than I did in September.
- I bought larger amounts in each of the ten cryptocurrencies than I did in September.
The below table shows how the trades on October 1st compared to the trades on September 1st:
Crypto VA fund trades October 1st 2017 (EUR)
Per the strategy, I use a Value Averaging Spreadsheet to invest EUR 300 per coin over 6 months (September 1st – February 1st) at an average value of EUR 50 per coin per month.
But because of the price declines of all the above cryptos over September, I invested more than EUR 50 for each coin in October.
Let’s look at what happened with Litecoin in the box below. The same logic applies to each of the other nine coins.
Per the table above, the Litecoin price dropped from EUR 67.40 on September 1st to EUR 46.05 on October 1st at the times I made the trades for each month.
On September 1st, I bought EUR 50 worth of Litecoin at EUR 67.40 per coin. This gave me 0.741840 Litecoins.
On October 1st, I bought almost twice the amount of Litecoins as I did in the first September…
Since I started with 0.741840 Litecoins and the price went down to EUR 46.05, the value of those Litecoins dropped to EUR 34.16 (or 0.741840 multiplied by EUR 46.05).
To make sure I invested EUR 100 value in month 2 (for an average monthly value of EUR 50 per month over 6 months), I invested EUR 65.84 in month 2 (or EUR 100 minus EUR 34.16). For this amount of money, I got 1.429713 Litecoins in month 2 at the lower price of EUR 46.05.
The average price I paid over the two months so far is EUR 52.24 per Litecoin. Here’s the maths:
- Total Litecoins bought = 0.741840 (month 1) + 1.429713 (month 2) = 2.17155266
- Total spent on Litecoins = EUR 50 (month 1) + EUR 65.84 (month 2) = EUR 115.84
- Average price paid per Litecoin over 2 months = Total spent on Litecoins / Total Litecoins bought = EUR 115.84 / EUR 2.17155266 = EUR 53.34
By using VA, the average price I paid for Litecoin over 2 months has gone down from EUR 67.40 (Litecoin price in month 1) to EUR 53.34.
This is a good result that’s also happened with the other nine coins.
The grey box below compares this to what would have happened using a simple cost averaging strategy (as opposed to VA).
VA versus simple cost averaging
Using a simple Dollar Cost Averaging (or “DCA”) strategy (investing the exact same amount of money each month regardless of the price) would also lower the average price paid per coin when prices go down over the month.
But it wouldn’t lower it by as much.
With DCA, the average price paid per Litecoin would be the simple average of the prices in months 1 (EUR 67.40) and 2 (EUR 46.05), which comes to EUR 56.73.
The VCA average price was EUR 53.34.
I pay a lower average price for Litecoin (and all the other coins for that matter) by using VA instead of DCA. This is also true if prices go up over the month as I buy less coins at a higher price for that month.
The only time this would not happen is if the prices stay the same over the month.
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Portfolio performance so far
- Buying more Ripple at EUR 0.1682 per coin. So far that trade has gained 26.26%.
- Buying more Bitcoin at EUR 3,654.70 per coin. So far that trade has gained 11.10%.
The not so good:
- Buying more Zcash at EUR 234.41. So far that trade has lost 16.08%.
- Buying more Bitcoin Cash at EUR 364.00. So far that trade has lost 22.28%
The above results are expected given what’s going on in the crypto market. Apart from Bitcoin and Ripple, most cryptos have gone down so far this month (as at the time I write this on October 10th).
The below chart shows the portfolio performance so far. The large spike is due to the purchases made on October 1st.
Crypto VA Fund Performance (As at Oct 10 2017)
It will be interesting to see how things go next month with the Bitcoin Gold Hard Fork expected on 25th October. There will be a lot of volatility I’m sure – but hopefully sticking with the rules of this strategy pays off in the long-run.
Want to follow this strategy?
You can go here to see how this crypto value averaging strategy performed in month 3.
You can download the Value Averaging Spreadsheet I use for this strategy for free.
You can view the VA crypto portfolio live in cryptocompare.com anytime here.
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