To take inspiration from “The Wolf of Wall Street” for a moment:
In the last 30 days I made $29,514 trading Crypto currencies and that really pissed me off,
because it was $485 short of a thousand bucks a day.
I mentioned in a previous article that I had long been against cryptos, but had a bit of a “Road to Damascus” moment in mid-November and decided to diversify my portfolio with the addition of some crypto-currency exposure.
Initially I planned to allocate 5% as this was an amount I could lose without too much bellyaching. The past year has seen a substantial rally in equities and I felt more at ease putting some of that into something speculative.
As chance would have it, I was waiting for a repayment on some money I had loaned out, and fully planned to throw that into bonds and gold to wind back the aggressiveness of my portfolio.
However that repayment was slow in coming, leaving me not enough money to rebalance exactly as I would like, but too much to leave in cash for another month.
This was part of the reason behind the gung-ho spirit that lead me to throw some money at cryptos.
20th November 2017
Initial purchase:
| Position (Size) | Item | Cost basis (USD) | Present Value (USD) |
|---|---|---|---|
| 16 Shares | COINXBE:SS | -$6,507 | $6,624 |
| 175 Shares | COINETHE:SS | -$6,418 | $6,455 |
I sat on this position for a couple of days before I realised something I had recently highlighted on this blog, namely the importance of currency hedging foreign investments.
Whilst Bitcoin and Ethereum have the majority of trade in USD, and the ETN’s that I purchased above track the USD price and convert it into EUR, I was still showing a currency conversion loss on the securities within my brokerage as they are traded in EUR.
Because I purchased the securities in EUR, using my brokerage account in USD (and the ETN seemed to not efficiently reflect the EUR/USD) I took out a short position against EURUSD to currency hedge the investment.
That is to short sell €10,000 and collect $11,823 to lock in the rate at which I had purchased the EUR with which to purchase the ETN’s
If the €uro then fell against the Dollar, I would have to spend fewer Dollars to purchase the €10,000 to close my position, but the €uro value of my ETN’s would be worth fewer Dollars.
If the €uro rose against the Dollar, I would require more Dollars to purchase the €10,000 to close my position, but the €uro value of my ETN’s would be worth more Dollars.
22nd November 2017
| Position (Size) | Item | Cost basis (USD) | Present Value (USD) |
|---|---|---|---|
| 16 Shares | COINXBE:SS | -$6,507 | $6,475 |
| 175 Shares | COINETHE:SS | -$6,418 | $6,448 |
| €10,000 | EURUSD | -€10,000 | $11,823 |
23rd November 2017
At this point, My EUR trading account was approved, and I looked to move my positions from my USD trading account to my EUR account, within my brokerage.
However, a hot transfer wasn’t possible, and this meant having to purchase another position in the EUR account, then close the position in my USD account.
I decided to leg the position by first purchasing the position in my EUR account and then later selling the position in the USD account, to have doubled exposure for a short time, rather than no exposure for a short time.
So, without selling the existing 16 shares of the Bitcoin fund in my USD account, I purchased 16 more shares from my EUR account.
This was at a cost of €5,531.04 or $6,559.46 in USD at the time.
I took out a further EURUSD short of €10,000 for $11,923.10.
Putting it all together, the current open positions at the end of the 23rd November were:
| Position (Size) | Item | Cost basis (USD) | Present Value (USD) |
|---|---|---|---|
| 32 Shares | COINXBE:SS | -$13,069. | $12,851 |
| 175 Shares | COINETHE:SS | -$6,418 | $8,076 |
| €20,000 | EURUSD | -€20,000 | $23,862 |
27th November 2017
This position I held over the weekend and into the next week, during which time Bitcoin surged above $9,000 and the ETN opened Monday substantially higher.
Having held this sized position for the best part of a week, I felt happy with the size of it and decided I would hold a larger exposure to Bitcoin than I had initially planned, but still wanted to pivot the position from my USD account to my EUR account and decided to do another leg purchase in my EUR account before closing the position in my USD account.
I purchased another 12 Shares of the Bitcoin ETN.
This was at a cost of €4,849.86 or $5,776.77 in USD at the time.
I matched this with a further €10,000 short for $11,931.20 – Increasing my total EURUSD hedge to -€30,000.
These positions at the end of the 27th November looked as follows:
| Position (Size) | Item | Cost basis (USD) | Present Value (USD) |
|---|---|---|---|
| 44 Shares | COINXBE:SS | -$18,846 | $20,824 |
| 175 Shares | COINETHE:SS | -$6,418 | $8,474 |
| €30,000 | EURUSD | -€30,000 | $35,694 |
28th November 2017
On the next day, I decided to equally increase my exposure to Ethereum to a similar level of exposure, and to close out all positions in the ETN’s from my USD account.
This lead to a lot of trades happening today, but some being simply selling in my USD account and buying in my EUR account.
The trades were:
Sell 16 Shares of the Bitcoin ETN for €6,640.00 or $7,835.97 in my USD account.
Sell 175 Shares of the Ethereum ETN for €7,159.40 or $7,159.40 in my USD account.
Buy 3 Shares of the Bitcoin ETN for €1,245.00 or $1,479.03
Buy 312 Shares of the Ethereum ETN for €12,673.80 or $15,056.16
With a realised profit from the USD account of:
Bitcoin ETN: $1,328.99
Ethereum ETN: $2,038.02
And a current holding of:
| Position (Size) | Item | Cost basis (USD) | Present Value (USD) |
|---|---|---|---|
| 31 Shares | COINXBE:SS | -$13,771 | $15,382 |
| 312 Shares | COINETHE:SS | -$15,041 | $14,898 |
| €30,000 | EURUSD | -€30,000 | $35,529 |
19th December 2017
I held the above positions for the remainder of the 30 day period, through to the 19th December when the holdings were as follows:
| Position (Size) | Item | Cost basis (USD) | Present Value (USD) |
|---|---|---|---|
| 31 Shares | COINXBE:SS | -$13,771 | $28,264 |
| 312 Shares | COINETHE:SS | -$15,041 | $26,636 |
| €30,000 | EURUSD | -€30,000 | $35,522 |
For a profit of:
| Item | Open Positions | Closed Positions | Total |
|---|---|---|---|
| COINXBE:SS | $14,493 | $1,329 | $15,822 |
| COINETHE:SS | $11,595 | $2,038 | $13,633 |
| EURUSD | $107 | – | $107 |
| Commissions, FX, etc. | -$47 | -$47 | |
| Total | $29,515 |
Cryptos are quite a wild ride, and I was mostly lucky to have got in at the right time and ridden an upswing in the price.
I intend to sell off a part of my crypto holding and dial back my exposure to around 10% with the proceeds going into building up an allocation of bonds.
The last 12 months I have been 100% equities – and now cryptos – which have done very well, but this bull market is getting a little long in the tooth and I’ve strayed too far away from my original investment plan.
As hard as it is to sell off assets that are rapidly growing, it’s time to force the discipline of re balancing to my target allocations.
I’ll stay net long on cryptos, but taking a chunk of money off the table will give me back my mental health and, hopefully, not have me waking up in the middle of the night to check GDAX for the latest mid-market price of Bitcoin and Ethereum.