Update - Experiment 1: Crypto Trading Bot
It's been a little while now since I put the 2021 financial experiments into play so I thought it would be worth starting to provide updates as they're all providing some interesting insights.
I should point out from the get go that we're in the middle of what looks like a stock market correction so don't read too much into the profits (or losses) just yet, this is a year long experiment and in we're only 4-6 weeks in.
As quick reminder, we ended up with 4 experiments in total for 2021 and they are:
Today we will be focussing on Experiment 1 as we're just over 6 weeks in and starting to see some meaningful results.
Experiment 1 - Crypto Trading Bot
If you missed this one, you can read all about it here but in summary, the objective of this experiment was to setup a robot that would automatically trade on the crypto-currency market 24 hours a day to generate an income. The experiment was really to understand the level of risk and whether it was actually possible to make anywhere near the kind of returns that get thrown about, the most common of which is that it's possible to make 10% per month returns. This seems wildly unlikely, especially considering some companies who used claims similar to these and turned out be massive scams. One example of that recently was MTI trading in South Africa which is currently being forced into liquidation but has been branded with the grand title of "The biggest crypto investment scam in the world". You can read more about that scandal here.
So as a quick reminder, in early January, I set-up an account with Binance.com which is one of the biggest and most well known cryptocurrency exchanges in the world and allows you to buy cryptocurrency with your credit card and store it in a wallet (think bank account for cryptocurrency) and then allows you trade (buy and sell) cryptocurrencies. For example, you can buy Bitcoin (the biggest and most well known crypto coin) with a credit card and then use it to buy Ethereum (the second biggest Cryptocurrency). Think of all of this a bit like FOREX trading when you buy dollars when it's weak and swap them for pounds when it's strong.
Same Whatsapp group, just more volatile.
The next step was to create a robot which I did using a free account on 3commas.com. This connects to Binance.com and allows the robot to place trades automatically on your behalf. Think of this like setting a limit order or stop order when you buy and sell shares on the stock market, when it get to the price you want, your broker automatically executes your buy or sell.
I setup the robot who is now affectionately known as Stanley and gave him R20,000 / $1,330 / £1000 worth of Bitcoin and instructed him to trade against the Ethereum price. Put simply, every time the Bitcoin price goes up against the Ethereum price, Stanley buys some Ethereum with his Bitcoin. When the Bitcoin price goes down against Ethereum or Ethereum goes up against Bitcoin, Stanley sells the Ethereum and turns it back into Bitcoin. Every time this happens, I make a little extra bitcoin which I can then convert back to real money or increase the amount of money (and in turn profits) that Stanley has to play with. This all happens completely automatically, I don't need to do anything other than set a price range for Stanley to work in and then reset it if he goes out of the range after a few days or weeks. Setting a range means there's a limit to how much you can lose before Stanley stops trading.
The Results So Far
Well I have to say, with all the bad press about the scams and ponzi schemes I thought at best I would find a fatal flaw in this experiment and at worst I'd lose everything. As of today, Stanley has been beavering away for 42 days. I have reset him 3 times, I've changed the crypto coins he's traded and I've changed every parameter I could find to learn more about how he works. I've even tripled his budget to check if his performance is affected by volume. I've truly tried to break him like an angry corporal at an army boot camp does with his greenhorn recruits.
The results are surprising, so far Stanley has consistently made money and hasn't gone more than 3 days between trades and on some days does 3 or as many as 6. The price of crypto has fluctuated quite a bit since I started so there's 2 numbers to watch. The first is the overall growth which is part the trading bot part just the increase/decrease in the value of crypto. this number could be misleading. The number that can't be denied though is when I measure just the income created by Stanley.
This is cash in the bank, is sitting in cash and can be withdrawn to my bank account at any time.
So let's get to the numbers at 42 days:
Average Amount Invested: R29,360 / $1,835 / £1,468
Current Value: R33,315 / $2,221 / £1,666
Total Return R5,790 / $386 / £290
Total return percentage : 21%
Monthly Return: 15%
Annualised Total Return: 182%
Stanley The Bot - Returns
Amount Invested: R29,360 / $1,835 / £1,468
Income Generated By Stanley: R2,490 / $166 / £125
Bot Return Percentage: 9%
Monthly Return: 6.4%
Annualised Total Return: 77%
How long for Stanley to pay for himself: 15 months
I'm going to ignore the total returns as it comes down to whether you believe crypto is here to stay or it's all just a massive scam. I used to believe the latter but I think I'm starting to understand why it might actually be around for a very long time.
So let's look at Stan's hard work in light of what we set out to do. in 42 days, he has generated a 9% return which is some way below the mystical claims of a 10% monthly return so that myth is looking a bit like it's busted and is probably based on the total returns which is even higher at 15% but is a complete gamble on the price of crypto and therefore inconsistent and unpredictable.
However, Stan's returns are consistent and they are not related to any special event, he's just trading the ebb and flow of fairly small price differences which seem to correct themselves and hold within a reasonable range for a few weeks before I need to reset the range (which has a tiny cost associated with it) Essentially, as long as neither one of Bitcoin or Ethereum fail in isolation (e.g. Bitcoin survives but Ethereum dies completely) then the model works, and because you set a range, even if that happens, Stanley would stop trading after you'd lost only a few percentage points.
I'm not recommending this as a strategy, I'm sure there must be a risk I'm missing somewhere but I'm literally monitoring this thing hourly on my PC and my phone and I can't find that risk.
What is most interesting for me is how I've begun to think about this experiment. I see it like a self-funding money making machine. I have taken an amount of money that I can afford to lose and used it like a battery for this bot (which cost me nothing). I have now decided not to focus on how profitable it is or how much money it's making but to solely focus on when Stanley will pay for himself e.g. when can I cash out. At that point I have zero risk and any money he produces is 100% profit as I will deploy his startup costs elsewhere. The only question is if he'll pay for himself before the battery runs out.
Imagine that for a minute, based on current performance, in 15 months which will be around the start of April next year, Stanley will have paid for himself resulting in zero risk but could go on producing over $150 per month in perpetuity. $150 per month would pay for our broadband, Netflix, Youtube Premium, Youtube Music and electricity bill. basically my entire home entertainment, cooking, heating and lighting. How cool would that be!
PLUS, and I'm stretching the theory now, Bitcoin grew 500% last year. imagine it does that once in the next 5 years. My $150 per month becomes $750 per month. That would pay all my home entertainment, electricity, buildings, contents and car insurance, all of our transport costs including petrol and our health and medical costs.
Now I know I'm pushing my luck and this is starting to sound like an infomercial for a ponzi scheme (it's not) but the point I'm trying to make is that the potential returns of this experiment seem to outweigh the risk of total loss. I really want to find a massive gaping chasm sized sinkhole of a problem in my experiment but so far I can't, I think it actually works if you do it yourself cheaply and go not using some crackpot hair brained scam BUT you have to be willing to lose it all, even if I can't find a scenario where that happens other than the complete and total implosion of the existence of cryptocurrency.
And that is why I have decided to increase my investment in this experiment. Yep, I have been pondering this for the last week trying to make sure I'm not just punch drink with greed or only experiencing a bull running market. I am confident enough now to commit more of our hard earned and have put the wheels in motion.
I have increased my personal bot investment to R50,000/ $3,333 / £2,500 and I have decided to commit a further R50,000/ $3,333 / £2,500 of business profits to setting up a second bot for my business. My core objective is to recover 100% of that investment inside 2 years and then take 50% of returns as income and re-invest 50% of returns to growing the bots over as many years as is possible. If there is some kind of Bitcoin surge in 2021 I may be able to cash out much more quickly and that would be awesome, especially if it's before the end of the experiment.
Hopefully by the next time I update in a few months, I won't be sitting with R100,000 loss and explaining to you where I missed the flaws in my plan!
As always when we talk about crypto I feel it necessary to remind everyone that I am not advocating or advising anyone to replicate what I'm doing. Cryptio is about as far away from passive index investing (which I strongly advocate) as you can get, and no matter how I soft-soap it, this high-risk high reward or total loss territory and is in the same league as a little trip to the casino. Do your own research and due diligence before making any kind of investment and in my view, when it comes to crypto, never commit any money you can't afford to lose.
That aside, you might have noticed, I'm a little bit excited about this one and that is because it could potentially be a new passive income stream and the more of those you get early in your life the better. they're hard to come buy and usually pay fairly low and slow returns. There's no question in my mind that this one has a shelf life but right now, I'd settle for 3-5 years.
Hopefully this has been interesting for you, it's always dangerous providing updates as there's a risk you're just repeating yourself but the geek in me is really enjoying the experiments. Let me know what you think down in the comments, even if it's just that you think I'm losing my marbles!
Until next time, keep living.