Okay, this ETH-BTC apportionment quiz has no answer and every answer, because it very much depends on your crypto investment philosophy.
- One answer: $BTC? $ETH? I don't invest in blue chips!
- Another answer: Can't I make more faster with [name your alt-coin].
- A third: Crypto? Are you insane???
So, that's thinking outside of the box.
I enjoin you to do this.
When you're presented with a choice, ask yourself: do I have to choose this or that? Why? Why can't I do something else entirely?
You've been taught to think 'in the box.'
Destroy the box, then: make your own.
Alternatively, boxes do exist for a reason.
Huh? Yeup. They make distinction from "all that out there" to "this: here."
So, what if the "this: here" works for you and is what you want to do?
Well, then, do that.
Just know that you are choosing the "this: here," is all.
Okay: "this: here" not "all that out there."
Because the "this: here"? $ETH and $BTC?
They've been working well for the past 10 years, so, yeah: I choose them as major players in BUIDL'n my future.
But we face the original problem statement: how to apportion ETH-BTC purchases.
The question is surprisingly pliable. Here are the options I saw in answering the question.
- ETH-BTC: 50%/50%.
Invest $axlUSDC in equal amounts, that would give us
- 0.12 $BTC and 1.74 $ETH
That's easy, straightforward, no-hassle answer that gets us at the starting blocks.
But then there's the ETH-BTC ratio.
What does this ratio tell us? It tells us the relative strength of $ETH to $BTC.
The higher the ratio, the 'stronger' $ETH is, relative to $BTC.
What does 'strong' $ETH mean? And how can we use it? And is $ETH even 'strong' relative to $BTC?
There are 3, major, averages to determine the above, and then there are hundreds more indicators, but let's just stick with the averages, not even considering standard deviations, as previous quizzes have shown averages, here, are good-enough indicators.
But which average?
Simple Average
The first average, the simple average,
says this:
- ratio: 0.06837
- simple average: 0.067405
That is to say, $ETH is stronger than $BTC by a smidge (that's a technical term) 🙄
Investing, using the simple average, gets us a 53% gain
Nice.
The problem with the average is that ... you can't use it.
Huh?
The average predicts, or assumes, that the future is the same as the past, or: you're investing in the past with backtesting, and, IRL, you can't do that.
That's why we have the SMA and the EMA.
SMA and EMA: simple moving average and exponential moving average.
Get to know these moving averages. They are your friends.
Why are they your friends? Because they give you timely and responsive averages that you can action on IN THE PRESENT, not just backtest against.
SMA and EMA: simple moving average and exponential moving average.
Get to know these moving averages. They are your friends.
Why are they your friends? Because they give you timely and responsive averages that you can action on IN THE PRESENT, not just backtest against.
Okay, so, let's examine the SMA, specifically the SMA-200.
That takes a while (200 days) to establish.
60% APR
Which is okay, but not as good as the (unusable, admittedly) simple average.
Can we do better?
Yes, in fact, we can, ... with the EMA-20.
99% APR
And with dollar-value returns comparable to the simple (unusable) average, to boot.
So, I'm going with the EMA, and the EMA says:
ratio: 0.0684
EMA-20: 0.0672
... that the ratio is a smidge high: $ETH-strong.
Okay, we've determined: $ETH-strong. So, ... what?
Well, what I do now is do a relative-buy, that is to say: I buy $ETH-to-$BTC that the EMA/ratio-ratio is.
And, yes, I just said ratio-ratio with a straight face.
Here's what that looks like.
- $BTC investment: 3195.96 $axlUSDC
- $ETH investment: 3083.32 $axlUSDC
Since $ETH is strong(er)(-...ish) I buy (slightly) less $ETH than $BTC, and that's how I use the ETHBTC-ratio.
This translates into:
- 1.703 $ETH
- 0.121 $BTC
And that's my answer for this pop-quiz.
*WHEW*! 😅
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