How To Measure Your Crypto Performance?

Know Your Goal

Without a goal, you cannot measure the performance. Consider this hypothetical example of a strategy without a goal: invested ten thousand Euros for two Bitcoin. Later spent half a Bitcoin to buy two and a half mega IOTAs. Then used a quarter of a Bitcoin for a holiday hotel stay. Donated one hundred mega IOTAs to the community. Sold half a Bitcoin to purchase four hundred EOS, and so on. Without goals, the investment behavior turns into an endless stream of events that is very hard to analyze.

To avoid getting into the above scenario, I have established the habit of recording my investment goals and then measuring the performance against these.

Here is an example of a few goals:

Goal one: Purchase Bitcoin because it looks more attractive than FIAT because of its low inflation and its upside potential due to innovation and adoption. Action: Exchange my Swiss Francs to Euros to purchase Bitcoin.

Goal two: Spend some Bitcoin to acquire IOTAs because they seem to have solved the scalability issue, don't spend so much electricity on mining, and avoid the economic divide between users and miners by uniting these functions.

Now with these goals established I then measure against these goals. In this respect, it is incorrect to score success just because the price of IOTA increases against the USD as the goal was to find a stronger investment than Bitcoin. Hence success is only achieved if IOTA outperforms Bitcoin. If in a given period, IOTA had increased by thirty percent and Bitcoin increased by fifty percent, I would have missed my goal two and could hardly call it a success even though I made thirty percent on IOTA.

Technically I have established a spreadsheet that tracks the investment path (CHF->EUR->BTC->IOTA...) and measures the corresponding pairs.

Valuation Along Liquidation Routes

From time to time I would like to know the value of my portfolio; for example by consolidating all assets into the FIAT currency in which the bulk of my cost is denominated in.

To avoid overestimation, I respect the liquidation path that is available to me at the time of the consolidation. For example, I may not be able to sell EOS for Swiss Francs. So I may need to sell EOS for Bitcoin, then transmit those Bitcoin to another exchange on which I sell them for Euros which in turn get transferred to another bank account denominated in Swiss Francs. For accurate results, this path with its fees needs to be factored into the valuation and the performance assessment.

Also, consider the size of your position and then use the (lower) quote that corresponds to the volume you would need to exchange in case of the liquidation. Consider this example: Let's say you own 20 Bitcoins. The top quote for Bitcoin on the exchange is 8000 USD. Now let's further assume that this quote is for 0.3 Bitcoin only. Then it is incorrect to value that Bitcoin position with 160'000 USD. Instead, I need to look at the order book and take the highest price that ensures a volume of 20 Bitcoins. If that price were 7'800 USD then the value of my Bitcoin position would be 156'000 USD. This method needs to be applied along the entire liquidation path.

I hope you find these thoughts useful and applicable to your portfolios. Please leave a comment with your thoughts on the subjects discussed here.