Crypto Bot Trading: Part 1

Using the crypto market to make money is just like playing in the stock market but the volatility is higher, the risks are greater and the whole thing is currently fairly unregulated. The good news is that instead of waiting a month for a stock or ETF to move one percent, you can see the same kind of movement in an hour in crypto. 

Of course this happens both ways, both up and down, but it’s the expectation that as crypto becomes more well known and trusted, more people will enter the market, increasing the value of the crypto assets and allowing money to be made.

Someone asked me once “when do you think it will end?” My answer now is the same as when I was asked… I thought that this would have ended years ago. The fact that the opportunity still exists today is somewhat surprising to me. This whole rodeo could end at any time, so I’m hoping to make a few dollars before it does.

If that sounds okay to you, then using some bots to buy and sell cryptocurrencies might be a risk worth taking.

Note, I am not a financial expert, these are just all my opinions, please do your own research.

Dollar Cost Averaging

The idea is fairly simple. Let’s assume you have an asset, we will call it an Apple, and you purchased that Apple for $100. 

Then the value of Apples drops to $50. So you buy two more Apples. You now have three Apples that you paid $200 to acquire for a per-Apple average price of $66.67. 

If the price of Apples goes to $75 and you sell all three, despite the fact that you paid $100 for your original Apple, you still walk away with $225 or $25 in profit. 

I let scripts/robots do something similar in the crypto market, so that I don’t have to truly know where the value of the asset is going to go next. If it goes down, my bot buys more, so that the average price I’ve paid for the asset is lower and lower. So when the price eventually does go up, even only a little, then I can exit the trade and make some profit. 

Sometimes that profit, after paying fees, is only worth $0.01 in profit, but if you made $0.01 per minute, you’d still make over $14 per day, or over $5,000 per year, so the amount of profit after fees doesn’t matter as much as if the amount you earn is more than you would make with the money tied up in other places. 

Tether Coins

There are crypto currencies that keep themselves at a one to one price with the U.S. dollar. So one dollar is one of these tether cryptocurrencies. 

There are a few different tether coins with the most popular being Tether or USDT. There is also USD Coin USDC, Binance USD BUSD, Dai DAI, TerraUSD UST, TrueUSD TUSD and more. This means that you don’t need to make trades back to a fiat currency when trading and can easily make deals using a tether crypto coin. 

Special Note

There has been a ton of fear, uncertainty, and doubt in the news about Tether USDT. It seems like they may not have as much liquidity as they need to actually pay out in USD all of the crypto that people are holding, so if something major happened and everyone wanted to cash out, there might be an issue with doing so. USDC has financial audits more regularly and is more trusted by the crypto community, but more exchanges support trading USDT for different cryptos. 

Tools

There are several websites needed to be able to successfully set-up and manage crypto bots and understand what the wider market is doing. This section will go over them in simple terms and you’ll see in other areas how they are implemented.

Binance

Binance (affiliate link) is the liquidity provider for cryptocurrencies, willing to take your fiat currency (Dollars) and convert them to cryptocurrencies.

Transaction Fees

Each trade has a fee and it’s standard on Binance for that to be 0.1%. So buying is 0.1% and selling is 0.1%. If you get a ton of money on the platform, then the fees can go down. Binance also allows you to get a discount if you hold their cryptocurrency BNB and use that for trading fees which gets it down to 0.075% for each buy/sell order. But when talking about $2 on every $1000 traded, it isn’t enough to typically be concerned about, in my opinion. 

There are also deposit and withdrawal fees for converting money into cryptocurrency, converting it back into fiat currency and withdrawing it to your bank. Usually this amounts to 1-3% depending on market conditions. So in all, from start to finish, you can expect to pay around 3-5% in fees or $30 – $50 on every $1000 you bring in, trade, and then take out of the system.

Special Note

There was news out that said that by the end of 2021, Binance would no longer be able to serve customers from Ontario. Right at the end of December, they sent out an email saying they can continue to do business with their current customers in Ontario. It’s a bit of a mess! 

My hope is that Binance will either create a Canada or Ontario version of their site so that I can continue using it. The Ontario government is moving against Binance for their futures/options trading, something that Binance has dealt with before from the US, and in response created a US only version of Binance without those features.

Bittrex

Bittrex is another liquidity provider for cryptocurrencies. They currently don’t have an anti-Ontario stance or an anti-Canada stance for buying or holding cryptocurrency on their site.

Transaction Fees

Bittrex has higher fees than Binance. So why use it? Well, we might have no other choice in Ontario come January 1, 2022 as many major exchanges are being pushed out of the Ontario or Canadian market due to the government regulation on futures and options trading. 

If you do a 30 day volume in USD of less than $25K, then the fees are 0.35% for maker and 0.35% for taker so this ends up being like 0.7% to buy and sell a cryptocurrency or $7 per $1000 transacted or over a three fold increase over Binance. It’s tough to swallow, but it just means you need to have deals that properly account for those fee differences. 

They don’t seem to have any deposit or withdrawal fees of their own, but they note that some cryptocurrencies have their own fees built in. You’ll likely pay between 4-7% from start to finish to get your money in, converted, in a deal, out of a deal, and then converted back to fiat and withdrawn to your account. This amounts to $40 – $70 per $1000. 

This is less than some other potential options in the crypto space and many exchanges don’t support using 3commas bots. 

Special Note

They seem to have some liquidity issues, where they don’t have enough of a certain set of cryptos. Also, they have been reported, on Reddit, to have locked people’s accounts when they get too large and/or stop people from withdrawing their money or crypto. There are a ton of people that haven’t had this experience, but I figured it was worth pointing out.

Other Exchanges

Other places have a ton of options when it comes to Crypto exchanges, but Canada and especially Ontario have less. Below are some options that range in utility and value, but all serve the Ontario market.

Crypto.com 

Doesn’t hook into 3Commas. Can use Cryptohopper. Process to get validated on the platform is slow. Fees are high at 0.4% Maker and Taker for under $25k in trading volume. Good amount of trading pairs. Difficult to transfer money into as you can’t easily hook up your bank account to deposit funds. This may mean additional fees to get your money in the platform.

Coinbase

Without the Pro, there’s no hooking up bots to the Coinbase (affiliate link) platform. If you need a long term place that’s easy to use to buy and hold Crypto assets, then Coinbase is a trusted place to do that. 

Coinbase Pro

Can support Canadians, including people from Ontario. Can use 3Commas. Fees are very high at 0.5% Maker and Taker for under $10k and 0.35% for $10-$50k. Good amount of trading pairs.

BitBuy

Strong Canadian option, including people from Ontario. Can’t use any current bot platforms. Great place for buy and hold trading. 0.2% Maker/Taker fees which are reasonable. Low number of trading pairs, but supports most popular cryptos. Good place to buy and hold BTC, ETH, LTC, XRP, DOGE, ADA, DOT, MATIC, SOL. Has an API, but would need custom coding to automate trading.

Coinberry

Strong Canadian option, including people from Ontario. Can’t use bot, no API, limited trading pairs. This is another buy and hold place. No Maker/Taker fees, but they make money on the spread (the difference between what they can buy crypto in bulk for and what they can sell it for). Good place to buy and hold BTC, ETH, LTC, DOGE.

3commas

3commas (affiliate link) is the tool we use to create bots. It allows for much more than DCA bots, but we won’t cover that here. It connects to your account at one or more liquidity providers like Bittrex or Binance and opens and closes deals on your behalf based on the settings you give your bots. 

Price – $350 USD/yr

3commas has a free tier, but it is very limited. It only lets you set-up one DCA bot which is great for learning, but limiting when you want to have your best option to diversify and take advantage of the potential opportunity that exists. The paid tier that I recommend is the $29 per month ($350/yr USD) Advanced plan. You can often find it on sale, so look out for those opportunities.

The Advanced plan allows for unlimited single pair DCA bots and one multi-pair DCA bot. It also provides access to their paper trading platform where you can test strategies and drive yourself a bit crazy at missed opportunities with fake money.  

Supported Exchanges

One thing you need to understand is that 3commas doesn’t work with every exchange. We will talk about Binance and Bittrex in this guide, but there are plenty more exchanges out there to trade cryptocurrencies on. 

The main exchanges that 3commas supports for Spot DCA bots, which is what we will be using in this guide, are:

  • Binance
  • FTX
  • Bybit
  • BitMEX
  • Bittrex
  • Binance US
  • Coinbase Pro
  • Gemini
  • Huobi
  • OKEx

Unfortunately, many of these don’t allow people from Canada or more specifically, Ontario, to use their exchange because of laws primarily relating to futures and options trading. When it comes to options in Ontario, Canada, Bittrex, despite its low volume and potential liquidity issues, has a strong amount of trading pairs at nearly 1,000 options and works with 3commas, so if Binance goes away, it will likely be the platform of choice for many moving forward. 

CryptoHopper

Much like 3commas, CryptoHopper (affiliate link) allows you to do bot trading with different crypto currency exchanges. One of the biggest advantages in my opinion is its ability to sell based on certain conditions rather than just a random take profit percentage. This means you can tell your bot to buy because of certain factors and sell because of certain factors which can increase your potential for profit. 

Price – $600 USD/yr

With a higher price than 3commas, it might seem dumb to go over to CryptoHopper, but it does have some advanced features that might be worth the money and it does hook up to a different set of exchanges. At this price-point, you’d be able to open a maximum of 200 positions with 5 triggers to start a deal and a 5 minute interval for your technical analysis. Really, the best account level is at the $100/m mark, but unless you have $10k+ ready to invest and trade, it might cut into profits too much to be of value. 

Supported Exchanges

The ones that are most useful to people in Ontario are:

  • Coinbase Pro
  • Crypto.com
  • Bittrex

But the platform also supports:

  • Exmo
  • Okex
  • Bitvavo
  • Bitpanda Pro
  • Huobi
  • HitBTC
  • Poloniex
  • Binance
  • Bitfinex
  • KuCoin
  • Kraken

TradingView

If you’ve ever seen those traders with a bunch of graphs and charts on their screens where they are watching the second to second changes in the value of an asset, then you’ll somewhat understand what TradingView (affiliate link) is for. TradingView allows you to track the value of different asset pairs, such as Bitcoin to USDT to see what it is doing. You can select different time scales to see how it is moving daily, hourly, or even down to every minute. You can also select different indicators and graphs to give you a deeper understanding of what’s happening with the asset price. 

The most important thing that TradingView provides an early DCA investor is a scripting environment where you can take advantage of scripts others have created to back-test different strategies and configurations to see what kind of profit you would have earned over the last few days, weeks or months. 

Price – $155 USD/yr

You don’t need to spend anything on TradingView. It does have paid plans, and that allows you to have more indicators on your charts, but oftentimes, I just remove one indicator and add another. 

If you feel you really need more information and insight from TradingView, then you can expect to pay between $155 USD/year to $600 USD/year for access to more indicators per chart, more charts on your screen at once, and more. 

I am potentially interested in upgrading my account as 3commas allows you to use indicators or custom data from TradingView to start/stop deals, or even turn on and off bots depending on market conditions. This is an advanced level feature, but one I’m interested in potentially pursuing for myself.

CoinMarketCap

CoinMarketCap is where you get the pulse of what’s happening in the overall crypto market. Listing thousands of different cryptocurrencies and exposing data on their prices over the last twenty-four hours, seven days, their market cap, their trading volume over the last day, and their total circulating supply, CoinMarketCap is a great tool for understanding what the market is doing. 

It ranks currencies by their market cap so you can get a sense of which cryptos are the most held, the most valuable, and it also gives you details on which ones are volatile or pretty set in their ways. 

I use CoinMarketCap to research cryptocurrencies to pick ones that I might be interested in trading as well as to see what Bitcoin and Ethereum, the two largest cryptos, are doing. If they drop big and fast, most others will follow them shortly after.

What to Look for in a Good Crypto DCA Opportunity

Volatility is what we want. Ideally, a coin that seems to constantly be going sideways or slightly up. The crypto currency should ideally be in the Top 200 on CoinMarketCap and have a daily trading volume over $10,000,000. You will find that most exchanges like Binance and Bittrex won’t list smaller, even more volatile, coins for trade, so there is a selection limitation put in place right from the start.

I like to check what the all-time high of the coin was and see if we are under it because if we are currently making all-time highs, then we are in unknown territory. It doesn’t mean our choice won’t eventually make new all-time highs while we are investing in it, but if you can see some value that the market might look to recapture, that’s so much the better for selecting a coin to start trading in.

I then check over the last week or two to see if there are enough moves up and down to have potentially made a few percent on a trade per day. If something moves down five percent one day and up five percent the next on a fairly consistent basis, then that’s perfect for what we are attempting to do. 

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