15 JAN 2022 (SAT)- Pancake Swap (CAKE) Report Card

15 JAN 2022 (SAT)- Pancake Swap (CAKE) Report Card

By quantdoge | Daily Crypto Risk Report | 15 Jan 2022


Investment Disclaimer:

  • I am not a registered investment, legal, or tax adviser or a broker/dealer, and all opinions expressed by me are from my research for educational purposes only.
  • Past performance presented here is not an indicator of future performance.
  • This post expresses my own opinion about the cryptocurrency mentioned herein and is not an offer to buy or sell, or a solicitation of any offer to buy or sell the cryptocurrency mentioned in this post.
  • I do hold a long position in CAKE as a token holder.

1. What is Pancake Swap ?

Pancake Swap started out as a Uniswap fork and functions as an automated market maker (AMM) on the Binance Smart Chain blockchain. AMM is a form of decentralized exchange (DEX) that does not rely on order book system, but maintained by a constant product formula where users could supply their cryptos into different liquidity pools there and earn part of the trading fees whenever anyone trade on the liquidity pool where you have supplied liquidity to.

For instance, supposed the price of BNB is BUSD 495 today, you would need to supply both BUSD and BNB in the ratio of 495:1 into the BNB-BUSD liquidity pool on Pancake Swap as a liquidity provider. Let's say the total liquidity of this pool is 49005 BUSD and 99 BNB, if you supply an additional 495 BUSD and 1 BNB into this BNB-BUSD pool, this pool would now have a total liquidity of 49500 BUSD and 100 BNB, and you now own 1% (i.e. 495 supplied/49500 total) of this liquidity pool. As a liquidity provider, you now entitled to 1% of all trading fees generated from this pool.

The downside from supplying liquidity to AMM however, is the risk of impermanent loss where sometimes it would be better off for you to hold both tokens and not to supply any liquidity if the ratio of both tokens fluctuate a lot from the time you supplied liquidity into the AMM. This risk is mitigated however with the existence of liquidity mining farm, even though this risk is still not 100% eliminated however. 

Nowadays, Pancake Swap has evolved into a platform that is not purely just AMM, but offers other features too like lottery, prediction marketplace and NFT trading.

2. How Pancake Swap Performs Relative to Other Cryptos ?

Performance of All Cryptos Under Quantdoge Watchlist in 2021 (Sorted by % Return)

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CAKE has undergone 1,563.2% return from USD 0.6568 to USD 10.9239 since 01 Jan 2021. CAKE is the 10th best performing crypto assets among others here.

3. How Resilience Pancake Swap Is Towards Bitcoin Crash Relative to Other Cryptos ?

Historically, all altcoins are somewhat dependent on Bitcoin price movement and it’s often the case where if Bitcoin falls, most altcoins would follow.
Top 3 Cryptos That Are Most Resilient To Bitcoin Crash During Each of BTC 4 Largest Crashes in 2021

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CAKE has proven resilience against BTC crash in 0 out of the 4 instances.

During the last 4 BTC market crashes,
When BTC dropped by -13.47 %, CAKE returned -32.45 % at 20 May 2021,
When BTC dropped by -13.13 %, CAKE returned -6.86 % at 22 January 2021,
When BTC dropped by -12.16 %, CAKE returned -17.42 % at 13 May 2021,
When BTC dropped by -11.39 %, CAKE returned -22.44 % at 22 June 2021

4. Technical Analysis on Pancake Swap

4.1. Volume Weighted Average Price (VWAP)

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VWAP is a technical indicator used by a trader to gauge the overall trend of an asset price movement. VWAP line (orange line) represents the volume-weighted average price (average price here is defined as the average of high, low and close prices) while close price line (blue line) represents the price when CAKE is closed at the end of every single day. 

Whenever blue line (close price) is above orange line (VWAP), it indicates that the asset is gaining momentum and being traded higher than its average price level. This would represent a 'buy' opportunity for short-term momentum trader whom task is to trade following the trend while a longer term mean-revision trader might take it as a 'sell' opportunity, anticipating that the price of CAKE (blue line) to fall to its average level (orange line).

Whenever blue line (close price) is below orange line (VWAP), it indicates that the asset is losing momentum and being traded lower than its average price level. This would represent a 'sell' opportunity for short-term momentum trader whom task is to trade following the trend while a longer term mean-revision trader might take it as a 'buy' opportunity, anticipating that the price of CAKE (blue line) to rise to its average level (orange line).

As of 14 Jan 2022, VWAP is suggesting that CAKE has been regaining momentum and the price is now trending up, with another USD 0.30 gain to go before hitting its monthly volume weighted average price at about USD 11.80.

4.2. Moving Average Convergence Divergence (MACD)

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MACD is often used by trader as a momentum indicator. There are 2 lines that form the above charts, namely MACD (12, 26) lines and Signal(9) line, while the histogram is calculated by subtracting Signal (9) from MACD (12,26). Histogram would fall to the negative territory whenever MACD (12, 26) is trending at a lower level than Signal (9) and rise to the positive territory whenever MACD (12,26) is trending at a higher level than Signal (9).

MACD (12, 26) is computed by subtracting the 26-day exponential moving average (EMA) of CAKE closing price from its 12-day EMA. 
Signal (9) on the other hand is calculated as the 9-day EMA of MACD (12,26). 

As MACD (12, 26) goes higher away from Signal (9), it signifies that CAKE is gaining momentum and whenever it goes trends at a lower level than Signal (9),it signifies that CAKE is losing momentum. 

As of 14 Jan 2022, MACD is suggesting that CAKE has been regaining momentum and the price is now trending up.

4.3. Bollinger Band

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Bollinger band is often being used by mean-reversion trader as a gauge to assess how undervalued or overvalued an asset is. Its chart made up of 4 lines, namely:

- SMA (20) (blue line), which is the 20-day simple moving average price of CAKE
- Upper Band (orange line), which is computed by adding 2 standard deviations of CAKE on SMA (20)
- Lower Band (red line) , which is computed by subtracting 2 standard deviations of CAKE from SMA (20)
- Close (green line), which is the daily closing price of CAKE

Whenever close line (green) touches the lower band (red), it indicates that CAKE is corrected too much and is being traded at an undervalued level, representing a 'buy' opportunity. On the other hand, whenever close line (green) touches the upper band (orange), it indicates that CAKE is gaining too much momentum and is being traded at an overvalued level, thus indicating a 'sell' opportunity. 

As of 14 Jan 2022, Bollinger Band is suggesting that CAKE rebound back to its "fair value" range, and is currently trading at a price level that is neither oversold nor overbought.

4.4. Relative Strength Index (RSI)

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Just like Bollinger Band, Relative Strength Index is often being used by mean-reversion trader as a gauge to assess how undervalued or overvalued an asset is. There are 2 psychological levels, i.e. 30 and 70 in RSI. Whenever the RSI reaches 30, it indicates that CAKE is corrected too much and is being traded at an undervalued level, representing a 'buy' opportunity. On the other hand, whenever RSI reaches 70, it indicates that CAKE is gaining too much momentum and is being traded at an overvalued level, thus indicating a 'sell' opportunity. 

As of 14 Jan 2022, RSI is suggesting that CAKE is neither oversold nor overbought.

4.5. Price and Volume Analysis

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CAKE daily active trading volume decreases in Jan 2022 as compared to mid Nov 2021- early Dec 2021 time point. Although CAKE price is rising these few days, the rise is however not accompanied by a gradually increasing volume.

Based on the technical analysis presented above, quantdoge is neutral on CAKE, but I could be wrong, hence please make your careful due diligence before making any financial decision.

5. Pancake Swap Risk Profile

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Based on the 100-day 95% historical Value-at-Risk (VaR) profile of Pancake Swap defined above, the probability distribution chart of CAKE has shifted left, with greater probability of losing more than 10% daily, indicating that CAKE trade is becoming riskier now as compared to 10 days ago on 6 Jan 2022, with its biggest pullback being seen at -10.49% on any single day during the last 100 days. However, I could be wrong, hence please make your careful due diligence before making any financial decision.

6. Price Simulation for Pancake Swap

How did quantdoge simulation perform vs the actual CAKE price movement over the last week ?

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Over the last 7 days, CAKE is trading near the median range of all quantdoge simulations, indicating that CAKE is neither oversold nor overbought. 

7.
Google Trends Analytics

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pancake swap reached its peak in Google Search on 2021-04-18 with a Google Score of 100
Over the last quarter, pancake swap Google Score has decreased 58.93 % from 28.0 to 11.5
Over the last 6 months, pancake swap Google Score has decreased 36.81 % from 18.2 to 11.5
Overall, pancake swap Google interests subsided going into 2022. 

How to purchase CAKE token ?

If you are interested to explore more about Pancake Swap, one of the easiest ways to begin with is to acquire Pancake Swap native CAKE token, which is needed to pay trading fees in this AMM. You could buy CAKE from Crypto.com Exchange. Crypto.com offers a user-friendly and nicely designed platform for everyone to acquire cryptocurrency fast and secured. New users who join Crypto.com are entitled to 0% fees when purchasing your crypto with Crypto.com for the first 30 days.

If you are interested in signing up an account/ getting a Visa card with crypto cashback rewards from Crypto.com, you may sign up with quantdoge referral link as follow:

https://crypto.com/app/j2dc67xe82

with the referral code of j2dc67xe82 , where both of us would get USD 25 once you stake for a Ruby card or above.

If you like my analysis and articles, please follow me at @quantdoge for daily updates.

Follow My Twitter for daily updates: https://twitter.com/quantdoge 

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quantdoge
quantdoge

Data scientist in crypto and blockchain space.


Daily Crypto Risk Report
Daily Crypto Risk Report

This blog was created by quantdoge, a data scientist in the cryptocurrency and blockchain space to publish daily risk reports on different cryptocurrencies. All published reports in this blog were analyzed with in-house algorithmic trading and quantitative risk management technology. ** Investment disclaimer: ** I am not a registered investment, legal, or tax adviser or a broker/dealer, and all opinions expressed by me are from my research for educational purposes only.

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