Let me tell you how it works…
You join an exchange and now you are ready to start trading.
You buy some crypto, pay the commission and then sit back and wait for the price to rise. You’re not sure if you should wait for the big leap in prices (we all long for the next BitCoin explosion, just as long as it is in the crypto we have invested in!) Alternatively every time you go into profit you sell, pay the commission and take the profit and reinvest the increasing working capital.
The Coinbase Trading Cycle is illustrated below:
* variable, dependent on investment amount.
That’s the theory anyway…
Look at Coinbase’s fees! To profit on Coinbase (not Coinbase Pro) there needs to be a shift of 3.06% just to break even. This is not a margin, nor can it really be defined as a spread, it’s a massive shift. In a previous post (click to visit) I described some of the traps that Coinbase sets for its users.
There is an alternative, that is fixed on skimming profits and increasing your net crypto holdings .I have called this method milking the cow.
So what is Milking the Cow?
The first thing to do is STOP BUYING and SELLING!!!
Yes I did just say that!
Most Crypto-bloggers encourage users to at least change over to Coinbase Pro or find an alternative exchange to avoid high fees and consequently unbridgeable spreads. Yes feel free to do that, but if you CONVERT rather than BUY and SELL it reduces the spread significantly and you can even do it for micro amounts – more about this in a later article. I have calculated this to be approximately 1.2% which is only about 40% of Coinbase’s standard fees.
The key is to only use your fiat wallet when you want to transfer money to your bank account and NEVER for anything else. For this you will need to sell, but once sold, if using Coinbase, transfer funds to Coinbase Pro and then remove it to your bank account from there.
So now you are considering a shift in approach you just have to choose which crypto to convert to and that is golden question – the best you can do is analyse the market and take a shot, but whatever methodology you are using that is something you are doing anyway.
In my article about Coinbase traps I warned against selecting Sell All and the same applies to convert all (although for some reason convert all does allow a transaction preview unlike Sell All). So to milk the cow this is what you need to do.
- Designate an alternative wallet to your fiat wallet as a holding account. I use TEZOs because they offer staking rewards
- When your currency value hits profit get ready to convert, but as always watch and wait until you gauge it is the best moment. The best thing about this is there is no real necessity to do complex calculations as have characterised many of my previous posts. Then at that moment CONVERT to include the profit, but not everything. The amount you have just converted then becomes your new working capital.
- Now to finish milking the cow you just need to skim the cream off the top. Convert the remaining amount to your holding account using CONVERT ALL. It is part of the profit so it adds up anyway, but you may want to wait until a favourable price differentiation between your invested crypto and your holding account – I will write more on this in my next article – It’s not all about money.
- Your holding account only holds profits so it is less consequential if prices fluctuate and all the time staking rewards are being added (if you hold for at least 35 days for TEZOs).
- Conversion reduces fees quite significantly.
- On Coinbase the value of your held currency can be observed and it is easier than making calculations to work out fee inclusive figures.
- Milking the Cow doesn’t release high profits (although it does create a profit fund that is set aside)
- It requires closer monitoring
- There may not always be a favourable currency to convert to, although it may be better just to take the profit and if necessary transfer temporarily to a stablecoin (eg BAT or DAI) to hold.
Milking the Cow is a variation on what many traders consider to be standard practice and especially if you are using Coinbase it is handy way of avoiding excessive fees. It also provides a structured way to set aside profits (and of course the amount to set aside is up to the trader) while increasing his or her trading capital. While there is still a spread to consider profits are much clearer to see without the need to make complex calculations or worry about fees.
However, it should be considered as part of a wider strategy aimed at nurturing and growing your portfolio. This will be discussed later in a post about blended strategies.