How I methodically examined Dogecoin and other cryptocurrencies in detail with Python
Disclaimer: The material in this article is purely educational and should not be taken as professional investment advice. Invest at your own discretion.
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In this article I will attempt to analyze a crypto currency called Dogecoin. Dogecoin is a cryptocurrency invented by software engineers Billy Markus and Jackson Palmer, who decided to create a payment system that is instant, fun, and free from traditional banking fees (a meme crypto currency). As you may know, it has been extremely popular lately, with its price literally rising 800% in less than a month.
If you prefer not to read this article and would like a video representation of it, you can check out the YouTube Video . It goes through everything in this article with a little more detail, and will help make it easy for you to start programming even if you don’t have the programming language Python installed on your computer. Or you can use both as supplementary materials for learning ! All of the code is written in the video.
Start The Analysis
First I must gather the data, so I arbitrarily decided to get about 5 years worth of close price data from some popular cryptocurrencies (e.g. Dogecoin, Litecoin, Bitcoin, & Ethereum). The data set contains data from year 2016 to year 2021.
Next I wanted to get some information or statistics about the data set. This means I was interested to know what the maximum and minimum prices were for each crypto as well as the standard deviation and the mean etc.
From the image above, I can clearly see that Bitcoin (BTC) has the highest maximum close price out of the other crypto currencies and Dogecoin has the lowest maximum price. Dogecoin (DOGE) also has the lowest minimum price out of the other crypto currencies followed by Ethereum.
Interestingly enough, although Ethereum (ETH) has the second smallest minimum price out of this data set, it also has the second highest maximum price within this data set.
Let’s take a look visually at the data set by plotting the data on a graph.
By looking at the image above, we can easily see that Bitcoins (BTC) close price has grown much higher in value than the rest of the cryptocurrencies in this data set over time. This doesn’t necessarily mean it’s the best performing crypto, it does however mean it is the most valuable crypto out of the cryptocurrencies in this data set. If you look hard enough at the graph, you can also see that Dogecoins’ price has remained low and indeed it is the least valuable crypto in this data set, although least valuable doesn’t mean it’s the worst. As a matter of fact compared to other cryptocurrencies it has a high market cap.
NOTE: Dogecoin is ranked #14 for cryptocurrency market cap and has a market cap equal to $6,282,039,972 as of this writing. -https://coinmarketcap.com/
Now I want to see the scaled data of the cryptocurrencies to find out when each of the cryptocurrencies reached their maximum price.
From the image above I can easily see that Litecoin (LTC) reached it’s maximum price right before the year 2018. This means that 3 years later, it still is below it’s maximum price. I would not want to be the person who bought LTC at it’s maximum price, because I still would not have made any profit from buying that asset.
However, Dogecoin and the rest of the cryptocurrencies reached their maximum price in 2021, so had you invested in these three cryptocurrencies anytime before year 2021, you could’ve profited (of course this is assuming that you sold your assets before the prices dropped).
Now, I want to know what the daily simple returns are for Dogecoin and the rest of the cryptocurrencies. This return will measure how positive or negative an asset has grown as a percentage daily.
The image above shows clearly that Dogecoin has the highest positive daily simple return out of all of the other cryptocurrencies in the year 2021. Dogecoin also shows a few other spikes or high positive daily simple returns between the year 2016 and 2017 as well as between the year 2020 and 2021.
So, which cryptocurrency out of this data set holds the most risk ? This can be easily answered by calculating the volatility of each crypto.
The above image shows that the riskiest crypto from this data set is Dogecoin which has the highest volatility at about 0.096477. You know what they say, the greater the risk, the greater the reward !
Surprisingly, Bitcoin is the least volatile out of all of the cryptocurrencies hence it has the least risk. This could be because more firms, institutions, and people have invested in Bitcoin recently making it harder for individuals to swing the price.
Let’s see on average how much of a return I can expect daily from Dogecoin and the rest of the cryptocurrencies.
From the image above it looks like Dogecoin will give me the highest average daily simple return compared to the other cryptos. So, this means on average I can expect about a .6252% daily return on DOGE.
Now let’s get the correlation matrix to determine if a change in one variable can result in a change in another.
The heatmap above shows the correlation matrix for the cryptocurrencies. From this heatmap image, I can see that Dogecoin has a low correlation with all of the other cryptocurrencies, and this could be a good thing.
I also see that LTC has a moderate positive correlation with BTC at about 63.14%. In fact LTC has the highest correlation with BTC compared to any other correlation permutation.
So, now I would like to know if I had just $1 to invest back in 2016 in each of the cryptocurrencies, how much would I currently hold by the end date of this data set.
Well, it looks like if I had invested $1 in BTC in 2016, I would currently have about $120 USD. If I had invested $1 in LTC in 2016, I would currently have about $65 USD. If I had invested $1 in DOGE in 2016, I would currently have about $340 USD. If I had invested $1 in ETH in 2016, I would currently have about $2000 USD. It looks like my dollar would’ve performed the best (a.k.a. given the most return) had I invested in ETH.
This means if you had invested only a dollar in each of these cryptocurrencies back in 2016 and held on till 2021, you would have spent $4 USD from buying the cryptocurrencies, but you would’ve gained about $120 + $65 + $340 + $2000 = $2523. I think that’s a decent return for a 4 dollar investment ! So, I guess the lesson here may be that you should’ve started investing in these cryptocurrencies in 2016.
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