Crypto is an ever-evolving field with many changes and trends going on all the time. If you are looking to invest in crypto, choosing a great crypto portfolio is not an easy task.
There are so many distractions and new projects being released to the market. Overall it seems like there is an infinite number of opportunities to choose from.
I would like to suggest a simplification for you in the process of choosing a great portfolio and sticking to it.
As you might know already, in the past 12 years the crypto markets performed in 4 year cycles. These cycles are dictated by Bitcoin’s halvenings. In short, every 4 years Bitcoin’s reward system goes through a halving, making it harder and scarcer to mine. At the last year of the cycle there is normally an insane bull run, making crypto prices go parabolic and breaking all-time highs records again and again. During these 4 year cycles there is usually a long and depressing bear market – and usually those were the best times to buy cryptocurrencies*.
* Do take in mind that not every cryptocurrency will stand the test of time. Even though many coins did succeed in breaking their ATH again in the upcoming cycle, many didn’t manage to do so.
In addition to that, the 4 cycle theory is only based on 2 cycles up until now, and therefore should be taken with due diligence. We are still watching carefully how history will write itself regarding cryptocurrencies, and we do not have enough data to forecast the future.
Even if we had more data and history to draw from, there is an important principle in investments:
Past Performance Is No Indicator of Future Performance.
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Investing vs trading
As far as investments go, there are many strategies you can choose from. In this article, I will focus on investing rather than trading. Investing is when you buy an asset for a pre-determined amount of time. You can invest for short term, medium term, long term, and everything in between.
In comparison, Trading is when you buy and sell assets much more frequently in order to generate profit. You can day trade, swing trade, and even weekly trade – if you are doing it right. In my opinion, it is much harder to trade than to invest. Trading is very stressful without the right knowledge, demands lots of technical knowledge to get right, and maybe to some trader’s disapproval, also a bit of luck.
Most beginner traders without experience and knowledge will probably lose their money. Even the best traders don’t hit a 100% win rate. That’s not to discourage you from pursuing trading! If you are passionate about trading and want to master it, I’ll be the first to encourage you on your mission. Just make sure you get proper education and knowledge on your subject, and understand that this is a demanding field and not a get quick rich scheme. Think about it, if trading was that easy everyone would do it.
Getting back to investing, If you’ve done your research right, Investing requires almost no skills. You just buy a great asset and wait on it depending on your timeframe. Many seasoned and well-known investors hold their assets for years and years until they reap their profits. The reason for that is because investing in something you genuinely researched, understood, and believe is one of the simplest yet smartest things you can do with your money. Sure, when you buy an asset it can always plummet in value in the short term. Even medium-term you may experience losses on paper. But, if you have conviction and data on a certain asset that affirms your beliefs, you can make significant gains from just waiting on your asset.
Take Bitcoin for example. People who bought 1000 bitcoins in 2010 at the price of $0.0008 per bitcoin for 0.8$ and held it throughout the year till bitcoins price hit 0.08$ now had 80$. Not bad for a small investment. If they had continued holding bitcoin until 2013 when bitcoin got to around 1200$, they were already millionaires. Imagine that you bought an asset for 0.8$ only to become a millionaire 3 years later. That’s totally crazy! Though this is a rather extreme case, this proves that holding an investment you believe in over a period of time might be one of the best options to take.
Don’t take me wrong now – If we go on with our example, it certainly wasn’t a straight line to get there. After peaking at around 1200$ in 2013, Bitcoin plummeted to around 500 dollars until around 2017. In 2017 came another bull run which peaked at around 20k$ and then again crashed to the lower thousands. This year, bitcoin did the impossible again and hit an ATH of 64K$! Notice a pattern, the longer someone held his bitcoin, the higher the rewards he reaped. If a person held their 1000 bitcoins all the way from 2010 and sold in 2021 peak he would have as of today around 65 million dollars before taxes. That is a phenomenal return on investment.
So in conclusion the most popular time frames for investing are-
Short term investing – few days up to around 2 months
Medium-term investing –2 months – 1 year
Long-term investing – 1 year or more.
(These are not hard definitions – they are for my convenience in this article)
I would suggest you go with medium or long-term investing as they are usually the easiest to navigate. Elevating the stress from yourself while investing is a crucial point to succeed in this field. In addition to that if you are looking to set and forget, I would recommend going for a long term approach, while reviewing your portfolio once every month or two.
Taxes are also a consideration in investing, considering there are capital gains taxes for crypto earnings. Though I am no tax expert, I recommend you plan taxes ahead using your countries guidelines and laws to avoid unwanted surprises. One specific thing related to taking in mind is that capital gains taxes for long-term investments are sometimes lower in certain countries (like the U.S).
Crypto Portfolio Suggestions
The ideal portfolio in my eyes consists of no more than 5 good crypto projects. This number makes it easier to follow your portfolio and keep up with your chosen projects. If you have many crypto projects in your portfolio it will be very hard to keep up with all the updates, and they are many.
In addition to that it is recommended to schedule a review for your portfolio once every month or two. It will help you keep up with what’s going on without overwhelming you and making you obsessive over each crypto movement.
Believe me, I was there. I know the feeling of checking your phone every 5 minutes and getting stressed\excited over every 5% move (depending on the direction). It is very easy to get addicted and obsessive over crypto if you don’t set a limit or a plan to yourself.
Set your plan – and stick to it. if you need to change something because of an unplanned event, do it swiftly and move on. Don’t let your emotions rule you as that can be one of the biggest causes for losing money over the short and long term.
A note – if you are investing in very small and new crypto projects, it might be the right thing to keep up with daily updates and move as fast as you can. New projects tend to need this kind of attention until you can trust them and let go.
With that in mind, let me suggest a few options for decent crypto portfolios with their advantages and disadvantages.
The Classic Crypto Portfolio –
Bitcoin – 100%
Writing about crypto portfolios, it would be inappropriate to neglect the classic crypto portfolio since crypto’s emergence. The maximalists of Bitcoin would agree with this one. There is a school of thought in crypto that the only true and real crypto coin is bitcoin. The argument for this statement is that Bitcoin is the only decentralized coin, with a hard cap of 21 million on the number of coins that will ever be created making it scarce (and therefore deflationary in the long term). In addition to that many people argue that the network effect of Bitcoin and the idea behind it is the only one worth investing in crypto.
Personally, I think that this is quite a romantic view on the subject, but I don’t believe in maximalism. If nature was a maximalist there would be no variety in life, and as the saying goes – “variety is the spice of life”. I believe the same goes for investing, especially for a new and exciting field like crypto.
The Minimalist Crypto Portfolio –
I could definitely see myself holding this kind of portfolio if I were to invest very large amounts of money today, with a lower appetite for risk. This is like investing in the Microsoft and Apple of the tech industry, the two biggest companies\coins today that seem like failing is not an option today.
As we know there is always risk in any investment but going with this portfolio is arguably one of the safest choices in crypto. Don’t expect 100X returns like you might hear happening in all sorts of random crypto projects, but if you are investing larges sums and want to stay (relatively) safe – go ahead. The return you can expect each year might be anywhere from -60% to 400%. On average BTC grew around 100% per year, ETH around 2000% (ETH has fewer years on the market than Bitcoin).
Go with this portfolio if you are a solid investor, not looking for mind-boggling returns but for a certain peace of mind (though looking for peace of mind in crypto might be an odd adventure).
The Bluechip Crypto Portfolio-
This one is a more diverse portfolio that has some of the biggest Crypto projects on the market. ADA and DOT are direct competitors with ETH and have great room to grow. Link is also one of the most promising projects in crypto today, it is an oracle project aiming to connect between blockchains and data points to always ensure correct information.
Overall it still is a pretty solid project, consisting of 2 cornerstones and 3 solid projects with high growth potential. The strategy is to keep on balancing the portfolio over time, allocating profits from the smaller cap coins to your bigger cornerstones projects (BTC and ETH) to keep the percentages the same over time.
The ETH and DEFI Crypto Portfolio –
5% GRT \ 5% STRONG
Defi is an interesting emerging field inside cryptocurrency which involves many different aspects. Defi includes decentralized exchanges, loan providing and receiving services, interest-bearing liquidity pools, and more. There are even decentralized platforms for lottery events that everyone can win in (don’t try this at home). Overall defi has seen a great demand over the last couple of years and is believed to be a growing sector inside crypto. This portfolio has a very strong inclination to ETH and defi, as ETH is the main vehicle on which defi exists.
ETH hosts most of the well-known defi platforms today and handling defi demands by paying gas fees with ETH. Therefore the base of the portfolio must revolve around ETH. Uniswap is one of the biggest and most trusted decentralized exchanges and liquidity providers. It is a natural pick to go within this kind of portfolio. The rest of the projects are either defi platforms or layer 2 solutions for Ethereum.
Lastly, there is 5% allocated to The Graph or Strongblock, both are good options. The graph aims to perform as an index for the Ethereum network. Strongblock is a node service for the Ethereum network which rewards users for setting up nodes – you can read more about Strongblock here.
It’s important to state that this portfolio is far from a stable or conservative pick. Besides $ETH I would classify it as a high to very high-risk level, with a high reward rate. Tread carefully.
The “Well Rounded” Crypto portfolio
This is the most well-rounded and balanced crypto portfolio on this list. It is a fairly medium risk as there are many bluechip crypto projects in it. BTC and ETH consist of half the portfolio and allow you to lean on them when times are bad. The rest still maintain a high level of credibility and trust, while providing decent growth potential. There is the fact that you have to handle more coins in this portfolio, but as I see it they are more stable coins relative to low cap coins and therefore demand less attention to details. If one grows bigger in proportion to the others it is recommended to trim it down a bit and reinvest back into BTC or ETH (or other gems if you feel like it).
If you go through the suggested portfolios you will see there are hardly any small unknown coins with a low market cap (except for STRONG). The reason is that it is so hard to predict which new coin or project is going to make it. The sad fact is that most aren’t going to, and will probably be wiped away through histories pages. It is not a fun experience seeing your hard-earned money diminish year after year clinging to the hope of that coin to finally explode.
Therefore I leave the gems for you to find on your own, and to have enough conviction and research to invest in it. Even though this is not financial advice, I Still cannot feel comfortable suggesting a gem to invest in. Knowing the fact that most of them probably won’t be remembered in a year or two it just doesn’t feel right.
With that, Have fun with your gem hunting! And remember to never overcommit to a gem. Put aside a certain budget you are comfortable with losing 100% of it. And don’t delude yourself in the process, please.
One of the smartest tools hardly utilized by many in crypto is stable coins. Stablecoins allow you to hold crypto that is pegged to a certain fixed-rate, usually to the USD. The most popular coins are USDT and USDC, 1 USDT\USDC is worth approximately 1 USD. That means that if you have crypto gains that you want to cash out but keep in crypto, without the fear of a coin dropping you can exchange your crypto for these stable coins.
When you believe a peak is coming, or you have substantial gains for that matter you can cash out some crypto to a stable coin. That way you can keep calm even in times of market crashes and reinvest your money back into the market when it is the right time.
Building the right crypto portfolio is a very personal and different experience for every person. Though it is a task that takes time to customize for your needs, the principles for building a winning portfolio stay the same. Build a robust portfolio that has a good model behind it. Research the coins thoroughly before investing. Plan according to your time frame and create exit strategies as to when to take profits and when to trim your portfolio down. Remember to stick to your goals and don’t make rushed changes without a plan. But stay dynamic and alert for surprising changes in a project, and be ready for swift decisions if needed.
Remember that crypto can be a hard experience when you are not prepared. On the other hand, when you plan for the crypto markets you can make lots of fun on the way and also lots of profit.
The last thing I want to say is on no circumstance you should ever, ever, ever invest money you cannot afford to lose 100% of. This is the key difference between the mindset of a winner or a scared investor.
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Stay safe and sharp,