By Crypto investing. This is a question we at CoinBeat get asked a lot, as it addresses both portfolio diversification and risk assessment in the crypto sector. In our opinion, we would invest in a mixture of both conventional cryptocurrencies, their better performing forks, platforms and a smaller percentage in ICOs. This is a quick breakdown of what we think would be a good basic portfolio strategy.
To begin with, you need to understand that not all cryptocurrencies are the same. Some are minable and decentralized, while others are platforms to build blockchain solutions or DAPPS (Decentralized Applications). Then you have ICOs looking to create blockchains and bring real-world usability to specific sectors. All these different classes of cryptocurrencies are grouped together and that is a mistake that most new investors don’t understand.
Conventional Cryptocurrencies & Established Assets
The conventional cryptocurrencies like Bitcoin, Litecoin & Monero are minable coins that have open source decentralized networks. They are not controlled by any singular entity and were created to be a peer-to-peer form of currency in a digital world. These currencies serve the purpose of being actual holders of value and transfers of capital. Their fundamental reason for existence is to be a currency and operate as a currency. The assets within this group also have various features that make them different from one another. For example, while Bitcoin is the oldest and most developed cryptocurrency in terms of brand and adoption, it is suffering from scalability issues that Litecoin was created to try and address. Both these coins also were seen as not nearly as private or anonymous enough, and Monero was created to address that concern.
We personally would suggest a portfolio that holds around 50% of capital in these types of coins. The reason for this is that they tend to be far more decentralized and act as base currencies for investments into the sector. We would suggest holding Bitcoin as more of a long-term investment, similar to a bond or treasury bill; Litecoin as the currency you would keep in a bank account; and Monero as your at-home cash reserve and hedge against government over-regulation, due to its privacy features. With this class of cryptocurrency, we would invest a starting amount of $10,000 follows:
Bitcoin – 30% = $3000
Litecoin – 12% = $1000
Monero/Privacy Coin 10% = $1000
Hard & Soft Forks
The second group of cryptocurrencies are forks and are the coins created as break-offs of the conventional currencies, in order to address a flaw in the characteristics of the conventional assets.
For example, Bitcoin was forked in 2017 creating BitcoinCash & BitcoinGold. BitcoinCash was created to address the speed and scalability issues with Bitcoin, while BitcoinGold was created to be ASIC-resistant and combat the centralization of Bitcoin’s mining network. These coins also have a lot of potentials and if those character changes prove to be of great benefit, we may one day see them outgrowing their parent coin, Bitcoin. We would suggest that these coins be held. But be wary, as many forks can be nothing more than cash grabs by dev teams.
In this category, we would perhaps hold 2-3 coins of the better performing forks with larger sub-communities. we would limit this part of the portfolio to 5-6% and would avoid the majority of coins in the sub-type of cryptocurrencies. A few picks for me would be BitcoinCash and EtherClassic.
Bitcoin Cash – 4% = $400
Ethereum Classic – 2% = $200
Platform Coins
The next type of coin we would look at is platform currencies. These are coins that fuel platforms where other entities can build their own blockchains and smart contracts on top of. Ethereum is the most popular choice in this category and NEO or Stellar Lumens are others that are quickly emerging out of the sub-sector. These are great currencies because the more companies that build or launch Dapps off these platforms, the more valuable they will likely become. We would invest around 25%-30% in these types of tokens, leaning more towards the established Ethereum.
An example of how we would break down this part of the portfolio is:
Ethereum, – 20% = $2000
Neo – 5% = $500
Stellar – 5% = $500
We would also keep a close eye on NEO as, with its Chinese origins, it may grow quickly as people have begun to refer to it as the Ethereum of China. In the event of a Chinese ban on non-Chinese platforms, NEO may see substantial price movements and gains. If this kind of Chinese ban was to become formalized, we would likely move a further 3-5% into NEO to enjoy that potential return.
The next type of cryptocurrencies is ICOs and emerging coins. These are smaller coins that are much earlier on their adoption and integration cycles, who belong to one of the above categories. Or, they are the tokens of entities looking to build on the above platforms. These coins are usually relatively cheap and also highly rewarding if the project takes off. If the project fails, however, you will likely lose your investment just as quickly.
The emerging coins that are not ICOs are smaller cryptocurrencies that are building decentralized networks and may one day become competitors for the coins listed above. For example, Verge or Ultranote are two potential currencies that are privacy-oriented coins that are looking to become more widely used currencies.
ICOs, on the other hand, are the companies looking to bring a real-world-use case blockchain solution to the market and are usually built on Ethereum. These tokens are referred to as ERC20 tokens, and there is currently over 3000 of these projects in various levels of development.
We would keep our investments in this category to a maximum of 10-15% of the total portfolio and would pick 10-15 total coins or projects. We would also look at the real-world competition or market that solution is trying to penetrate, how beneficial the technology will be in its sector, how stakeholders will be rewarded if the project is successful, and the team behind the project. These are a few of the factors we take into consideration when investing in ICOs or emerging coins. A few picks we currently would recommend are PonderApp, AMCHART, Nublio, or Tronix for the ICO variety, and Verge, Ripple, Ultranote, and Digibyte as potential coins in the emerging coin class. A sample sub-sector portfolio would be as follows;
PonderApp- 1% = $100
Amchart – 1% = $100
Nublio – 1% = $100
Tronix – 2% = $200
Verge – 2% = $200
Ripple – 3% = $300
Ultranote – 1% = $100
Digibyte – 1% = $100
We chose PonderApp because it is looking to become an introduction service that rewards the matchmaker, we can see a lot of real-world potential for this type of service, as it could compete with dating services or other match-making type services like Linkedin.
We picked Amchart as they are planning to put medical records on the blockchain and are getting a lot of attention from the trillion-dollar pharmaceutical industry, and as the global population is aging we can see the potential in a product like that.
Nublio and Tronix are both trying to build their own mainnets to compete with Ethereum.
Tronix is looking to decentralize media and entertainment. We can see Tronix becoming a potential competitor to Youtube or Netflix and, as it is based in China, it may have the advantage of being allowed to service Chinese markets, should they firewall blockchain outside traffic. Additionally, the entertainment industry is a multi-trillion-dollar industry which is a huge potential market for Tronix.
Nublio looks to be an ICO launch pad and has a lot of short-term potential in the growing ICO marketplace.
Verge, Ultranote, and Digbyte are all small emerging privacy tokens and as we see regulations in the sector likely coming soon, privacy tokens and coins will likely see a huge boost in the case of these regulations becoming more common. we gave Verge an extra percent as it is likely the biggest of these emerging privacy coins.
Finally, we gave Ripple a full 3% as it is looking to service the existing banking sector and may become a bridge between the crypto and banking worlds. Also, the company is headquartered in the US and has to adhere to stricter regulations based on their sector and home base.
Mindfully Plan and Pick Your Portfolio
These are, again, just a few of the key reasons we have chosen and included them. We would not suggest overloading your portfolio on any of these smaller coins and you should never over-expose your portfolio to anything that is not more proven and further along its development and adoption cycle.
Another key factor is to constantly rebalance and reassess these choices as the markets and market conditions are changing 24 hours a day, 365 days a year. Additionally, while these are potentially good choices today, they may not be so good tomorrow or by the time you read this. The cryptocurrency sector is a fast-paced and fast-moving sector that changes by the hour, in some cases. This is why CoinBeat looks to provide daily market reports that keep you informed.
We think that if you are serious about investing in cryptocurrency, you should subscribe to relevant news and information like CoinBeat and stay updated regularly, especially if you are not a person with professional market experience or an above-average understanding of the financial and tech sectors. CoinBeat is a publication that connects cryptocurrency investors with world-class cryptocurrency traders, writers and analysts. These professionals understand what is covered in this article and more. One of our goals is to help investors to mimic and copy the portfolio and positions of professional traders, who constantly publish advice, tips, and tricks. In essence, you can piggyback on their experience and knowledge. This may be a better option for you in building and maintaining a well-balanced portfolio.
We hope this helps, and remember, the key is diversification and understanding the risks and tech behind the overall sector. If you are a little bit more risk tolerant, you could potentially go a little heavier on the ICO and higher risk coins that also have a higher reward potential. However, we gave you suggestions for a generally well-balanced starting point. You, or a professional, could adjust as you grow into the sector and that is exactly what we suggest you do.
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