So you’ve gotten yourself emerged in the crypto scene, huh? You might be wondering how to construct your portfolio well enough to be able to sleep like a baby. You’ve probably heard it before, but we’ll say it again. Invest what you can lose.
In the following article we will not be giving advice as to what type of coins or tokens should be in your portfolio. We will focus more on how you can minimize your investment risks by grouping your portfolio into different types of coins and focusing more on a long-term investment strategy.
Alright. First of all, with all these coins joining the market it might seem like a solid plan to be speculative, and well diversified, but too much diversification could also be a problem. Especially if you do improper research and end up having diversified into 9 different types of glorified garbage.
Secondly, if you diversify you might want to consider not just diversifying in the crypto space. While it is a great opportunity for a high ROI, diversifying in different coins and/or tokens still means you’re 100% in the crypto market, which is not really that diverse at all. If you’re serious about investing a part of your wealth in the hopes of long term returns, then it might be interesting to put a bit aside for index funds, bonds or cash reserves.
The crypto market is still young and extremely volatile. You can earn a lot of money very quickly, but it can also work the other way around if your timing of entering the market is off or simply because you picked projects that were too much of a risk. To protect yourself from losses and to build a consistent value, you must have a balanced crypto portfolio. Now you might ask, how do I put together such a portfolio?
We will give an example of how your portfolio could be segmented based on risk.
You should see your portfolio as a pyramid. The top is narrow and solely contains coins that are high risk or coins that you fool around with on the market. The bottom on the other hand contains the majority of your portfolio and should be seen as the foundation of your portfolio, it shouldn’t be touched unless deemed necessary. Though we implore you to use/spend some of it and refill them when you can. If you don’t, then cryptocurrencies will be nothing more than just a virtual speculation tool, where real money is being sucked into a vacuum, never to be seen again. These currencies are not called currencies for nothing.
Layer 5: Bitcoin | 40% of portfolio | spendable, but refill |
In crypto you could more or less claim that all value is related to that of Bitcoin (BTC). When BTC rises fast, people often sell altcoins to not be left behind on the BTC shuttle. When BTC drops, altcoins will also drop, but often harder which results in some more bleeding until BTC picks up again and the same money re-enters the altcoin market, and then some. We’re not saying – don’t buy altcoins – but it might be worth knowing you could be in for a wild ride if you decide to go all out on altcoins. BTC has a huge market cap and is less prone to manipulation than other coins that are available on the market and thus should be your safest bet when it comes to forming the foundation of your portfolio.
Layer 4: Proof of Stake coins | 25% of portfolio | Don’t touch |
To keep it a bit more simple we will compare it to mining. Basically you’re holding a certain amount of weight in the Network based on your holdings. If you are investing with a couple of dollars it might not be worth your while but if you’re talking thousands this could be a lucrative way to earn some coin every once in a while.
The major benefit of staking coins is that it removes the need for purchasing expensive hardware as you would with mining (PoW). The PoS or ‘Proof of Stake’ system offers a guaranteed return and predictable source of income for miners unlike proof of work system where coins are randomly rewarded to the most high-level computing systems.
The consensus mechanism removes the need for purchasing high-end computer hardware. When a mining node stakes bound coins from an e-wallet, it is guaranteed a fixed percentage of transactions on the network irrespective of its processing power.
The blockchain we’re utilizing (Neblio) provides the same mechanism where users can store some Neblio and be rewarded around an extra 10% of their holdings each year. In addition to a possible high rate of appreciation of the coin itself this could translate to a large return of investment.
There’s a lot of different proof of stake coins that provide this function and we definitely recommend doing some research on which one would be most interesting or beneficial to you.
Layer 3: Altcoins | 20% of portfolio | Longterm |
You use a small part of your portfolio purely for speculation on altcoins, coins that have forked from another coin. Most altcoins are little more than Bitcoin clones, changing only minor characteristics such as its transactions speed, distribution method, or hashing algorithm. Some of these coins haven’t survived, but some manage to flourish. One exception is Litecoin, which was one of the first altcoins and currently is in the top 10 coins.
With some smaller cap altcoins you can sometimes have a great return of your investment that you wouldn’t see on Bitcoin in the same time-frame. There are benefits to holding altcoins but you should properly research them and make sure there’s a real use-case to it or an unique selling point. Also be sure to keep an eye out on the market as altcoins are known to be more unstable in the market.
Shifts in your altcoin portfolio
The percentages of the groups are fixed, but the contents are not (unlike the BTC one). You could switch around some altcoins if bad or good news comes out, but generally it’s best to keep these long term after you’ve done proper research and are pleased with what you read or seen.
Layer 2: ICO’s & TGE’s | 10% of portfolio | Higher risk, bigger ROI |
ICOs are initial coin offerings (or token generation events) and they can either fail or succeed, really, there’s not much in between. The major reason behind its failure is the fact that they have incompetent ideas, semiskilled teams, the articulation of the whole project or they could basically be a scam. According to findings, about 62% of the ICO startups failed between July 2017 and February 2018. When purchasing ICOs, there are no hard or fast rules that are set to help one decide if the project is genuine or not. It is therefore recommended that you do a lot of research to ensure that you do not end up wasting your money.
In cryptocurrency world, ICOs are the most profitable yet risky form of investment as well as the raising of funds. Once you have settled on an ICO, there are many advantages of investing in ICOs.
When a specific coin hits the exchange platforms, it will be exposed to a lot of long term investors and short term traders. This exposure may lead to high demand thus translating to great prices. For instance, the people who bought Ethereum ICOS, Ether in 2014, its price was $0.04 – which has shown to be a big gainer when the Ethereum project went live in 2015 and went on to a constant increase in price.
Investing in an ICO means you’re as early as you could be as to entering a project. It’s mostly a swing and hit or a total miss.
Layer 1: Daytrading | 5% of portfolio | Risky |
Research shows that more than 80% of day traders fail in their first year. Almost all day traders suffer BIG losses when starting out, and few actually move on to start making profits. Why? Because they lack the education, experience, insight and have no risk management systems. You wouldn’t sit your grandma down at her first game of Texas Hold’em and expect her to clean up, would you?
The cryptocurrency market is outrageously speculative right now and just about everyone has an opinion on how prices will move, or the value of a coin. Trades made on the basis of false information can lead to big losses, and this is something every new trader will be exposed to.
You will see all sorts of conflicting information when trawling through Reddit, Steemit, Telegram and Twitter. Take everything with a grain of salt; find trustworthy sources and connect people with experience successfully trading the markets. When you’re up for it you can try taking that 5% of your portfolio and try to get a feel for the market. If it’s not for you, just put them in a coin you feel good with.
Remember this is just one particular and a less risky way you could set-up your portfolio. To each their own taste!
We’ll leave this candlestick guide here in case you want to spot and try to recognize some movements on the market yourself:
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