In more mature financial markets, we are often told that a well balanced investment portfolio is integral to long term success. Why are cryptocurrencies any different? You should know that we are not your financial advisor, but we can outline the decisions we made when creating our own cryptocurrency portfolio.
- 1 Risk Tolerance
- 2 Time Horizon
- 3 Total Net Wealth And Other Opportunities
- 4 The Different Types Of Cryptocurrency Projects
- 5 Big Market Caps Vs Small Market Caps
- 6 Dollar Cost Averaging
- 7 Different Types Of Portfolio According To Risk Tolerance
- 8 Conservative Crypto Portfolio
- 9 Medium Risk Portfolio
- 10 Adventurous Portfolio
- 11 How About Investing In ICOs?
- 12 Cryptocurrency Portfolio Strategy
- 13 Conclusion
The first thing to be aware of is that Cryptocurrencies are exceptionally volatile. Any cryptocurrency investor must be prepared for their crypto holdings to fall to zero. If the worst happens, then it is important that the investors quality of life does not alter. If it does, this means you have over invested in cryptocurrencies.
With cryptocurrency projects, you are mainly investing in young startups. The sobering statistic is that 90% of all startups fail. We see no reason why the failure rate of cryptocurrency projects should be any lower in the long term. That’s right; if you invest in 10 random cryptocurrency projects, on average you ought to expect 9 of them to eventually be worth nothing.
Cryptocurrency price movements can be massive. In a day you need to be comfortable with the idea of our investments going up and down 50%. Somehow making a loss feels 10 times worse than making the same gain feels good. This is why only investing what you can afford to lose is so important. If you are over invested in crypto, you will be more emotionally susceptible to buying at the highs and selling at the lows.
We think that cryptocurrencies may be the opportunity of a lifetime. The market is still immature and relatively small. However, 2018 has seen the entry of well respected financial players into the space such as George Soros and the Rockefellers. We still think we are in the first innings in cryptocurrency and believe that as more large financial players enter the market, that there is the potential for extraordinary gains.
When making any investment, you must consider the time period that we are willing to expose your money to cryptocurrencies. Because TotalCrypto believe in the longevity of blockchain technology, we look at our holding period as being forever.
The problem with investing in anything volatile with a short time horizon is that you are forced to sell after a fixed period of time (regardless of where the market is at). If we invested $10,000 and had a time horizon of 1 month, that month in the market is likely to be exceptionally stressful.
A long time horizon also gives us the opportunity of compounding gains over time. Look at the cryptocurrency market as the challenge to find the next Amazon and potentially enjoy larger long term gains. Who wants to be the type of guys to sell Amazon when they were up a little in the year 2000 and miss out on nearly two decades of heavy gains? Also, if you are convinced about the long term growth potential of a cryptocurrency project, why sell it in a few months time?
Total Net Wealth And Other Opportunities
We think ‘Total Net Wealth’ is an exceptionally important consideration when making any investment. The reason is to reduce our risk by diversifying amongst different asset classes like property, bonds, stocks & shares, gold, cryptocurrency etc. This means that if one asset class like cryptocurrency goes down, you do not have all your eggs in one basket.
If you invest a high percentage of our Total Net Wealth into cryptocurrencies, then you are exceptionally exposed to the ups and downs of the cryptocurrency market. This is not only potentially stressful, but could severely damage your Total Net Wealth and have an impact on your personal life. It’s all about balancing risk, whilst maximising the potential for gains.
At Total Crypto, we think that investing 20% of our Total Net Wealth in cryptocurrencies is actually a high allocation. No matter how high our conviction was in a cryptocurrency, we would never finance a purchase with debt. Again, this can lead to very stressful and financially damaging situations. When looking at things through the lens of Total Net Wealth, we think it’s easier to determine what we can actually afford to lose in cryptocurrency investing.
We also must be aware that there may be other opportunities out there aside from cryptocurrencies. For example, if it’s a toss up between starting a business we believe in and will love working on or investing in cryptocurrency, we have to choose the business venture every time.
The Different Types Of Cryptocurrency Projects
There are many different types of cryptocurrency projects and we are certainly not limited to currency type projects like Bitcoin, Litecoin, Bitcoin Cash.
In 2018, TC think the following types of cryptocurrency projects have even better potential:
Application Developer Platforms
Developer platforms are projects that build their own blockchains and application developer tools. This then allows application developers to build on top of the platform and even launch their own ICOs.
Examples: Ethereum, Neo, EOS, Cardano, Lisk, QTUM.
At Total Crypto we love developer platforms. The reason is that as more and more projects build and ICO on the platform, the more valuable it becomes.
There is a tendency for the highest valued cryptocurrencies to be developer platforms and this is why we like having platform plays in our portfolio.
The cryptocurrency space and blockchain is relatively new. This means there is a lack of standardisation when it comes to blockchain solutions. There are many problems that blockchain technology can help solve, but we think that the solution needs to be easy and simple to use.
For example, the cryptocurrency project Po.et has created a standardised and simple system to make the work of digital content writers searchable, whilst also protecting it from copyright infringement.
These projects are a great application of blockchain technology and are well positioned to benefit from the mass adoption of blockchain by businesses.
Anyone who has been drawn into the Apple ecosystem probably knows how powerful these can be. There are cryptocurrency projects that are creating ecosystems. We believe that successful ecosystems in the blockchain space will do exceptionally well long term. This is because they create efficiencies and are quite difficult for businesses to switch away from.
Allows developers to build enterprise solutions on the ICON network. The network already has dedicated blockchains for banks, e-commerce, hospitals, insurance, universities and securities. This means that an application built on the ICON banking blockchain could be used by any bank on the network. The ecosystem also allows for information and data to be shared amongst different sectors in the network. This means insurance companies can easily and securely share data with banks on the ICON network.
The more businesses that use an ecosystem, the more powerful and valuable it becomes. We think this makes cryptocurrency ecosystems a potentially profitable play. Other project examples include Wanchai, who are creating a financial ecosystem.
Speed & Scalability
In December 2017 the Bitcoin network nearly ground to a halt as it could not process enough transactions per second to deal with the backlog and process payments in a reasonable timeframe. Ethereum also had a similar problem, with Crypto Kitties making the Ethereum network grind to a halt.
For currencies and application developer platforms to be widely adopted, they need to be able to cope with increasing numbers of users. This is where speed and scalability solutions come in and there are cryptocurrency projects who solely specialise in this.
For example, the application developer platform NEO can process 10,000 transactions per second. But with the scaling solution Trinity Network Credits, it can process 100 million off chain transactions per second.
As blockchain technology is more widely adopted, we see there being an ever increasing need for scaling solutions like Trinity Network Credits or High Performance Blockchain.
Disruptors are projects that innovate, come up with a new way of doing things and can create entirely new markets. They are your classic high risk and high reward investment. Many will fail, but the ones that succeed will completely change the industry they are operating in.
Alexander Graham Bell completely disrupted the way we communicate with his invention of the telephone. There are cryptocurrency projects that are trying to disrupt on this same level.
Power Ledger is a new way of buying and selling renewable energy. The solution completely cuts out the need for middleman energy companies and allows creators of green power to sell it directly to their environmentally conscious neighbours.
Substratum is creating a new uncensored internet, where everyday people host content in return for cryptocurrency payments. This could completely remove a government’s ability to control what content their citizens have access to and revolutionise the web hosting industry.
We really like disruptors for their potential to change the world and have little doubt that successful disruptors will reward investors with impressive returns.
Government regulation is a looming threat for many in the world. It is quite easy for a government to ban centralised cryptocurrency exchanges. They will not be able to control decentralised exchanges. This means that cryptocurrency investors should be able to trade freely on a decentralised cryptocurrency exchange, even if there is negative regulation in their particular country.
The aspect we particularly like about decentralised exchanges is that they solve the single point of failure problem and the need for third party trust. As cryptocurrencies grow in value, centralised exchanges become a bigger and bigger target for hackers. Any investor with cryptocurrency on a centralised exchange is forced to trust that it will behave properly and have the necessary security measures in place. With decentralised exchanges, these issues are removed and this is why we think they will eventually replace older centralised exchanges.
Examples of decentralized cryptocurrency exchange projects include 0x, Loopring, Kyber Network, NEX and Airswap.
Although we don’t intend to personally invest in them, we think that privacy coins may do well in 2018. The reason is that some see privacy coins as a hedge against government over-regulation or oppressive stances towards cryptocurrency.
We understand the argument for why privacy coins could do well in 2018 and believe people have a right to privacy. However, TC do not think the risk / reward ratio is better than other opportunities currently.
Examples of privacy coins include Monero, Zcash, Verge, PIVX and Deep Onion.
Big Market Caps Vs Small Market Caps
In general, bigger market cap coins are less risky but have a lower chance of phenomenal returns. On the other hand, lower market cap coins generally have much more risk attached, but sometimes have the potential for greater gains. In cryptocurrency you must be aware that a large market cap coin can still potentially lose 70% or even 100% of it’s value.
The precise values are up for debate, but TC categorise coins as:
- Large Cap: Top 10 coins on CoinMarketCap.com.
- Mid Cap: 11th to 50th biggest market cap coins.
- Small Cap: 51st to100th biggest coins on Coinmarketcap.
- Micro Cap: Anything below the top 100 coins.
- ICOs: Generally the most risky investments.
When creating a portfolio, TC like to think about how much risk we are willing to take and allocate our cryptocurrency holdings based on that. The less risk we are happy taking, the greater the proportion of large cap coins we will hold.
Dollar Cost Averaging
We are not experts in drawing triangles on graphs to try and time our entry point into the market. Instead, we like to dollar cost average into our positions. This just means splitting up the amount of money we are willing to invest into separate chunks and investing a fixed amount every week or month.
This means you buy more crypto if the market goes down or you already have a position to add to, if the market goes up. The disadvantage of investing all your money in one go is that you are forced to essentially time the market. Instead, we like to take the emotion out of investing and use dollar cost averaging to dictate our entry points.
Different Types Of Portfolio According To Risk Tolerance
As we are not your financial advisor we cannot tell or advise you on what to do. We are happy to tell you what portfolios we would hold personally, depending on different risk tolerances.
Conservative Crypto Portfolio
The purpose of this cryptocurrency portfolio is to outperform the overall market in market downturns, whilst still enjoying the significant upside of the market. TC expects this portfolio to significantly outperform assets such as stocks and shares in a bull market. It has been constructed to add flexibility for the future. For example, you could add additional positions or participate in ICOs by converting some Bitcoin or Ethereum holdings.
- Bitcoin essentially dictates the cryptocurrency market because the most popular trading pairs are Bitcoin ones. Most Altcoins do not actually have a direct USD value and only hold a value in Bitcoin, which is then converted to USD to give their USD value. Usually if Bitcoin does badly, altcoins do worse. In a bull market, bitcoin generally goes up slower than altcoins. This leads us to believe that although Bitcoin is volatile, it is less so than other cryptocurrencies.
- Ethereum is the largest application developer platform out there and is firmly established as the second largest cryptocurrency. Ethereum’s first mover advantage in the application developer platform space gives it a massive advantage over its competitors.
- Litecoin has long been the testing ground for Bitcoin upgrades. More and more people are becoming aware of Litecoin and psychologically, people seem to think they are getting better value by buying a coin costing around $100, rather than something that costs thousands.
Interested In Adding Bitcoin, Ethereum Or Litecoin To Your Portfolio?
Coinbase Key Facts
- Established Track Record: Coinbase was founded in 2012 and is the world’s most popular cryptocurrency exchange.
- Serious Backers: Venture capital firm IVP, who were involved in the latest funding round, have been early investors in businesses like Netflix and Twitter. Other investors include companies like the New York Stock Exchange.
- Easy To Use: Coinbase is renowned for it’s easy to use interface. This makes it the perfect exchange for cryptocurrency newcomers.
- Small Minimum Deposit: You can invest as little as €6 into cryptocurrencies on Coinbase.
- Regulated: Coinbase is one of the few cryptocurrency exchanges to be regulated.
- Insurance: Customer funds are insured and segregated. US customers are even insured up to a balance of $250,000.
- Deposit Methods : Credit / debit card, bank transfer and PayPal for US customers.
- Tradable Cryptocurrencies: Bitcoin, Ethereum, Bitcoin Cash and Litecoin.
- Customer Support Methods: Email and FAQ’s.
Looking to invest more than $100 in cryptocurrency using Coinbase? Good news! You will also get $10 FREE by signing up through Total Crypto!
Medium Risk Portfolio
Our medium risk crypto portfolio blends a solid core of large cap cryptocurrencies. We particularly feel that NEO will have a lot of staying power in the market and is undervalued compared to Ethereum.
This portfolio gives us diversified exposure to more exotic cryptocurrency projects with higher risk / reward profiles, whilst holding the majority of our funds in a core large cap position. In a down market, we would expect this portfolio to perform worse than our conservative one. However, we expect a superior performance if the cryptocurrency market goes on a bull run.
Looking To Add Cryptocurrencies Like NEO, ICON & Power Ledger To Your Portfolio?
Binance Key Facts:
- Largest In The World: Binance is the biggest crypto to crypto exchange in the world!
- Huge Selection Of Cryptocurrencies: Binance offers you the opportunity to get your hands on over 100 different cryptocurrencies. Ripple is one of them.
- User Friendly: The crypto to crypto exchange is the simplest we have ever used. We think this has been one of the main factors leading to Binance’s explosive growth.
- Customer Support: Binance offers email multi language support for 🇺🇸 🇨🇳 🇯🇵 🇰🇷
Get more exotic cryptocurrencies on the world’s largest crypto to crypto exchange.
Need help setting up a Binance account? Just checkout our Binance guide.
Our adventurous crypto portfolio is geared for major growth in a bull market. Ethereum has been omitted as we feel there are other application developer platforms that can gain higher return multiples. In a down market, we expect this portfolio to drastically underperform Bitcoin.
This portfolio has been positioned with a 35% exposure to low and microcap projects (includes ICO allocation) which would provide the majority of the growth in a bull market. We see the potential for 25x+ gains for some of these low cap cryptocurrencies and are happy to take on the additional risk for this return profile.
Kucoin Key Facts:
- Large Selection Of Cryptocurrencies: Kucoin gives you the opportunity to get your hands on around 150 different cryptocurrencies. The exchange has a reputation for listing more exotic cryptocurrencies and quickly listing projects that have just finished their ICOs.
- User Friendly: We think Kucoin is one of the simplest exchanges we have ever used.This is likely one of the main driving forces behind it’s explosive growth.
- Multi Language: Want to trade in your native language? The exchange offers translated versions of their site in: 🇺🇸 🇨🇳 🇵🇹 🇳🇱 🇩🇪 🇪🇸 🇷🇺 🇯🇵 🇫🇷
- Customer Support: TotalCrypto have had a great experience with Kucoin email support.
Get Your Crypto On One Of The Fastest Growing Exchanges In The World.
Need help getting started? Just check out our dedicated Kucoin guide.
How About Investing In ICOs?
ICOs are exceptionally similar to venture capital. We are essentially playing the role of the investor on Shark Tank or Dragons Den, with startups pitching for our investment. It does take time to sort the wheat from the chaff and we recommend that any ICO investor researches a project thoroughly before investing in it.
For successful cryptocurrency projects, it’s ICO is usually the cheapest time to make an investment. This means that we are able to get the maximum multiples on our investment. However, this upside comes with a lot of risks. Unfortunately there are many scam ICOs out there and many projects never really take off. This area of cryptocurrency investment really is high risk/high reward and because of that, we cannot allocate a sizeable portion of our portfolio to it.
We have prepared a comprehensive beginners guide to ICOs if you want to learn what to look out for and how to find a great ICO.
Cryptocurrency Portfolio Strategy
The most important thing is the price you enter your positions in. We are happy to wait until the overall cryptocurrency market has pulled back at least 35% from its all-time high. You can check this on Coinmarketcap.
We then like to break up the amount we wish to invest into between 4 and 10 equal chunks and invest a fixed amount every week.
After entering a position, we just hold them until the market goes on a bull run. Our strategy is to wait for the overall cryptocurrency market cap to hit it’s all-time high again and sell a portion of our portfolio for USD every week. This means we take profits and can reinvest them back into the market, when it eventually turns bear-ish and repeat. This process also rebalances our portfolio after every market cycle, so we don’t become too overweight in any single position.
This cryptocurrency portfolio strategy sounds simple in theory but in reality it is relatively hard to have the discipline to follow through with it.
Cryptocurrencies really are one of the most volatile investments anyone can make. Yes, it’s possible to strike gold in cryptocurrency and we are sure you have heard of all these cryptocurrency millionaires. The reality is that it takes time for your portfolio to grow and these Bitcoin millionaires that you hear about got in exceptionally early and in some cases waited 8 years to see exciting returns.
Cryptocurrencies are not a get rich quick scheme; it takes time to see success and even then it’s not guaranteed. Remember you are backing young companies or complete startups and the odds are that 90% of these will fail in the long term. Before doing anything, you should be fully aware of the risks. If you are comfortable with it, then don’t invest more you can afford or feel comfortable with losing.
The Total Crypto Team reckon that cryptocurrency will completely change our financial system and we are positive on the long-term outlook. For those that decide to begin their cryptocurrency investment journey, we look forward to seeing you around on Total Crypto.