Constructing a strong digital currency portfolio
Decide whether you are risk loving, neutral, or averse
December was a massive month for digital currencies. Listing the market capitalization of cryptocurrencies is a tired exercise, but it is definitely worth noting that since Thanksgiving, the cryptocurrency market cap has more than doubled from $260 million to $567 million at the time of writing this.
People want to get involved in using cryptocurrencies as an investment vehicle, and many are jumping in to realize quick gains without understanding the technology behind the coins. Coinbase became the #1 most downloaded application in the app store earlier this month, and has over 13,300,000 users. Coinbase’s simple user interface makes buying Bitcoin, Ethereum, and Litecoin extremely easy.
However, there are at least 100 other currencies worth looking at to add to your cryptocurrency portfolio. In this article, I will talk about overall portfolio construction, and what factors to consider when choosing what to invest in.
Before I begin though, remember the two golden rules of investing in cryptocurrency.
- Never invest more than you are willing to lose.
- Hold amidst the dips. Strong hands get rewarded.
Overall Portfolio Construction
CoinMarketCap will be your new best friend as you begin to put together your portfolio. I believe my portfolio is risk-neutral. A risk-averse portfolio would only include the coins listed on Coinbase (BTC, ETH, LTC), and a risk-loving portfolio would be mostly coins under $100m in market cap. Obviously, more risk comes with a higher exposure to gains as well as losses.
My advice is as follows:
- 60–70% in coins with a market capitalization of over $1B. Digital currencies are inherently risky, but these coins have a much higher average transaction volume and support than smaller coins do. Coins I recommend looking at are Ethereum, Stellar, and NEO.
- 15–20% in coins with a market capitalization between $100M and $1B. These coins are usually up and coming projects, and require a lot of due diligence to pick one that is viable to break into the billion dollar group. Look at the white papers of the projects, if they have an actual use case (more rare than you think), and if the token is necessary for the project. Coins I recommend looking at are Request Network, ARK, ChainLink, and Walton.
- 10–15% in coins with a market capitalization under $100M. These coins are the riskiest, and comprise over 1000 coins. It’s highly likely that many of these coins will cease to exist in a year, which is why they’re so risky. On the other side, in this group is where you find the “moon shots,” or the coins with the highest upside potential. Getting in on the ground floor of a coin like this that makes it big is the goal of every cryptocurrency investor, but since it’s risky, be cautious about how you invest here. The only coin I can recommend looking at is QuantStamp, because I don’t know enough about other coins to have an opinion.
Play around with your portfolio, and really think about what kind of investor you want to be and can be. Obviously everyone wants to make astronomical gains, but always remember the golden rules, especially #1. At the time I finished writing this article, the market cap of cryptocurrency jumped to $575 million. It’s a crazy world out there.
Add me in LinkedIn and subscribe to my Medium page if you want to learn more about cryptocurrency investing and trends.
