Getting into crypto can be pretty overwhelming. With almost 12,000 cryptos listed on CoinMarketCap, you can even quickly wonder how to get into it all! Today, we will try to build and implement a balanced investment portfolio, mixing high potential and security!
Step 1: Choose your investment strategy
This first chapter will be short but it will be very important for you and your way of approaching the market.
To choose your strategy on the markets, you must indeed ask yourself a simple question: “what do I expect from my financial investments?”
It is also important to assess your ability to handle the pressure in the face of strong movements in the cryptocurrency market, which is extremely volatile: in an investment logic, would you accept to see your portfolio lose 70%? Are you capable of cashing in on that?
These different questions will lead you to the choice of your investment strategy. Today we will look at three of them, but they are obviously totally adaptable.
The “good father” strategy
How to best summarize this strategy? You need security in your investments, you don’t really want to be bothered by the vagaries of the market and too many movements. You have a very long term logic and you are not in any hurry.
The intermediate strategy
You have the time to learn a little about the ecosystem, the latest crypto nuggets that the Journal du Coin exposes to you, you are also willing to take the risk that sometimes things do not go as you want. You still need a minimum of security which will involve investing in large caps.
The aggressive strategy
You are in it to make money and are willing to take the necessary risks. You can spend a lot of time looking for young nuggets and you can psychologically detach yourself from your portfolio: anyway, if it breaks, too bad.
No strategy is THE right one, although most people naturally tend to think that “Okay, balance is the right compromise”. This is not necessarily true, because the balanced strategy already contains altcoins, which are often unproven over time, which means that you have to know when to sell them. The strategy of the good father is significantly different since it simply consists of buying, waiting 10, 15, 20 years, and selling totally or partially.
It’s just a different vision, a different available time, a different psychology.
Don’t forget that cryptomoney is constantly experiencing technological advances, crazy new projects, and that no altcoin has a certain future. So you have to know how to take your profits!
Step 2: Build your portfolio
Now that you know your overall investor profile, we’re ready to take action! Here we’ll look at different assets/asset classes that could fit into your portfolio depending on your profile.
It has a special place, especially in the family & balanced portfolio.
Bitcoin alone concentrates 41.5% of the money invested in cryptocurrency as of this writing, and that’s a relatively low dominance compared to usual.
This means that institutional, large wallets or whales are still betting heavily on it, and the overall cryptocurrency market is broadly following Bitcoin’s movements, which means several things:
- If Bitcoin corrects, the majority of the market will correct
- If Bitcoin climbs, the majority of the market will climb
- If Bitcoin is in a range, that leaves a lot of money available to speculate on altcoins.
- On the other hand, if Bitcoin goes up very strongly, the money invested in altcoins is drained back into Bitcoin.
As an investor/speculator in this market, you should always keep an eye on the Bitcoin chart. It sets the pace.
- In a family portfolio, Bitcoin should represent 40-60% of the portfolio.
- In a balanced portfolio, it should be 30-40%.
- In an aggressive portfolio, Bitcoin may not be necessary. The Bitcoin maximalists are going to come down on me, but if you have a very aggressive strategy, you want to take advantage of the volatility of altcoins as much as possible and you’re willing to take risks, Bitcoin really not being the most volatile crypto, you can afford to leave it out.
The second biggest market cap: Ethereum, which has many use cases and seems to me currently indispensable in a balanced portfolio.
If we look again at the chart provided earlier, ETH represents 18% of the market currently! It also has many use cases, NFT, DeFi, Staking… although the fees to use the ETH blockchain are currently outrageous. The long awaited ETH 2.0 update should fix a lot of concerns, coupled with the regular token burn (which consists of burning ethers so that there are less in circulation and thus the price goes up) I think Ethereum still has a great place in your portfolio, whatever your profile!
- In a family portfolio, ETH should represent the other part you have left, simply!
- In a balanced portfolio, it varies. In your case, BTC & ETH are equivalent to your parachute, they are the two assets that will have the least volatility and therefore will save your portfolio in case of a big down, so I would say it should represent 20-30% of your portfolio.
- In an aggressive portfolio, it’s a bit variable too. You are, in the same way, not obliged to have it if you really don’t want any “security” (difficult to use this word in a market that can make -30% in a few hours). But in the very long term, having a part of your portfolio in ETH seems to me relevant, it’s up to you to estimate!
Altcoins are a big family, but this category is a bit of a catch-all. It gathers assets fundamentally different as the Dot, the Doge or the Cake. As this article is intended to last over time, I don’t think it’s useful for me to tell you here which altcoins I find interesting at the moment.
- In a family portfolio, a very small or non-existent part of your capital should be in altcoin.
- In a balanced portfolio, altcoins should represent about 20-30% of your capital
- In an aggressive portfolio, altcoins are clearly the biggest part of your portfolio! Hopefully you have a good heart!
I assure you that there is no better feeling than having constant liquidity available in your portfolio. Always being ready to seize the best opportunities in the market, buy everyone’s fear!
I strongly advise you to allocate part of your portfolio to stablecoins (usdt, busd…); this will allow you to be always ready to reinject money if it bleeds hard!
- Here there is no specific %, everyone does as they feel, you can keep a lot of stablecoin if you feel the market is in a bad way or overexpose yourself when you feel the market is doing well.
Step 3: Investment Methodology
Now that you’ve made a little chart of your portfolio, it’s time to think about how and when to invest your money!
The simplest method: the DCA
The DCA (Dollar Cost Average) has proven to be extremely effective on Bitcoin. If you had invested $10 a week in Bitcoin for the past 2 years, you would currently have invested $1050, the value of your portfolio would be $3,644, and you would have made about +247%.
I think a similar strategy buying Ethereum is also interesting. The only thing left is altcoins, for which the strategy seems less relevant to me, given their potentially more volatile & less viable nature in the coming years!
This type of strategy will therefore be perfectly suitable for a family portfolio. For the balanced portfolio, leaving a DCA running to accumulate ETH & BTC is frankly a good strat’ and frees up time to poke around in the good altcoin projects that make up a good portion of your portfolio 🙂
It is much less relevant for an aggressive profile, unless you want to accumulate some ETH.
This last chapter will be shorter since it is not a strategy per se but simply a list of tips on when to buy altcoins.
- Doing a DCA when you are in an accumulation phase (the price of a crypto is in a channel) seems very interesting to me.
When the accumulation occurs after a big drop, it is really ideal. In these moments, it can be scary to buy, but I can assure you that there is no better time!
- Simply buying on correction days can also be a good solution!
A nice down day and a bounce on support can be an IDEAL opportunity to get in! We’ll talk more about charts soon, don’t worry!
- Never FOMO an asset! FOMO (Fear Of Missing Out) is the fear of having missed an opportunity in gold and buying after an already substantial rise. Except in exceptional cases, buying an asset after a nice rise is extremely risky because the risk of correction / profit taking is high. It is better to wait for a correction before jumping on the bandwagon.
This concludes our overview of the basic rules for building a portfolio that is not only balanced in its strategy, but above all that will meet your expectations and aspirations. In all their simplicity, these few foundations will allow you to weather many storms in the best possible conditions, while taking advantage of the sector’s growth.
Let’s finish by reminding you that crypto investments are not free of risks, including loss of capital. Finally, only risk the money you’d be willing to lose and remember that no investment should keep you up at night, or alter your mental state or relationships with your loved ones.