A Beginners Guide to Building Your Cryptocurrency Portfolio

Fundamentals | Trading

 

When you first start building your cryptocurrency portfolio, the number of coins you can choose from is a bit overwhelming. There are countless coins out there, so the big question is, which ones do you choose?

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There are numerous strategies for choosing coins and building a killer portfolio that even Warren Buffet would be jealous of. Start by following a few fundamental tactics, in the beginning, in order to minimize your risk while learning.

Fortunately,  I’ve developed this well-rounded, easy to read guide in order to ensure that your cryptocurrency investing experience is a profitable one. Done properly, you’ll have enough of those shiny crypto coins to buy you that lambo that everyone keeps annoyingly shouting about.

Diversify, Diversify, Diversify

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One great way to minimize your risk investing in cryptocurrency is to ensure that you diversify the coins within your portfolio. 

First thing you want to do is take a look at the market cap of a few select cryptocurrencies you’re interested in. If you’re not familiar with what a market cap is, the easiest explanation is, a coins price multiplied by its circulating supply. Pretty simple right?

Remember the higher the market cap of a coin the less volatile it is. On the contrary, lower market cap coins are more volatile and have higher percentage swings. A more “diversified” portfolio contains a mix of these high to low market cap coins.

Let’s group these into three categories…

  • Large market cap – $5 billion and above
  • Medium market cap – $250 million-$5 billion
  • Low market cap – less than $250 million

Bitcoin, Ethereum, Bitcoin Cash would be considered large market cap coins. They may not experience 40 to 50% fluctuations like some of the smaller altcoins, however their price generally tends to be more stable during bear markets.

Your risk tolerance will play a major factor on which coins you decide to diversify in. If you already believe that investing in cryptocurrency is an extremely risky endeavor, you may want to consider investing 90% of your portfolio in large market cap coins.

risky-investment-cryptocurrency-trading

On the other side of the fence, if you have a lot of disposable income and wouldn’t be too upset if you ended up losing some of it, you may want to invest in riskier low cap cryptocurrencies.

These coins have an extremely high profitability rate of 100 – 500% ROI, however it is worth noting that many can hold no value over the long haul. The ones that do end up being extremely profitable tend to outweigh the ones that don’t.

As you can probably guess by now, a moderately safe investment strategy would be to invest in all 3 market cap coins, evenly spreading out the investment percentages among each one (34% large cap, 33% medium cap, 33% low cap).

The Hunt for Hidden Gems

Sometimes it pays to go against the grain and hunt for those hidden gems. Some of the best coins to invest in are the ones most people aren’t really focused on.

However, discovering these hidden gems can be quite the time-consuming process. You can spend days of research, as well as looking through countless whitepapers in order to uncover 1 or 2 hidden gems. Even after reviewing over 50+ coins, this can result in a single cryptocurrency worth investing in.

With that said, those one or two coins could turn your stagnant portfolio into an ultra-successful one. Let’s take a look at a few key examples:

  • Early investors in Antshares (now NEO) have experienced a 160,000% ROI to date.
  • An early investment in Ethos would have given you a profit of 4,300%.
  • Another early investment of OmiseGo (OMG) what have grown your portfolio by 4,000%.

Taking these examples into consideration, you can clearly see that spotting these hidden beauties can earn you a massive return. If you have the time to research, investing in these  gems could really pay off.

Diversification Across Industries

Another important aspect to building your portfolio is considering the industry in which your coin is in. These are often referred to as a utility of the coin. Check out a few examples of the various types of utilities you can group most of these currencies in:

  • Currencies – Bitcoin, Litecoin, Bitcoin Cash
  • Dapp Platforms – Ethereum, Cardano, Lisk, EOS, NEO
  • Financial – Ripple, OmiseGo, Wanchain, Stellar
  • Privacy – Monero, Zcash, Dash
  • Media – Steem and BAT

Blockchain is still in its infancy so it’s a bit difficult to predict which industries will accept the new technology. The list above is just a few of the categories in which you can spread your investment into. Remember some of them even overlap industries.

The main point of this strategy is to not overly invest in one particular industry. If for some reason a particular utility ends up being left behind, you don’t want to be left holding all the bags within that group.

Invest More in Your Favorite Industries

This might seem like common sense to some of you, but investing in industries that you’re actually interested in is a great strategy to stick with.

Some novice crypto investors believe that only one coin per utility will win . That couldn’t be any further from the truth. In order to prove my point, take a look at some “real-world” industries. 

  • Travel – Delta, American, Southwest, JetBlue
  • Cellphone carriers – AT&T, T-Mobile, Verizon
  • Financial – Chase, Wells Fargo, U.S. Bank, Bank of America

and the list goes on. Every industry is large enough to support multiple game changing cryptocurrencies. Many may die off, however quite a few will survive.

Remember, a cryptocurrency doesn’t necessarily need to be in the top three or four of its industry in order to return a massive profit. The great thing about this industry is, if your currency is ranked number 10 within its utility group, you can still see 100-300% profits.

Crypto Trading Requires Experience (and a bit of luck)

experienced-crypto-trader

Along your journey to cryptocurrency riches, you’ll find a number of other tactics and strategies that fit well within your trading portfolio. You’ll also more than likely take action on advice that absolutely sucks.

Becoming a cryptocurrency trading pro is a learning process that can only be mastered with real world experience. Each investor has his own personal style which will be cultivated over time with more experience. Just remember to be open, optimistically skeptical, and enjoy the journey.

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