A lot of new investors seemed to come to crypto over Christmas. A big mistake I have seen from a lot of people is the failure to properly balance their portfolio, leading to big loses. This leaves an investor exposed to undue risk. Your total assets in the crypto world should be split over a number of projects. With the percentage weighted to match risk/reward. I've caught myself breaking my own rules so have rebalanced my portfolio today.
This is how portfolios are managed in traditional investments, however cryptocurrencies attract a younger demographic, many will be making their first ever investments so it's worth learning how to balance a portfolio correctly. I've broken down mine by percentage with thoughts on each holding to explain the thinking behind it.
Please note, I've posted this to help the community after seeing a number of posts lately mentioning suicide and poor mental health after suffering heavy losses. It's also vital to remember that with decentralisation, comes the responsibility to be your own bank and secure your private keys. Decentralisation means by its nature that you are responsible for this. There is no central authority to do it for you. Keep your investments secure and never invest an amount that would affect your mental health if it disappeared tomorrow. It has happened a few times already and probably will again.
This is a breakdown based on my experience and intended to help, I am not a financial adviser and don't claim to be so won't be responsible for any losses you may sustain.
Here we go,
1, 50% BTC
It sounds obvious but BTC is often being overlooked by crypto investors. Especially alt coin enthusiasts. This is a major mistake for two reasons. Firstly because it is still a great investment and likely to remain the market leader but from a portfolio balance point of view it is likely what you measure gains/losses against.
This means that at minimum 50% of your holding should be in BTC. This protects you from checking your balances one morning and finding your alts obliterated by a big surge in BTC. If this happens, your alts will still suffer against BTC but the surge in value of more than half your portfolio against fiat will compensate you.
I made this mistake last year, it's easily done as there are so many great blockchain projects right now but this is important. When BTC surged to $6000 in 2017 it took months until EOS and LTC followed to bail me out.
2, The next 30%
These should be top 10 coins. These are mostly great projects, pick the ones you believe in. Here we are slightly riskier but still pretty secure. This part of my portfolio is in ETH, NEO and XLM. I won't go too deep into each one. You probably know them. All 3 are great projects. They all still have potential to grow in their market cap. Especially NEO which also pays a dividend for holding in the form of GAS. A lot of interesting projects are beginning to chose NEO to host their token and ONT airdrop is soon.
ETH is the backbone of the token market, hosting an array of ERC20 based projects. It's still a great investment. Finally Stellar, the FairX exchange project and link to IBM make this a great coin to hold in my opinion.
3, coins outside the top 10
The next 10% of my portfolio is invested in slightly higher risk projects.
1, Nano – this coin is excellent in that it does one simple job very well. It is a rapid and free way to transfer crypto. This is the reason LTC is no longer in my portfolio. When this coin is on the majority of exchanges it should become the default way to transfer between exchanges. It's lack of fees mean it is also a matter of time until it is adopted by companies which exchange fiat for Crypto. As it becomes more established it will also be a great coin for small businesses to use to accept online payments due to speed and lack of fees.
Currently it is undervalued, it fell in January when the whole market did, then rather than recover it was hit again by the Bitgrail news with very bad timing.
Now new wallets are out which look great and there are rumours of coin base adoption so the price is bouncing back. Still a great buy at a 3rd of what it was against USD (it was $30 recently now around $10).
IOTA/Oyster Pearl/Shell
I've grouped these 3 projects because they are similar. In fact PRL and SHL are sister coins under the Oyster project.
These 3 projects together can be revolutionary tech. If all 3 perform well we could see decentralised internet with no ISPs involved. This is a longer term, higher risk investment but could be massive. PRL is great at the moment because of a 1:1 airdrop coming on the 6th April and a coinburn 1st March.
https://medium.com/oysterprotocol/oyster-pearl-team-update-4-f2cc22eca1a7
4, The final section of my portfolio is for brand new projects. These are where big gains can quickly be made but risks are higher. Do your own research before investing in this area.
My current pick is COTI.
Coti plans to build a cryptocurrency which incorporates a trust metric. This incentivizes trustworthy behaviour as a good trust metric results in a lower transaction fee. Having this mechanism built into the architecture of a coin is a great idea in a decentralised digital economy.
If blockchain tech is to move past it's infancy and achieve mass adoption, trust is vital. Links to silk road, fraud and money laundering in the publics mind-set must be replaced by a perception of safety and security . COTI's idea goes a long way to achieving this and fills a gap in the blockchain world.
They are in the token sale stage at the moment and the white paper is available here.
That is the current breakdown of my portfolio I plan to hold for at least a year. Tailor your portfolio in terms of both percentages and chosen coins to your own views and do your own, in depth research, but you must have a strategy to spread risk. Make sure you keep your assets secure and be prepared to lose it all. If you are over exposed correct it asap. Reading people mentioning suicide on here is alarming. This should be fun. If it isn't stop for a while and reassess your aims and acceptable risk.