The author is CEO & co-founder of Giottus Cryptocurrency Exchange
The cryptocurrency market is abundant with coins and tokens seeking your attention to park some of your capital. As an investor, you will encounter a dilemma over which assets to pick in your portfolio. While it is subjective and varies according to individual risk appetite and financial needs, there is always a balance that you can achieve to protect your investments with lower risk while maximising returns over the long term. In this article, we explore this market with data from the past as well as guide you to build your portfolio with time.
Cryptocurrencies is new breed of asset class that promises higher returns but with equally higher risk. They are growing in adoption worldwide and are now at a stage where they merit inclusion in every future safe portfolio of yours. Initially, when you enter, you can start with a crypto allocation of up to 2% of overall portfolio and slowly increase the share with time. They can be counter balanced by investments in fixed deposits, gold, realty and free even cash. The best way to think about it is – your crypto capital is the money that you can afford to lose completely. By keeping the riskier asset to a minimum, you are not worse off when volatility strikes you on the downside.
As you enter the world of cryptocurrencies, it is important to gain knowledge that will empower you to build your crypto portfolio.
Bitcoin is the leading cryptocurrency with a 43% share of total crypto market cap. That means, the market direction is still heavily influenced by price actions of Bitcoin. The best way to start a crypto portfolio is to give at least a 60% share to Bitcoin followed by a share in Ethereum, the #2 crypto. Mathematically, the best portfolio for risk adjusted returns in future is estimated at 75% Bitcoin, 25% Ethereum. After some months of understanding how the top 2 cryptocurrencies work, you can navigate to invest in other top 20 coins (you can see the list at coinmarketcap.com). Over time and with confidence, you can go outside the top 20 and invest in coins with a 10x or 20x potential though the risk is highest among them.
The crypto market moves in a 4 year cycle of Bitcoin (brought about by an event known as halving). Within this cycle, there are periods of accumulation (bear market) as well as intense growth (bull market). Predicting when and how a cycle moves is tough and hence our strategy must be able to accommodate all periods within them.
Bitcoin holds its ground throughout the cycle. While altcoins, coins other than Bitcoin and Ethereum, grow disproportionally in a bull market, they also deflate in value quicker. Also, many of the top altcoins can go bust suddenly and without notice. Always understand the risks when investing in random cryptocurrencies however attractive the returns are. If you analyse the top 15 crypto list from 2017 (image below), most of them are no longer part of the top 100 list.
Five years from now, Bitcoin and Ethereum are clearly your best bets to survive in the crypto ecosystem and hence they are the safest today.
Globally there are about 120 million investors in cryptocurrencies today. Analysts expect this metric to grow 10x over the next five years, and hence, the overall market will certainly grow in the long term. The best day to enter a position in crypto is today.
This article was authored by Giottus Cryptocurrency Exchange as a part of a paid partnership with The News Minute. Crypto-asset or cryptocurrency investments are subject to market risks such as volatility and have no guaranteed returns. Please do your own research before investing and seek independent legal/financial advice if you are unsure about the investments.