Top 10 Tips on managing Your Crypto Portfolio
Are you one of those who aspire to play the crypto game?
We have seen the markets flipping overnight with news, a tweet, or sometimes a major upgrade. So, it's necessary to build a portfolio that you feel is fundamentally strong, regardless of the hype. That's what we call a "thesis". You are less likely to make mistakes if you understand the investments you are making, why you are making them, and if you stick to a plan.
Here are tips you might want to consider before adding those shiny cryptos to your wallet. Let's dive into the crypto world and see how to create a sound, and hopefully profit-making, crypto portfolio.
1. Start with what you believe in
"Crypto" is a vague term. Like "real estate" includes both apartments in Brussels and offices in Singapore, there are quite a lot of different things in "Crypto".
Here are the different types of Crypto assets:
- Store of value: like Bitcoin, they have no intrinsic value or utility but people buy them like they buy gold or diamonds (which are also useless) because they want to park money into something in case something happens.
- Infrastructure: like Ethereum, have a utility in the sense that you need to spend ETH to use the Ethereum blockchain. Investing in ETH means you believe the price will go up because more people want to use that platform and there are only so many ETH to go around.
- Centralised or Decentralised Apps: like PLBT, UNI, Comp, BNT. . . are blockchain tokens of companies or DAOs that are issued on the blockchain. Those companies might or might not do something with the blockchain, but they usually do.
You need to decide what you believe in. Can Bitcoin replace gold? If so, it's probably undervalued currently. Can Ethereum replace the existing internet infrastructure? Could AAVE replace major capital markets? Do you believe in a multi-chain future where Polkadot, Cardano and Ethereum all coexist or one with one chain to rule them all?
Those questions will help you clarify what you believe in, and to what extent the assets are currently undervalued. Then you can decide in which proportion you want to get exposed to each type of crypto asset, and which ones exactly.
2. Then do your research
The crypto market consists of more than 10000 cryptocurrencies. Among those, some enjoy immense popularity, while others are still struggling to get their share. Now, the point here is, "Which crypto asset should you choose?" For this, with beliefs now clarified, you need to do a proper analysis of the assets you are interested in.
All major currencies have websites where you can find all the information about the people using them, the team behind the project, market positions, and trading volume. There are also plenty of aggregation and research sites you can find out there. Messari. io offers quality research for free and you can easily screen for "infrastructure", "store of value" and "apps".
With all this information, you can analyze the promises of each of the assets, the status of the progress of its products, the commitment of their team members to their corporate vision, and effectiveness in reaching their milestones.
Some things to look for when doing your research is:
- Project Objective:
- if you don't understand the point, it's probably not worth it. Do you find the vision compelling?
- How long has it been "alive" for?
- Has the team been delivering?
- Are there any real-world use cases?
- Developer activity: if no one's working on it, it's not going anywhere
- On-chain activity:
- How many people are actually using it? Ethereum has 100 million active wallets. Some successful projects have 100. 000. Projects with 200 are probably just starting or struggling.
- If it needs nodes, miners or delegated stakes, how many does it have? If it's 3 in 1 country, it's probably not enough to be resistant to attacks.
- Has it been successfully hacked? ETC was the victim of multiple 51% attacks over the past year, others have never been compromised.
- Has it been audited and are the audit records public?
- Market capitalization: it will give you an idea of how popular it is because even when going with research, you don't want to invest in something that absolutely no one is looking at
- Liquidity: this tells you nothing about the project but gives you an idea of whether you will be able to sell your position if you need to.
- Volatility: price goes up, price goes down. By how much? Has it recovered from a historical all-time high and all-time low? Can you support the volatility?
3. Diversify your crypto assets
Diversification means not putting out all your money on one single "bet", so as to spread your risks around.
There is a variety of crypto assets available in sectors including payments, DeFi, stablecoins, exchange tokens, and many more. If you are a beginner, we expand on risk, diversification and asset selection here.
4. Planning entry points
A crypto portfolio manager should be wise enough to plan the best entry point into the market. Of course, it is a common saying, but we want to buy low and sell high.
However, since "time in the market is better than timing the market", and "market timing is impossible", you may want to look to the "dollar cost averaging" strategy as an alternative.
We explain here how dollar-cost averaging is the least nerve-wracking and a very efficient way to get into any market.
5. Developing exit strategies
Since you can't time the market, time the exit to your strategy.
- If you buy a coin thinking it will be worth €100 euros in 5 years, whenever it arrives at 100€, sell it.
- If it's not at 100€ in 5 years, sell it.
- Whatever happens to that coin after doesn't matter, because the stock market is an "infinite regret machine" (you could always have bought more of what performed well, bought something that performed better instead,. . . ). What matters is that you hit YOUR goals.
- And before you re-buy that same asset, make sure you have a new thesis for it, and don't just "ape into" popular stuff.
Additionally, many trading platforms offer a stop-loss feature to make sure you don't lose more than you are comfortable with.
6. Less influence, more research
Don't be swayed by sensational news and stick to your thesis. But do make sure you understand what you have invested in and how the macro-trends are moving. To check for the latest trends and market capitalization, you can refer to OSOM Insights (provide link once launched).
Check this table depicting the current price of leading cryptocurrencies and their total market cap.