Why invest in Cryptocurrencies?
Investing in cryptocurrencies in 2016 / 2017 is like a gold rush. Investors are dreaming of Lambos (Lamborghinis) and Lakeside villas, but these returns come with extreme volatility and technological risks and regulatory risks.
High rewards come with a lot of risks. A cryptocurrency bear market will make 2008 financial crisis, or the 90’s internet bubble look like a walk in the park. You have been warned.
See also: How to invest in Crypto Currencies?
Why create a cryptocurrency portfolio?
Bitcoin is not the only cryptocurrency that exists. There are 1000s of other cryptocurrencies.
Holding one cryptocurrency is risky because of concentrated risk. Don’t put all your eggs in one basket. Investing in some cryptocurrencies, i.e. building a cryptocurrency portfolio diversifies risk.
Cryptocurrencies are relatively new and the full risks are still being discovered, this can lead to substantial corrections in the valuation of certain coins.
A portfolio containing uncorrelated cryptocurrencies reduces this risk.
Index funds in stock investing are popular because they spread risk, a cryptocurrency index or portfolio does the same job.
Is a cryptocurrency portfolio needed?
Bitcoin maximalists think that Bitcoin will ultimately include all the functionalities of all the other altcoins (alternative coins). They consider altcoins as an experimental test bed for tech which will eventually be part of Bitcoin in the future.
Only the future will tell if Bitcoin will conquer this space completely or if Altcoins will manage to co-exist with Bitcoin.
Even tokens, which are part of a particular company’s ecosystem are not immune from Bitcoin competition.
Companies can adopt business models similar to those using tokens and use Bitcoins as a form of exchange rather than specific tokens.
Creating a cryptocurrency portfolio:
A portfolio is made of a set of related or unrelated cryptocurrencies. An investor might want to invest in anonymous coins but spread the risk among different coins that offer this functionality.
Another investor might want to invest in the top 30 coins, to capture the movement of the overall market. Here are some ideas on how the cryptosphere can be sliced and diced.
Here are some ideas on how the cryptosphere can be sliced and diced.
- Top 20 by MarketCap
- Top 30 by MarketCap (Combicoin)
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- Top 100 by MarketCap
- Coin / token age / maturity
- No of Transactions
- Geographical use / Geographical Team
- Trading Volume
- Anonymous feature coins
- Asset Tokenisation coins
- Smart contract coins
- ERC20 tokens
- Mining Algorithm
- PoS (Proof of Stake) / PoW (Proof of Work) / DAS
- ICO/TGE (Initial coin offerings/Token Generation event) tokens
- Merchant Adoption
- Anonymous CryptoCurrencies (Pivx)
- Masternode CryptoCurrencies (Dash)
- Centralised / Decentralised
- Geography of the team
- Age / Maturity
- By Industry
What cryptocurrency and tokens should go in a cryptocurrency portfolio?
Organisations responsible for cryptocurrency projects and tokens do not have strict reporting requirements. This makes research more difficult and the results much less conclusive as a result investing in only one cryptocurrency is riskier.
There is a set of coins and tokens which are referred to by the community as scam-coins or “shitcoins”. The coins have no real value whatsoever except to make their creators rich. Scammers are becoming extremely sophisticated.
Some rules of thumb to find value:
- Actual use cases
- Real market value
- Sound ideas
- Regulator Friendly
- Active community
- Verifiable Team members with strong professional history.
Cryptocurrency portfolio strategies:
- Are you investing more than you can afford to loose?
- Will this investment let you sleep well at night
- Will you check the prices every day?
- Did you share this decision with others (incl. Your better half!) 🙂
Cryptocurrency portfolio example ideas and examples:
- The one coin portfolio. Bitcoin maximalist. Buy bitcoin and hold long-term
- Three risk baskets split by market cap (overlapping)
- Subgroup 1 (Top 10)
- Subgroup 2 (Top 30)
- Subgroup 2 (Top 100)
- Coin Mix
- Subgroup 1 (Top 30)
- Subgroup 2 (Anonymous coins)
- Subgroup 3 (Exchange Related coins)
- Subgroup 4 Smart Contract Coins (Ethereum, Boscoin)
Challenges of a do it yourself cryptocurrency portfolio:
- Keeping up with the news. The technology is advancing at breakneck speed, every day there is some piece of news which literally changes the shape of the cryptosphere. This could be wither a Fork (coin split) and urgent security upgrade or a regulatory decision. Keeping up is difficult and the cost not to could be significant losses.
- Managing the wallets of coins is a chore. They require upgrades, backups and careful security considerations.
- A cryptocurrency portfolio needs to be rebalanced frequently.
- Tracking your portfolio can be done through Coin Tracking
Cryptocurrency portfolio: Solutions
Combicoin, is an ERC20 token which will hold the 30 coins by market cap. This means that the owners of Combicoin tokens will own the top 30 coins without all the challenges associated of doing this alone.
The Triaconta team will manage the cryptocurrency portfolio, this takes away all the challenges or re-balancing, security and staying up to date with what is happening.
See the interviews with Don Molenaar:
- or visit their site: http://www.triaconta.com
Some cryptocurrency owners are techies which have found themselves with considerable sums of wealth. This wealth, is a responsibility to curate, grow and protect. Keeping all of it in cryptos is a risk which needs to be thought of deeply.
Just as stock investors should own some gold and real estate to hedge against a rogue nation, or a stock market crash. Crypto investors need to hedge against a cryptocurrency crash.