Friends regularly ask me for guidance on how to start a cryptocurrency and blockchain portfolio, such as Bitcoin and Ethereum. I’ve been investing in the area for a while and have had some success with a “conventional” portfolio management strategy, which I share with others whenever feasible. After witnessing novices being duped into paying (yes, really) for courses that provide inferior content, I’ve chosen to open-source my investing method.
If you’re thinking of investing in cryptocurrencies or blockchain assets for the first time, please read this advice thoroughly.
This is my own investing plan; nothing in this document should be construed as legal, tax, or financial advice. Please, conduct your own research and make your own choices.
5 Things You Need to Know About Building the Ideal Crypto Portfolio
1. Decide on How Much You Want to Invest
Your cryptocurrency allocation should be considered in the context of how it fits into your overall investing portfolio. If you’re older or nearing retirement, you should approach them with care and a modest allocation (such as 0.1 percent to 0.5 percent); if you’re younger, have a long time until retirement, and can tolerate severe value drops, a higher (1 percent to 5 percent) investment may be suitable.
However, there is one unbreakable rule: never spend more than you can afford to lose. You must be prepared for extreme volatility and 50%+ drops in the value of your blockchain assets, which occur rather regularly (although this will be a source of extra profits, which we will discuss later).
If you’re unsure of how much to allocate, set aside 1.0% of your investment portfolio, taken from your riskiest investments.
2. Where Should You Buy Cryptocurrency?
Gemini and Coinbase are the two major exchanges in the United States that allow you to buy bitcoin with dollars (or “fiat money,” as it is known in crypto circles). Both are licensed financial organizations that are user-friendly and easy to utilize.
After you sign up for Coinbase, install Google Authenticator on your phone and enable 2-factor authentication; You really shouldn’t place your investments at risk; always use 2-factor authentication.
3. What You Should Invest In, And Why?
Before you start investing, you should identify your basic beliefs; otherwise, you’re just gambling or following the latest trend. If you haven’t yet created your own principles, feel free to use mine:
Knowledge: You should comprehend, at the very least, what you’re investing in. The more you know about technology, the better.
Humility: You are not wiser than the market, you cannot predict the peak or bottom, and you cannot select the asset with the best performance.
Context: You are investing in cryptocurrencies because you believe they will be a beneficial complement to a larger financial portfolio that you will maintain for many years.
In terms of the first point, you should start studying about what you’re planning to invest in:
The Starter Portfolio
With these ideas in mind, you may create your first portfolio. My portfolio began as (and continues to resemble) a very simple one, designed with the intent to profit on both the increase of cryptocurrencies and their inherent volatility:
- 20% cash — this offers consistency and allows you to profit from price drops in a methodical manner.
- 30% Bitcoin
- 50% Ethereum tokens
4. How to Go About Your First Trade
There are two main sorts of orders on Coinbase Pro: market orders, which purchase or sell at the best available price, and limit orders, which define the price you’re prepared to buy or sell at. Limit orders offer lower costs (the lower the charge, the better your return) and guarantee the set price, both of which are beneficial for developing your portfolio.
Calculate the amount of Bitcoin you want to buy (by multiplying your entire balance by your goal allocation and dividing by your limit price, for example, $10,000 * 30% / $4,000), then go to the BTC/USD market and place a limit Buy order with the results. Wait a few seconds for it to fill. And Congratulations! You’ve just purchased your first cryptocurrency! Navigate to ETH/USD and repeat for your desired Ether allocation. Starter portfolio complete!
5. Rebalancing Your Portfolio
So you’re probably wondering, “What now?” — we’ve established our portfolio. The answer is simple: we rebalance our portfolio back to our target allocations on a regular basis to decrease risk and, in the process, buy low and sell high.
The price of cryptocurrencies and blockchain assets is notoriously volatile. When an asset undergoes a major sell-off, it becomes underweight in our allocation; when it undergoes a significant rebound, it becomes overweight.
Let’s assume Ether grows in value and no longer accounts for 50% of our portfolio (say, 60%) – we’d sell Ether for both cash and Bitcoin until our portfolio returned to our goal allocation of 20/30/50. If, on the other hand, it depreciates by, say, 40%, we would buy it with both cash and Bitcoin. This is the reason for the cash allocation. You don’t have to “time” the market, you don’t have to try swing or day trading, and you don’t really even have to think. Simply put your portfolio back into your target allocations every now and again, and you’ll automatically be buying low and selling high.
The risk-adjusted returns are the major advantage of a diversified portfolio. You could always achieve a higher maximum return by taking on significantly more risk and concentrating everything into a single cryptocurrency. A diversified, rebalanced portfolio, on the other hand, should almost always provide the best risk-adjusted returns. You’ll also sleep much better at night.
Conclusion: Next Steps
After conducting extensive study, you may begin to extend your portfolio in new areas as you get more comfortable with bitcoin and blockchain assets. You’ll soon be able to buy a Lamborghini using cryptocurrencies! But, in the meanwhile, sit tight and think of this as a pleasant, sensible addition to your overall financial portfolio.
Please leave a comment below if you have any questions, comments, or ideas for what I should write about next!