If you haven’t been living under a rock, you can’t ignore the fact that cryptocurrencies are gaining a lot of attention. In fact, Bitcoin outperformed traditional investments and boasted a 200% gain in 2020.
But investing in crypto can be challenging in today’s volatile market. Building a resilient cryptocurrencies portfolio is the first step to creating a solid foundation for long-term success.
How To Build a Resilient Cryptocurrencies Portfolio
Regardless of your portfolio’s final composition, which is determined by your specific investment strategy, here are the basic steps to follow:
Get the Lay of the Land
Even if you’re making a small investment, you should take the time to understand the basic principles behind cryptocurrencies and blockchain technologies.
To gain a bird’s-eye view of the industry, visit sites such as CoinMarketCap and Live Coin Watch to see what currencies are available in the market, the values at which they trade, and how they trend over time.
Also, set the right expectations about wins and losses. Take a long-term approach and expect cryptocurrencies to exhibit more market volatility than most other forms of investments.
Dive Into High-Level Research
Thorough research is essential to building a strong cryptocurrencies portfolio. Learn about the leading and emerging currencies and their market sectors. Check whether a project has published a whitepaper, roadmap, and tokenomics. Research the team and understand the value proposition behind the coin.
Here are a few considerations when evaluating a cryptocurrency:
- Is the information about the currency easy to uncover? Does it have a strong market presence?
- Who’s in the team, have they achieved success in the past, and are they involved with the community (e.g., on Twitter and in technical conferences)?
- Is the team’s vision grounded in reality? Do they have reliable technology and a solid grasp of the current crypto market?
- What’s the current market sentiment toward this currency? Is it getting positive or negative news coverage?
- What’s the intended use of the currency, and what gives it value? If a coin doesn’t have a well-defined usage (e.g., created as a meme), it may not hold its value.
Know Your Risk Tolerance and Capacity
Before you dive in, decide how much money you want to invest and how much risk you’re willing to take on. Your risk tolerance can be affected by your income, age, and financial goals. Your capacity can determine the type of currencies you choose.
For example, you can typically buy newer currencies at lower prices. Their value may skyrocket, or they may fade into oblivion just as fast. If you have a higher risk tolerance but lower capacity, they may be a suitable choice for you.
Evaluate the Community
As a coin grows in market cap, the community that supports it typically expands. The success of a cryptocurrency depends very much on such a community, the dynamic of which can shift quickly.
When making your investment decision, gauge the level of community involvement by considering a coin’s technical discussion boards, forums, and social media presence. Reevaluate these communities periodically to stay on top of changes.
Here are some top cryptocurrency forums and discussions boards to follow:
- Reddit » Crypto-Currency
- Beer Money Forum » Crypto Currencies
- Bitcoin Garden Forum » Crypto Discussion
- Overclockers » Crypto Currency & Mining
- Hard Forum » Mining & Cryptocurrency
- Trendri » Cryptocurrency
Diversify Your Cryptocurrencies Portfolio
The crypto market is more volatile than traditional investments. Diversifying your cryptocurrencies portfolio can help distribute your funds strategically to achieve short-term and long-term growth while mitigating risks.
Various factors, such as your investment goals, risk tolerance, and investment horizon, will determine the final mix of digital assets in your portfolio. A resilient cryptocurrencies portfolio typically includes a blend of high (50%), medium (30%), and low (20%) market cap coins.
Consider having a mix of cryptocurrencies in various sectors, such that the values of your assets aren’t strongly correlated with each other. Main categories include:
- Currency, e.g., Bitcoin, Litecoin.
- Infrastructure, e.g., Ethereum, NEO.
- Financial, e.g., Chainlink, Nexo.
- Services, e.g., Siacoin, Dent.
- Media and entertainment, e.g., FUNToken, DMarket.
Define Your Weighting Strategy
After you have selected the coins, you need to figure out how much of each to buy. Apply a weighting strategy to determine the distribution of your assets:
- A fixed weighting strategy assigns a constant weighting to each asset (e.g., 20%.)
- A market cap weighting strategy assigns a dynamic weighting to each coin based on its market capitalization.
- A square root market cap weighting strategy assigns a dynamic weighting based on the square root of a coin’s market capitalization.
Run a history backtest, which uses historical data to show how the weighting strategy would have performed in the past. You can then adjust your portfolio to optimize outcomes. Although past results are no guarantee of future performance, they’ll give you a sense if you’re heading in the right direction.
Consider Stop-Loss Orders
The crypto market is volatile — you could experience significant losses if you take your eyes off your portfolio for just a few days. You may set some guardrails around the investments by using stop-loss orders, which automatically sell an asset when it drops below a predetermined value.
Stop-loss orders can help protect you from excessive losses in a volatile market. It makes the investment process less stressful and helps prevent you from making rash or irrational decisions. However, they may work against you in a flash crash where the price of a coin drops dramatically and then bounces back quickly.
How To Manage Your Cryptocurrencies Portfolio
“Set it and forget it” isn’t a good strategy when it comes to cryptocurrency investments.
After you have built your cryptocurrencies portfolio, you need to monitor, analyze, and rebalance it regularly (e.g., every month) to ensure that it has the right mix of assets.
Keep Your Eyes on the Prize
Be patient with currencies that are trending up. Meanwhile, don’t hesitate to exit those that are losing value or predicted to drop based on market analytics. Keep learning about the market to know when to buy more of the winning investments or cut your losses.
Follow news and events to keep your strategy current, but don't be swayed by hysteria and media chaos. Beware that emotions and hype often influence the industry and prices heavily.
Stay rational in your decision-making process. Analyze the market and consider the facts. Don’t let FOMO drive your decisions and avoid becoming emotionally attached to a position.
Use a Cryptocurrencies Portfolio Tracker
As you gain more experience and your cryptocurrencies portfolio grows, it’ll become more difficult to manually keep track of your holdings and the performance of your trades.
Logging into individual accounts is tedious and time-consuming – it may even cause you to overlook critical shifts in the volatile market, leading to missed opportunities and preventable losses.
Not to mention, if you trade frequently and use trading software to scale orders, keeping track of all the crypto holdings without a reliable cryptocurrencies portfolio management tool can be impossible.
That’s why savvy crypto investors track their assets with cryptocurrencies portfolio trackers. These software applications allow users to see their assets’ performance and track market prices in real-time within a single interface.
With a cryptocurrencies portfolio tracker, you can:
- Sync your wallet and exchange accounts to get real-time balances.
- Manage a diverse cryptocurrencies portfolio from one dashboard to save time and effort.
- Get instant price alerts to stay ahead of the volatile market.
- Track performance and get real-time reports to support accurate decision-making.
Kubera is a modern portfolio tracker that enables you to manage your cryptocurrencies portfolio alongside global bank accounts, brokerages, stocks, and fiat currencies all in one place. It’s as simple as a spreadsheet — and updates automatically so you can always see your net worth in real-time.