Here’s how to build an optimal cryptocurrency investment portfolio.
The best risk-adjusted returns can be found in a Bitcoin-heavy portfolio.
The rise of digital currencies
In the cryptocurrency market, there are a plethora of currencies and tokens vying for your attention. Investors often find themselves in a quandary over which assets to include in their portfolios. To secure your investments while still maximizing profits, you must strike a balance between risk and reward. This balance is subjective, but it can be achieved. In this post, we examine the market using data from the past, as well as help you create a portfolio over time.
Your total portfolio should include cryptocurrency.
As a new type of asset class, cryptocurrencies promise bigger returns, but also more risk. They are gaining traction around the world and should be included in any future secure portfolio that you put together. You can begin by allocating up to 2% of your whole portfolio to cryptocurrencies and gradually increase this percentage over time. Fixed deposits, gold, real estate, and even free cash can all be used to offset these risks. Consider your crypto capital as the amount of money you can lose fully. By limiting your exposure to riskier assets, you are not harmed when volatility hits.
The king is Bitcoin.
The more you know about cryptocurrencies, the better you’ll be able to develop a portfolio of your own.
With a market capitalization of $43 billion, Bitcoin is the most valuable cryptocurrency. As a result, Bitcoin’s price movements continue to have a significant impact on market direction. At least 60% of your cryptocurrency portfolio should be invested in Bitcoin, followed by a portion of your portfolio in Ethereum, the second most popular cryptocurrency. The mathematically optimal holdings for future risk-adjusted returns are expected to be 75% Bitcoin and 25% Ethereum, respectively. Investing in the other top 20 cryptocurrencies can be done after a few months of studying the top two (you can see the list at coinmarketcap.com). You can go outside the top 20 and invest in coins with a 10x or 20x potential, but the danger is the largest among them. Over time and with confidence, you can do so.
For most altcoins, a cycle isn’t long enough.
There is a four-year cycle in the cryptocurrency market (brought about by an event known as “halving”). (bear market) and growth (bull market) are distinct phases of this cycle (bull market). Our technique must be able to handle all phases of a cycle because predicting when and how a cycle will progress is extremely difficult.
Throughout the cycle, Bitcoin maintains its position. Coins other than Bitcoin and Ethereum, known collectively as altcoins, grow at a disproportional rate in a bull market. However, their value also deflates at a faster rate. Most altcoins can go bust at any time and without warning. Regardless of how enticing the returns may be, always be aware of the hazards while investing in random cryptocurrencies.
So Bitcoin and Ethereum will be your greatest odds for survival in the crypto ecosystem five years from now, and so they are the safest investments right now.
Remember, it’s still early in the day.
About 120 million people throughout the world have invested in cryptocurrency. Analysts predict that this statistic will increase by a factor of ten in the next five years, which bodes well for the total market’s future growth. Cryptocurrency investors should take advantage of today’s favorable market conditions.
