A cryptocurrency portfolio is not necessarily for the rich: so do not wait until you have tens of thousand of dollars in order to invest in cryptocurrencies and build an outstanding portfolio. Many who have tens of thousands today started investing small amounts then grew gradually and have been doing it slowly by slowly. It takes time to navigate the crypto markets and become a guru.
When building a crypto portfolio, you might want to build one that lasts for a long time and offers highest returns in the long run. That makes you want to have a long term investment strategy. Having a long term investment strategy will help you identify projects that save you in terms of fees in the long run and cryptocurrencies that are less risky.
Below are some tips on building an outstanding crypto portfolio in the long run.
1. Capitalize on long term benefits
There are many tips shared here on how to identify cryptocurrencies worthy your attention, and without much repetition, there are indicators you can use to determine cryptocurrencies that have long-term value including the market share and community support. A large market share means the cryptoccurrency has a higher survival rate even in times of shedding.
The utility value is another factor worth consideration for anyone wanting to know if a cryptocurrency will be around for trading for a few more years. The users’ market defines the likelihood of wide adoption. For instance, you might ask whether the target crypto project is a go-to-place for DApp development. If it is, then it has good utility and will likely be around for longest.
Besides those three factors, consider also the transaction volume (whether per day or monthly) as well as technological development -- for instance, the latest trend has been to increase the number of transactions being processed per given time and scalability, lighting network and atomic swaps among others. So the intention is to gauge whether a crypto project is supporting these or if it is evolving in regard to latest tech that makes it possible to reduce fees, facilitate better exchange and trading, etc.
2. Consider the crypto risk profile and your risk appetite
The kind of portfolio or the cryptocurrencies included in the portfolio depends on your risk appetite. For instance, you might be a person who prefers more risky assets that will earn more returns after you invest in them, compared to safer (less risky) assets that are more predictable and less risky but offers slightly lower returns.
For instance, in the traditional markets, while equities are riskier than bonds, some people would like them because they offer higher returns. But a trader might want to buy 50 percent equities and 50 percent bonds in his portfolio and hence make it not too much risky but also not too safe.
In cryptocurrencies, Bitcoin can be considered less risky than other altcoins. Therefore, it could constitute the largest portion of your portfolio when buying cryptocurrencies as a risk cautious trader. That means you probably want to look at the top ten coins or top five e.t.c. if you are a person who does not like too much risk. Of course there are funds that allow you to bet on prices of smallest altcoins in market cap and these make profits too.
So you can actually have a too risky portfolio and still make money. These are just ideas on how you can work around this concern with the ability to tailor your portfolio the way you want. Finally on this, learn how you can reduce or manage risks in crypto trading.
3. Don't forget short-term benefits
One of the most powerful skills every cryptocurrency trader should have is ability to look for short term profit opportunities in trading, even as you weigh on long term benefits. The better advise here is to ensure you target both long term and short term opportunities to close.
It is not hard to realize some gains in the short term even as cryptocurrencies are regarded risky and volatile. For instance, the trick here might be to watch how prices and markets of various cryptocurrencies are being affected by news and information or events and other happenings or trends. Of course, each cryptocurrency has potential to be affected by news, but different cryptocurrency projects have major events (around which news that affect prices may emanate or revolve) at different times for instance release of mainnets e.t.c.
For you smart cryptocurrency traders out there, while BTC and Ether may not be good cryptocurrencies to target for short gains, the altcoins with low market caps represent greatest opportunities for quick growth. The same applies for projects and coins that are not yet to gain a large amount of traction -- even ICOs. Of course you can watch the forks too, e.t.c.
But remember these types of investments are the most risky, therefore, are you risk averse or not? If you have a high risky appetite, you probably should go for these types of projects and add more into your portfolio. The good thing with these coins is that they cost very little and can increase in value over a very short term period.
Again, watch out for cryptocurrencies that record a high daily trade volume because they are good for both swing and day trading. Experienced crypto traders also make use of shorting orders to realize benefits from price drops. You could also use leverage trading options offered by top crypto exchanges.
4. Start small, then do regular investment
Even if you had enough money, it can be challenging and tricky to start off and build a million dollar crypto portfolio in a day and at the same time see it earn you profits and working the way you want given the information we talked about: for instance, the need to identify whether, when and which crypto is worthy your time; the need to identify diversification and risk spreading strategy; and need to understand the markets and risks in them -- all this takes time.
Even if you put all that money in cryptocurrency trading in a single day, you need to ask what would happen if that large sum of money is lost at a go? Actually, most people investing large sums of money in cryptocurrencies did not do it in a single day. Therefore, start by investing a small amount, then go deeper to gain more knowledge on how to do it, even as you continue to increase the investment.
A good discipline would be to ensure you add a given amount to the crypto portfolio regularly, for instance every time you get your monthly salary or payment. That pacing even gives you more time to hold crypto as you grow your investment, in addition to allowing more time for you to understand and settle in the space.
Even with crypto trades: start with small trades and then increase the amount of trades gradually as your knowledge and understanding and experience grows. That said, you will need to practice some patience.
5. Use the Dollar Cost Aveaging (DCA) crypto trading strategy
Again, talking about starting small, you might want to decide to invest a given amount to buy cryptourrencies but then divide that amount into smaller amounts or portions that you will be buying in a given consistent interval until you reach the investment goal. For instance, if deciding to invest a $10000 in a year, you could buy equal smaller amounts every week, day, month or every quarter until you achieve that goal.
This strategy is recommend for those doing a long term investment strategy for any cryptocurrency -- bearing in mind that it is a strategy for buying and investing in volatile assets such as cryptocurrencies.
Using the strategy is advantageous because you will not be worrying about the buying price for the entire amount since it is bought in small amounts and at intervals; and you can inject capital little by little such as from your salary. Not everyone has a large amount of money to invest at once in Bitcoin, for instance.
Bitrated’s Nadav Ivgi used a model of investing through DCA to investigate how much a Bitcoin investor could earn from ROI by investing in Bitcoin from 2010 to 2016. He found out that Bitcoin was profitable for most of entry and exit points. Investing Bitcoin through DCA for at least 2.5 years ensures a positive ROI for 100%. Those that persisted on DCA since August 2010 till December 2016 got a ROI of 58,685%.
6. Are you ready?
It is not possible to completely stay out of risk when investing in cryptocurrencies. However, it is possible to reduce that risk. When investing in cryptocurrencies, start by asking how much capital you have available to invest and whether you are comfortable loosing some or all of the capital. Many are also better when they come up with an investment goal.
If you find yourself obsessed over prices and getting up in the middle of the night to check prices, you might want to consider the amount of risk in the crypto you are invested and probably reduce the amount.
Besides, it is advisable to always never invest money that you cannot afford to lose and you can diversify by buying different coins to spread the risks. If you are considering investing a lot of money in trading cryptocurrency, then consider hiring a financial advisor to do the job and do your own research.
7. Get smart in tracking your portfolio
Tracking your crypto portfolio is now easier than ever with a vast number of tools dedicated fully to that. With these tools, you can manage your total amount of crypto portfolio for all the coins you are invested as well as the individual coins in the potfolio.
Some allow you to just watch prices of all cryptocurrencies and then make trading decisions but do not have trading capabilities. Others allow you to watch prices and trade at the same platform. You can watch not just the prices and their histories over a given period, but also leverage technical analysis posted by experts, real-time news that affect markets and prices, and even features such as following other traders.
If you are a day crypto trader, you might want those that work on mobile devices so you can watch prices and trade on-the-go. All of them allow you to add coins into the portfolio as you make trading decisions. With portfolio tracking software, you can get the right data and information you need to make actual sale or buy decisions for each of coins in a portfolio. Besides, they let you save a lot of time when trading cryptocurrencies.
There are many other tools that will help you to become a better trader, including social crypto trading platforms and indicators that help you decide which coin to include in the portfolio.