If you’ve joined the cryptocurrency community, you’ve probably bankrolled a new car by now.
But with so many virtual coins to choose from in a volatile market, how do you grow your cryptocurrency portfolio?
Investing in digital coins is relatively similar to investing in other asset classes. The only difference is there are many more options in the crypto space – and many more scams to avoid.
One thing is sure; money is pouring into the crypto asset market. At the time of writing the market capitalisation is $320.56 bn. And with major investors across multiple industry sectors joining the party, the value of digital tokens is only going to continue rising.
The burning question is, which ones?
In this article, we take a look at:
- How to start building a cryptocurrency portfolio?
- Long term vs short term investment
- Qualities to look for in digital assets
- The best cryptocurrency portfolio apps
- Reducing the risks
How To Start Building a Cryptocurrency Portfolio?
Now you looking to grow your cryptocurrency portfolio, it is essential to learn what to look for in virtual coins.
If you have experience with investing in other asset classes, approach cryptocurrency investments in the same way; diversify your portfolio.
To maximise your risk-adjusted return, I recommend adding between three and seven cryptocurrencies at least.
Furthermore, the coins you add to your investment portfolio should ideally be coins that are either already established, have already been adopted by industry giants or show genuine promise.
Although it helps to know about digital technologies here, it is not entirely necessary.
Bitcoin (BTC) is an obvious choice because it has first mover advantage and has already proved its worth as a store of value.
However, there are a plethora of innovative altcoins that look increasingly promising.
Before dipping into the market, ask your these questions:
- Functionality: Does the coin and the blockchain has any practical use in the real world. For example, Ethereum’s smart contracts?
- Technology: Does the company have a solution that will benefit mainstream adoption?
- Community: Does the coin already have a large following and an active community supporting innovation
- Governance: Does the system have a process for governance and is the company legitimate and trustworthy?
- Marketable: Is the product commercial and does it have any real value that will benefit end-users?
If you can answer yes to all the questions above when performing due diligence, you will be able to satisfy yourself that you are backing a coin that will deliver a return on investment.
The golden rule is: if in doubt, leave it out.
The exception to the rule is if you take a gamble and become one of the early adopters of an ICO.
What you have to bear in mind with ICO’s is they may collapse because they don’t get the investment they need because the idea or the technology is inadequate. Or they may be outright scams.
In other words, investing in ICO’s is high risk. Therefore, it is recommended that you only invest small amounts and only back one.
Even with a minimal investment of say €50, you will make a killing on a successful coin if you were opt-in when the price is low. And you can buy cryptocurrencies for cents.
To build a cryptocurrency portfolio that will return notable profits, you need to know about long-term versus short-term investing.
Step this way.
Long Term Vs Short Term Investment
In essence, long-term and short-term investments are precisely what it says on the tin.
A short-term investment is classified as anything less a year, although with some asset classes investors use a three-year rule of thumb.
For cryptocurrencies, anything beyond a year is long-term. Short-term investments in this space can be as little as several months or weeks.
Market manipulators – the Whales, pumpers and dumpers of the financial world – will investment in cryptocurrencies for a matter of hours.
The principle idea of short-term investments is to make as much money in the shortest time possible.
Therefore, they typically carry higher risks. Investors that are not comfortable with taking risks can still invest short term but will only accrue a small yield.
However, they do have advantages. First and foremost they are easy to liquidate so if you need money urgently, you will not have to pay the penalty.
If you had to cut short a long-term investment you would suffer a loss. Therefore, short-term investments can be used to protect long-term investments.
The cryptocurrency market in volatile and uncertain.
For onlookers that are considering investing in digital tokens, a short-term approach provides an ideal solution to test the waters.
However, the real money is in long-term investments.
Historical data taken from other asset classes shows that investing long-term works.
Although the statistics can’t be applied to the new market of crypto assets, common sense dictates that cryptocurrencies have a long-term future.
The community cry of HODL – hold on for dear life – has become such a cliche it speaks volumes about what people think about the longevity of digital assets. And the majority of cryptocurrency investors opt for the long-term approach.
It’s the sensible thing to do.
Whenever you are actively trading, there are always fees to pay that trim your returns. If you just stick with short-term trading, you will lose more in transactions fees.
While the crypto asset market is still in its infancy, long-term investments are the sensible approach.
You can still buy a token for low prices, and as we saw in 2017, a bull market will return massive profits. If you dip in and out of the market, you risk missing out on a big payday.
Qualities To Look For In Digital Assets
The crypto assets that will produce the best ROI will be the coins that have specific attributes.
More to the point it is the blockchain technology that powers them that you’re investing in. Before putting your money into crypto, coins look for the following attributes:
Cryptocurrencies that have investment advantages are powered by technologies that offer value to the overall digital landscape or will act as a bridge between the virtual world and the real world.
Look for technologies that bring something to the market that will be useful.
Ideally, cryptocurrency coins should have speed, transparency, privacy and security.
For example, the Lightning technology that powers Litecoin can process high volumes of transactions in a matter of seconds. Therefore the virtual coins have real-world value because people an use them for trade.
Banks and credit companies are trialling Ripple for the same reason, and there is a lot of speculation that Amazon and Uber have plans to add the coin as a payment option.
Together with Ethereum which I mentioned earlier, Ripple and Litecoin have long-term utility value.
The challenge for ICO’s is to create ideas that will be useful and then developing technology that has utility value.
If the technology behind a cryptocurrency is full of bugs and does not function, people will lose patience with the blockchain and move to another token.
The value of cryptocurrencies is determined by how many people buy them and use the technology.
Tech firms, therefore, have to persuade people to come onboard and keep them there once they join.
Companies that develop reliable systems and look to continually improve on services they already provide are a stronger investment.
This is why it is essential to investigate the community of the token you want to invest in and find out what people are saying.
If there are a lot of disgruntled passengers complaining about user-experience, poor customer support and slow service, the company may be as good as it wants investors to believe.
Cryptocurrencies that appear in niche markets also promise to be substantial investments.
For example, TRONIX is designed for the entertainment industry to make it easier and less expensive for music and film lovers to purchase goods from overseas without having to pay extortionate bank charges.
IOTA is another coin that shows plenty of promise by tapping into the emerging Internet of Things philosophy – hence the coins digital name.
The beauty of IOTA is that it will revolutionise the internet and because transactions get quicker the more people use it, there is an incentive for the coin to become mainstream.
When building a cryptocurrency portfolio, keep an eye on the market news for signs of cryptocurrencies that are performing well, but mainly ones that run into problems – especially if you already have them in your investment portfolio.
The Best Cryptocurrency Portfolio App
To make it easier to manage your cryptocurrency portfolio, subscribe to a portfolio app. The best two are Blockfolio and Delta.
Investment management apps are a relatively innovation, and Blockfolio was the first to emerge as a product investors found genuinely useful. The app provides a platform that gives crypto owners complete control over your investment portfolios.
The feature-rich app is designed for investors that want to stay on top of cryptocurrency events.
You can see an overview of your tokens with the latest market data in real-time together and news updates all from one central location in the app.
Built-into the app is also a news alert for coins that you have in your wallet. However, if you do choose to activate this feature, and have more than four or five coins in your portfolio, you run the risk of being inundated with alerts.
Designed and manufactured by a small team of developers that were disgruntled with the limitations of Blockfolio, Delta is slowly emerging as the number one crypto asset portfolio manager.
The app gives you all the features of Blockfolio but has the advantage of enabling you to keep track of a multitude of cryptocurrencies, even the obscure ones.
There is also the option to add more tokens as they surface.
Read our article on Blockfolio vs Delta: Comparison Review
Reducing The Risks of Cryptocurrency Investment
Despite all the advice offered above, investing in cryptocurrencies carries a risk.
As I mentioned at the top, the best way to reduce the risk is to diversify your investment portfolio with at least three tokens, but up to seven or more.
Exposure to risk depends on your risk appetite.
The coins mentioned in this article show the most promise as a long-term investment but are not guaranteed to deliver the highest profits.
There could easily be an emerging technology that will reshape the entire digital asset market.
Safe players should opt for coins that are getting plenty of good press and stick with those. If you do want to take a risk, only invest a small on coins that show potential but don’t have leverage yet.
Bitcoin is the apparent safe haven, but it is also the coin that is less likely to power ahead like its 2017 bull run.
The danger for investors is backing hyped-up cryptocurrencies. So do your due diligence and determine whether the technology does have utility value that other coins are not offering.
Remember, you are investing in an idea rather than the physical coin.
With so many tokens available, the market is fiercely competitive, and the hyped up coins are coming from the company’s marketing department.
Let the coins do the talking and monitor crypto forums to see what the community is saying about coins. The idea may be brilliant, but it could also be implausible.
Avoid cryptocurrencies with low liquidity and low market capitalisation.
Coins with low liquidity will mean you may encounter problems selling it. Analyse the charts on exchanges and look at the volumes the currency is trading, its volatility and the liquidity of assets.
The market capitalisation reveals how much fiat currency is invested in the token. This is an important indicator that investors have ploughed money into developing the coins for later use once the systems are in place.
Coins with low marketing capitalisation mean the coin is struggling to get attract investors. And these investors are typically large tech and finance firms that can make the best use of these technologies.
Market capitalisation is not the same as current price. It is a more important indicator of a coins potential for growth.
If you are looking to grow your cryptocurrency portfolio, hopefully, this article has been useful. But as always, our opinion is how we see the market, and not financial advice you would expect from banks or professional traders.
For more information, check our free eBook that explains how to invest in cryptocurrencies other than Bitcoin and Ethereum!