The Beginners Guide To Building A Cryptoasset Portfolio
Table of Contents
- Stepping Out Onto The Edge – The Learning Phase
- Trading Small
- Money Matters And Puzzles
- Remember The Warning About Eggs And Baskets – Diversification Is The Watchword
- Spread The Risk
- Balance Long And Short-Term Prospects
- Research And Monitor
- Beware Of The Scammers
- Keep Your Cool And Play The Long Game
PREFACE: This guide is an extension of the book, "Cryptoassets: The Innovative Investors Guide To Bitcoin And Beyond" by Chris Burniske and Jack Tatar. Pick it up here.
Unless you are playing the stock exchange, there’s not an awful lot of opportunity around to make even half decent interest on your spare cash right now, but that brings an unexpected bonus – as with no other viable options the opportunity to invest in the crypto asset world is worth considering. The recent boom in cryptocurrency suggests there’s a future there, and possibly some more rich pickings to be had.
Don’t be put off by the vast sums some people are boasting about having in their portfolios – they may have been investing from the started reinvested the tidy profits and payouts gained. One of the most attractive things about the world of crypto assets is that you can get started with a modest sum, say a couple of hundred dollars, and then build it up in small increments. This approach is practical and sensible, giving you the space to get to know how things work.
Stepping Out Onto The Edge – The Learning Phase
Crypto assets are a new world to all but those already in the know, so adopt a humble approach and commit to learning as much as you can through experience and ongoing research. For example, there are various cryptocurrencies to choose between, and deciding which are the best bets could easily overwhelm a new investor. The trick here is to understand the tactics which pay off and take it slow and steady - regardless of any immediate success.
Take some time to read around the topic and learn the history, how and why it works, and how fast things change. There are also videos available on YouTube which are well worth watching, such as the film ‘Banking on Bitcoin’.
Every investor has their own style, so allow time to develop yours alongside making sensible investments and trades, and of course, constantly watching, listening and learning.
No matter how low your starting point is, the best tactic is to make small investments until you can not just ‘feel your feet,’ but can walk with confidence in the world of crypto investing. There are several places where you can buy crypto assets, some are specially designed for that purpose, others are just sites where people informally exchange. Try to stick with regulated websites like Coinbase which sells several types of coins. Buying by bank transfer is usually cheaper in fees than using a credit or debit card.
Money Matters And Puzzles
It can take a while to get used to the way coins work, but for now keep in mind that you don’t need to buy an entire coin, in fact, few ordinary people could afford to at one time. If you think of it like a regular coin then anything less than a whole one seems hardly worth having, but crypto coins don’t usually work that way. You can own a tiny amount and still make money from it.
You store your purchased coins in a wallet – a different style for each coin type, while long-term storage makes use of a vault. New investors only need research wallets to learn more about how they work
Remember The Warning About Eggs And Baskets – Diversification Is The Watchword
The wider you spread the load the safer your assets will be, so don’t be scared to invest small amounts of coins in a larger number of projects than you may initially think was a good idea. Ideally, you should be looking to build a portfolio of crypto assets which are classed as high, medium and low risk, or in the language of cryptocurrency, lower and higher market cap.
A market cap explained – this is something you will see used as a term to mean the same as value or worth, and it’s a good idea to keep an eye on the market caps of the cryptocurrencies you get interested in. The market cap is decided by a simple equation – the price of the coin multiplied by the actual number of that coin which are in active circulation.
Do watch out though as the higher the market cap is the safer the investment is – which can be hard to process after being used to ‘high’ meaning high risk. Lower market capped coins are much more volatile and liable to swing wildly in worth, so there is cash to be made there, but a mix of types makes for a safer investment overall.
As an example we could say that crypto assets valued at over $5 billion have a large market cap, between $250 million and $5 billion is classed as medium, and anything less than $250 million would be considered to have a low market cap. The biggest names in the game, such as Bitcoin and Ethereum are, as you’d expect, in the first category.
Spread The Risk
There’s no one way to decide how exactly to invest, as a straight third split for each would still be too risky for some investors. What we can say though is that mixing it up across all three market cap categories is the way to go as a beginner investor. Ultimately, as with any investment, you should never invest more than you are prepared to lose completely. If you yearn for risk then it’s there for the taking, and there’s no doubt that the potential rewards can be very, very tempting.
Balance Long And Short-Term Prospects
The large market cap crypto assets make great long-term investments, promising the chance of some return, even if that is likely to be a modest one, but a couple of high-risk short-term options add spice to the mix, and of course the potential for some fantastic payouts. If you win out and can reinvest sensibly, then you are onto a winning approach.
Again though, it must be said that the world of cryptocurrency trade exchange is unpredictable, much more so than well-established trading options. A currency can shine for a long time then be hit by a negative news report and crash in minutes. However, it can also work the other way, and some people do make a steady stream of profit by punting larger stakes on risky short price options before selling as soon as they peak again.
In general, investors lean more toward medium and long-term investments, and traders are drawn more towards short-term options.
Research And Monitor
It’s worth checking out a cryptocurrency before investing, but also keeping a close eye on the news and any media observations on the topic. A lot of what is written is not even true, but as a beginner investor, you may not realize the difference.
Always triple check rumors and stories against legitimate news sources, and although it is good to monitor the values of your investments resist the temptation to do so obsessively. It’s quite normal for the value of various coins to fluctuate several times a day.
Beware Of The Scammers
Like any aspect of life, there are some people around who have chosen to focus their brain power on how to con and cheat others, rather than make cash in a legitimate way. They especially like to target those looking to make the short-term gains mentioned above, and they do that in several cunning ways.
One example involves the launch of a seemingly hot new coin which eager folk rush to buy – often on the back of a high value which has been artificially inflated – but the coins are not even real, so of course there’s no profit, and the original investment is lost too.
Keep An Eye Out For Rising Stars
There are always going to be a couple around, although finding them can take a bit of time. If you can spare it invest a little time to do some research, looking for potential hot investments that are not yet on the mainstream circuit of attention. It’s not unknown for these to prove very lucrative indeed, some with profits of an astonishing 4000+%.
Don’t Be Afraid To Dabble Across The Board
Each coin is connected to a particular industry; this is sometimes called the coin’s ‘utility.’ So, for example, Bitcoin is a currency, Steem is media based, while Stellar’s utility is the financial world. Some do overlap a couple of utilities too. It’s wise to invest across several in case one falls out of favor, and of course, you can also invest in more than one coin in a particular utility category.
This is especially good to do when you have a particular interest in or knowledge of a certain utility. Just like in traditional industries there is always space for a half dozen or more market leaders, and crypto assets are no different. What is exciting is that unlike regular businesses your cryptocurrency could be ranked quite low but still make a significant amount of profit for you.
Look To The Long-Term
Ultimately a solid base of long-term investments is the sensible way to build a good crypto asset portfolio, and although no magic spell will conjure these opportunities out of thin air they can be found with a reasonable amount of effort.
Some of the giveaway signs of long-term investment potential include:
- The coin has already gained a decent share of the market
- It is supported by a [usefully] active community
- It is considered a stable utility
- There is obvious room for growth or expansion
- It is innovative
- Solutions to key problems are offered
If you get a positive answer from at least five of these points it is worth investing in, for sure.
Keep Your Cool And Play The Long Game
There are plenty of investments where the real rewards generally come much further down the line and building a crypto asset portfolio is very much one of them. That doesn’t mean you won’t ever get a great dividend or boot your coffers dramatically, because you very well might so, but the successful people reinvest, and research, and work towards the long-term culmination of wealth, along with knowledge.
Discipline is essential for long-term success in the crypto trading game, and the ability to separate business from emotion is crucial too. Trying to get ahead without a professional, focused head on your shoulders is the quick road to failure as it’s hard to avoid making poor business decisions when emotion rules.
One of the most common mistakes rookie investors who are ruled by emotion rather than reasoning and logic is known unofficially as F.O.M.O. or fear of missing out. In investment fields they see something take off and make a lot of money for sellers, so buy in at the top end price – which is artificial – only to see their investment drop down as quickly.
The same principle as happens with real estate after a crash and many properties gain negative equity. Eventually, this tends to right itself, but you need to buy at the optimum time – and never because you want a piece of a pie which has already reached its pinnacle of freshness – and hold onto for the long term if that’s what it takes to make a decent profit.
Make Your Own Rules To Play This Game By
Wherever possible it is worth doing this before touching an investment or trade of any kind. It doesn’t have to be a long list of guidelines, but it should be straightforward. For example, you could decide you will never chase after a bad investment and try to make it good again or to somehow replace the lost cash on top of and outside of regular like and expenses.
It just doesn’t work. Decide on limits, whether they are hourly, daily, weekly or monthly and never go over them.
Monitor Your Portfolio Carefully
Tracking the performance of your crypto assets should be as important to investors as tracking the success of any other kind. There are lots of tools you can use to monitor your cryptos remotely and automatically now, so there is not one decent excuse for not doing so.
One example is Blockfolio, which can be used either on a mobile app or via a desktop. All you have to do is add the details of each coin you buy when you purchase more, and they will be automatically included for tracking. It’s an excellent option for beginners in this area. It is easy to set up and user-friendly.