If you don’t belong to the cohort of old-school investors who are worshipping Warren Buffet, who had once said that Bitcoin is "a rat poison squared" and pledged to never own any cryptocurrency (although we highly doubt that his Berkshire Hathaway hasn’t dipped its toes in the crypto waters), you definitely need to consider creating and managing a cryptocurrency portfolio. One might wonder why he would need to devote his hard-earned money - during the pandemic and the associated economic struggles, the money becomes really “hard-earned” - to the highly risky asset class that often behaves like it’s on a roller coaster ride. The answer is quite simple - it’s all about the potential gains that cryptocurrencies can showcase even in a relatively short period of time, not to mention the prospects of price appreciation on much broader time frames.
According to the data provided by Messari, the 10-year return on investment (ROI) of Bitcoin, calculated in USD, amounted to over +500,000%, while the S&P 500 index gained 281%, whereas gold, the universal store of value, had a negative ROI of -3% - the figures speak for themselves. Therefore, if you want to play it safe, invest in mature markets with multi-year bullish cycles that offer small-to-moderate returns, and avoid the mental turmoil from witnessing the galloping price action, then you should probably stir clear of cryptocurrencies.
But if you are in this game for real profits and seek the investment opportunities that can turn your life around in less than a decade, then having a well-elaborated cryptocurrency portfolio is a must. Besides, if you are more or less versed in the economy, you should understand that despite the fact that USD and the USD Index (DXY) are showcasing slight recovery, while Bank of America predicts growth of 6% throughout Q4 2021 and 4.5% over the next year, which exceeds general expectations, the inflation rate is rising mercilessly and will keep rising after the Fed has printed even more fiat under Biden’s $1.9 trillion relief package.
The data provided by the U.S. Bureau of Labor Statistics reveals that since the dawn of 2021, the inflation rate in the United States has soared from 1.4% to the current 5.4% and could keep on rising since there is absolutely no certainty that the coronavirus pandemic has been dealt with, even though most developed countries have carried out relatively successful vaccination campaigns, since we see the emergence of new and more contagious strains of that virus. No wonder that we see total disgruntlement in economic policies, which will ultimately undermine the performance of traditional assets like stocks and indices, most of which find themselves in the phase of unsustainable bull run after being injected with another dose of fiat, like S&P 500, which now sits at the all-time high at 4,528.79, as of this writing, while the global economy remains in tatters.
The cryptocurrency market, on the other hand, has been going through another bearish phase throughout the past three months, which was a heart-rending experience for those who got involved in this game near the peak of the bullish rally, when everything pumped like there was no tomorrow. But if you were foresighted enough to sell near the top or you are only considering cryptocurrencies as an investment option, then you should start compiling the crypto portfolio right now before the market blasts off into another bullish frenzy which traditionally occurs during the fall period.
When compiling the cryptocurrency portfolio for the remainder of 2021 and the first quarter of 2022, which holds the promise of becoming the period of full recovery after the China-induced crypto crisis, you would have to sift through nearly 6,000 cryptocurrencies currently in existence. When seeing the like of Axie Infinity (AXS) and Solana (SOL) going to the stratosphere faster than a SpaceX shuttle, you would be facing the temptation of stockpiling on suspicious altcoins that hold a very vague promise of going to the Moon in a few blinks of an eye, but in reality, those are no more than marketing stunts to attract gullible investors. When approaching the matter of creating a sustainable and profitable cryptocurrency portfolio, you need to throw those monkeys called Greed and Impatience off your back and put an icepack on your brain.
Even though cryptocurrencies are inarguably the most profitable assets, you should get rid of the thought of getting stupendously rich overnight. It might be the case for a selected few, like the Dogecoin millionaires, the stories of which are circulating the crypto media outlets, but in the vast majority of cases, retail traders and investors get burnt or left holding heavy bags of invaluable coins. Like in many other aspects of life, it’s better to be safe than sorry.
Psychological aspects aside, here are the main criteria that we used when compiling our illustrational cryptocurrency portfolio, presented in this article, and which you should adopt when building a crypto portfolio of your own.
Pay special attention to the product and its functionality. Like with most assets, whether digital or physical, utility is the main thing that determines its value in the long run. There are numerous coins that showcase insane gains in weeks or even days, but those are based mostly on hype spread by the paid social media influencers. But if you are serious about your investment, the fundamentals should be the thing that you give the most consideration when picking the coins for the portfolio. And for that, you would have to devote some time to studying the intricacies of the blockchain technology and its multiple use cases and decide whether or not this or that solution would find adoption in the real world. It doesn’t have to be too complicated, but it needs to solve the real problem and provide value to the underlying community or industry.
As of now, we deem the blockchain projects that operate in the area of decentralized finance, blockchain oracles, and digital collectibles to be the most promising. Try to steer clear of blockchain projects that deal with medicine, real estate, banking, or social media - even though some of them might present note-worthy ideas, the industries that they intend to tap into are either too regulated or oversaturated for those projects to thrive. Obviously, stay away from scams that promise unsubstantiated “guaranteed” profits - we have covered this issue in one of our previous articles. Make sure to read the project’s whitepaper and the associated technical documentation. If you don’t understand the technical details, consult with a paid blockchain specialist, this small expenditure could save you a lot of money.
Check out the size and the activity of an online community associated with a certain cryptocurrency. Regardless of how sophisticated and promising the coin appears to be in the whitepaper, it could be nothing without the community of developers and followers. Most cryptocurrencies are open-sourced, which means that anyone who possesses some knowledge in coding could submit a proposition on Github or other online platforms that could later be realized by the team behind the project. Make sure to always visit these platforms to verify that developers are interested in the project, which translates to the constant improvement of the underlying technology.
Also, visit the official social media outlets dedicated to the coin that you consider adding to the portfolio. Twitter is the most popular go-to place for crypto enthusiasts, along with Telegram and Reddit. The size of the community matters - if the page has only a few hundred subscribers, it obviously means that the popularity of the coin leaves a lot to be desired and that it could only be included in some shady pump-and-dump schemes. But pay even more attention to the content that this community produces.
The healthy community that genuinely cares about the project initiates meaningful discussions, polls, posts educational articles, and organizes contests, all of which revolve around the cryptocurrency at hand. Whereas the “hollow” coins might have the very populated communities that are primarily engaged in the aggressive and obtrusive promotion, which is usually the case with meme coins like Dogecoin (DOGE), SHIBA INU (SHIB), CumRocket (CUMMIES), or MonaCoin (MONA). We don’t insist that you refrain from holding some of these meme coins in your portfolio, most of them could show explosive gains, but they should make up a tiny percentage of the total holdings, which we will cover a bit later in the article.
Figure out the incentive structure and the governance model applied to the cryptocurrency of your choice, and the overall token economics of the project. It’s very important to know how the participants in the blockchain network are being incentivized to keep it operational. There are some blockchains that run purely on the good will of some enthusiasts, but the majority of people who are involved in this space aren’t that altruistic. The type of reward often depends on the consensus mechanism that lies at the foundation of the network: Proof-of-Work blockchains usually offer mining rewards, Proof-of-Stake ones pay the percentage for staking funds on the network. There are also yield farming, loyalty, and even gaming rewards. Logically, the better is the incentive, the higher is the possibility that the network remains sustainable and the blockchain project has the means to realize its goals, declared in the whitepaper.
The on-chain governance model refers to the system for managing and introducing changes to the underlying protocol. Bitcoin and Ethereum have the informal model, while other projects employ self-amending ledgers and even hardcoded constitutions. The adequate governance model ensures that the project develops in the right direction, which translates to the continuous appreciation of the price of the associated cryptocurrency.
Make sure to study the token economics, particularly the way in which the coins or tokens are distributed among participants. If there is an infinite supply of coins, or the developers have locked a major share of coins in their wallets, or a significant percentage of coins is concentrated in one or two wallets - refrain from adding those cryptocurrencies to your portfolio. For instance, according to Bitinfocharts, a single address now holds close to 30% of the entire supply of DOGE, worth around $14.7 billion. Some suspect that it’s the Dogefather himself, Elon Musk. Understandably, the owner of that wallet, whomever he might be, can potentially dump a significant portion of his holdings onto the market that would result in the instantaneous capitulation of Dogecoin. The demand to lock up the funds for a prolonged period of time is also a sign of bad tokenomics and the potential danger to one’s investment, with the Internet Computer Coin being the most recent example - the team has convinced the investors to lock up the coins while the whales have been actively dumping their stacks, which resulted in the early collapse from $450 all the way to $29. Once again, the assessment of token economics could be a tricky task that requires the knowledge of certain specifics of blockchain technology. Therefore, if you are not sure that you are competent enough, seek the advice of a blockchain professional.
Always take the current market condition into account. Needless to say that if you want your cryptocurrency investment to pay off and not turn into a source of constant stress, you need to master the art of market timing, which means buying a crypto asset of your choice at the most appropriate moment, preferably when it takes a downturn or a dip, or when the market is consolidating with the prospect of a breakout to the upside. To capture that golden opportunity to buy the undervalued digital asset and lay a brick in your portfolio, it’s recommended to follow the price action on high time frames, such as the monthly, the weekly, and the daily, with the 4-hour being the lowest acceptable one that helps the investor to pick the most precise entry point, for instance, when the price had established a strong foothold around certain support area or when key momentum indicators like MACD or RSI are in the oversold zone.
When forming the cryptocurrency portfolio, don’t ever ignore the risk management basics: always withstand the temptation of going all-in on a single trade, even if the market posts a sequence of big red candles. And never take the position on the first bounce after the initial dip. Remember that due to the inherent volatility, any cryptocurrency market is capable of prolonged downfalls and could go 30% - 40% to the downside during a single trading session. It would be better if you refrain from trying to catch the “falling knife,” which refers to the trading approach when a trader tries to capitalize on sharp price drops. Instead, wait for the market to stabilize, preferably on the daily time frame, and only then consider buying the asset to supplement your crypto portfolio.
If you are not in a rush to compile a crypto-portfolio and would like to stretch out this process over several weeks or even months, you can opt for the dollar-cost averaging (DCA) strategy, which implies buying an asset in small increments over an extended period of time as opposed to forming the position in just two or three takes. There are instances when the market makes a swift and strong recovery and then keeps pushing to the upside, leaving the reluctant investor frustrated over the missed opportunity.
However, these instances are quite rare - in general, the markets proceed in the predetermined direction, especially if confirmations like bearish candlestick patterns (head and shoulders or a double top) combined with showings of key indicators are present. You might remember that right after Bitcoin (BTC) had slipped off the $60,000 cliff and fell straight to $46,700, it made a strong 40% bounce to the upside only to continue its rapid descent all the way to $30,000, where it appears to have found the bottom.
With the DCA strategy, the investor could have made a few bad entries on BTC’s way down to the macro support level, but ultimately, he would have gathered most of his position in the consolidation zone between $34,000 and $37,000 before the price broke out of it in the direction of $50,000. But remember to avoid buying crypto for the portfolio (even if your investment timetable dictates so) at times when the market appears to be overheated, and the crowd of retail traders is pushing the price out of pure FOMO (fear of missing out), which is usually the case when there is an explosive rally that isn’t substantiated by steadily growing trading volume in the preceding days. Keep in mind that the market always presents the participant with a plethora of opportunities, so if you missed out on a big breakout, just wait for a pullback that occurs after every upswing - nothing in crypto, or on any other financial market for that matter, endlessly appreciates in value. Be patient as if you are on a long fishing trip; such an approach is what differentiates the losers from successful cryptocurrency investors.
Rest assured that if you follow these principles and maintain the focus on the market developments and not on the surrounding media noise, which usually nudges the fledgling crypto investors in the wrong direction, you will build a solid portfolio that will generate substantial profits in the middle and long-term perspective. There are three main pillars: knowledge, patience, and risk management, on which every fruitful portfolio stands. Ignore them, and you might turn into those forced holders who justify their mistakes by claiming to have diamond hands.
Another important thing to consider when creating a cryptocurrency portfolio is the distribution of assets, meaning which percentage of the portfolio would be devoted to a certain coin. There are four main types of portfolio composition: conservative, balanced, moderately risky, and highly risky. In our experience, the balanced composition, which provides for 30% of the portfolio being parked in stablecoins, 25% - Bitcoin, 25% - Ethereum, 19% - other altcoins, and 1% - “meme” coins, to be the best in terms of diversification and profitability. Below is the visual representation of our preferred portfolio composition.
When it comes to other portfolio builds, they are diversified in the following way:
The conservative portfolio composition implies having the majority of assets being of the low-risk kind, which in the case of crypto translates as having your portfolio packed predominantly with stablecoins, the cryptocurrencies with the lowest volatility profile, the value of which is pegged to that of the real-world currency or asset, like gold, land, or real estate property. Most reliable stablecoins have their price tied to USD, with USD Coin (USDC), USD Token (USDT) being the most popular of the pack. There is a lot of debate around which of these two is the best stablecoin for crypto portfolio, and we certainly give preference to USDC because it’s by far the most transparent stablecoin that is compliant with all regulatory demands of U.S. financial authorities, whereas Circle Ltd., the company behind USDT, has always been under regulatory scrutiny over its inability to prove that each coin is backed by USD or other collateral assets. The issuer of USDC, the Center Consortium, on the other hand, has the corresponding amounts locked in segregated bank accounts that are subject to regular public audits. The only downside to having USDC is that it has somewhat lower liquidity compared to USDT on most crypto exchanges, with the exception of its native platforms Coinbase and Coinbase Pro. But if you don’t plan on holding tenths of millions in USDC and then dumping them at once, then you shouldn’t really worry about the liquidity.
There is another class of stablecoins that are pegged to gold, with PAX Gold (PAXG) being the most shining example. It’s fully backed by a troy ounce of high-carat gold that can be redeemed for actual bullions, accredited by LBMA.
You can hold stablecoins in the portfolio in anticipation of a major market drawdown, like the one that began in May, and then use them to restructure the portfolio to a balanced or a moderately risky one. But you can also put them to work by engaging in staking programs available on major cryptocurrency exchanges. For instance, you can stake USDT or BUSD on Binance on a Flexible or Fixed Savings account and get the annualized percentage yield (APY) of 1.2% and 3.85%, respectively. Now, we would like to offer a quick review of other cryptocurrencies that we recommend having in your crypto portfolio for 2021 and 2022.
Bitcoin is hands down the finest hedge against the failing monetary system, mainly because BTC has a limited supply of 21 million coins. It might not be based on the most efficient blockchain, Ethereum is far better in this regard, but the significance of BTC as the store of value is now beyond any arguments.
BTC/USDT weekly chart. Source: TradingView
As you can see on the chart above, Bitcoin has had a good month after bouncing off the 50MA and is likely to retest the $60,000 area and try to push above it in the coming months. However, we recommend waiting for a potential pullback to $40,000 before starting to add it to the portfolio.
Ethereum might have a limited upside potential, compared to other altcoins, mainly due to its already huge market capitalization of $443,5 billion, but it has a much higher chance of realizing this potential to the full extent. ETH is the most sound altcoin from the technological perspective: the recent EIP-1559 upgrade could become a precursor to the London hard fork that could make ETH a deflationary asset. Add to that the imminent introduction of Ethereum ETF (exchange-traded fund) and the fact that Ethereum now has more active wallet addresses than Bitcoin, and you get the most power-packed asset among all top coins on the market.
ETH/USDT monthly chart
The price action of Ethereum speaks for itself; the coin is on the brink of testing the all-time high and looks strong even though the trading volume is far from being at its highest levels. But here, you should also wait for a pullback that might occur after the price tests the $40,000 level.
When it comes to the “other altcoins” category, Cardano (ADA) is our top pick because it managed to maintain the bullish momentum despite the recent turmoil on the crypto market, and it still has more room to grow than ETH.
ADA/USDT weekly chart
ADA has had a massive bull run in anticipation of the launch of the smart contract update that will put it on par with the Ethereum network in terms of functional capabilities. In addition, Cardano enjoys elevated interest from institutional investors. For instance, Grayscale has filed for the ADA Trust, and we are certain that other big players will follow in its footsteps. On the chart, Cardano has been exploding to the upside on the backdrop of the expectations around the upgrade, so here, you should also wait for a significant correction to $2.3 before going in. It is our belief that ADA will reach $3 by the end of 2021.
As for the “meme” coins, most would probably recommend Dogecoin (DOGE) since it has a PR manager in the face of Elon Musk, but we would like you to consider going for SHIBA INU (SHIB) instead. Unlike DOGE, SHIB is not shallow in terms of fundamentals. Essentially, SHIB is an experiment in community governance and decentralization carried out by the founder nicknamed Ryoshi and an anonymous crypto entrepreneur who many believe to be Vitalik Buterin or one of his close associates.
SHIB/USDT weekly chart
On the chart, SHIB appears to be in the stage of prolonged consolidation after its capitulation from $0.00005. Even the move to the open of the huge bearish candle, which might well be the point of strong resistance, would constitute a 160% gain, a nice result even if you have SHIB make up only 1% of your crypto portfolio.
|#||Crypto||Prediction||Accuracy||CVIX||Price||24h||7d||Market Cap||7d price change|
|1||BTC||Bitcoin predictions||63.6%||74||$60 032.76||-2.11%||-1.50%||$1 131 802 049 382|
|2||ETH||Ethereum predictions||68.4%||59||$3 989.05||-3.01%||4.71%||$470 948 938 919|
|3||BNB||Binance Coin predictions||71.6%||62||$469.93||-2.46%||0.52%||$78 385 216 501|
|4||USDT||Tether predictions||93.2%||1||$1.000447||0.02%||0.09%||$69 605 178 895|
|5||ADA||Cardano predictions||86.8%||13||$2.10||-2.38%||-2.74%||$69 174 273 027|
|6||SOL||Solana predictions||70.4%||56||$187.59||-3.86%||17.09%||$56 455 905 240|
|7||XRP||XRP predictions||75.2%||49||$1.063738||-2.10%||-5.03%||$49 938 635 685|
|8||DOT||Polkadot predictions||61.6%||82||$41.55||-4.26%||-0.40%||$41 029 792 344|
|9||DOGE||Dogecoin predictions||72%||60||$0.261327||4.69%||10.43%||$34 450 251 548|
|10||USDC||USD Coin predictions||94.8%||1||$1.000452||0.01%||0.09%||$32 589 972 835|
|11||LUNA||Terra predictions||70%||61||$40.06||-6.21%||7.93%||$16 078 547 993|
|12||UNI||UniSwap predictions||78.4%||43||$25.49||-4.26%||-3.47%||$15 592 349 712|
|13||SHIB||SHIBA INU predictions||54.8%||92||$0.000038||12.93%||47.19%||$14 846 178 540|
|14||AVAX||Avalanche predictions||71.2%||61||$62.43||-4.16%||10.20%||$13 751 801 922|
|15||LINK||Chainlink predictions||74.8%||50||$29.06||-5.36%||8.54%||$13 396 474 820|
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