Jake Ryan, an entrepreneur, author of books and a cryptoinvestor, talks about how to choose the right cryptocurrency to create a profitable investment portfolio.
If you are a fan of cryptocurrency and have been watching the market for a long time, the time has come to form your own cryptocurrency portfolio.
There is nothing difficult in this, especially if you have already dealt with stocks or other instruments - the principle of portfolio composition is about the same. The key aspect remains diversification: it allows you to increase profitability with regard to risk.
Investment criteria
When forming a portfolio, you should first develop a reliable method for evaluating digital assets. In this sense, cryptocurrencies do not differ from other investment instruments. So in search of promising candidates for getting into the portfolio, ask yourself the following questions:
- Product / Feature. Does a cryptocurrency occupy a niche? Is a promising product associated with it, does it have unique properties?
- Community size / popularity. Can a cryptocurrency boast a large number of users? How enthusiasts and developers are interested in its development?
- Technology / competitive advantage. Does cryptocurrency solve some problem in a unique way? Does it offer an interesting, promising technology?
- Objectives / management. Do the goals of large owners coincide with the goals of developers and investors? How is the development team formed and replenished, how are decisions made? Are coins mined gradually or generated immediately?
- Market opportunities. How serious is the problem being solved? How big is the potential market size?
For each of these criteria (P / P / T / D / V) we will use an estimate ranging from 1 to 10, for example 10 / 4 / 7 / 3 / 7.
Cryptocurrency portfolio
If you use cryptocurrency to expand your portfolio diversification, include from three to seven digital assets.
The meaning here is the same as when diversifying between different asset classes: adding cryptocurrencies reduces risks and increases profitability.
The largest cryptocurrencies: fixed assets
Any cryptocurrency portfolio must begin with Bitcoin and ether. Bitcoin (Bitcoin) - is the first and most famous cryptocurrency. It has established itself as a repository of value and boasts the widest network of users / partners. ETHER (ETH / USD) is based on the idea of “smart contracts”, which using the blockchain technology can change the world beyond recognition in the next 10 years. Ether can greatly benefit from their development. Most investors will be wise to invest the bulk of the funds in these cryptocurrencies.
- Bitcoin (BTC): $ 9052 (9 / 10 / 8 / 10 / 9)
- Ether (ETH): $ 690 (10 / 9 / 10 / 9 / 10)
Zombie Currencies
We recommend to be careful with the so-called zombie currencies. In the past, they could have significant potential, but the market made their choice, and they remained outside of it and, accordingly, lost a serious competitive advantage.
Bitcoin Cash (Bitcoin.Cash) hopes to become a popular means of payment, offering faster transactions compared to Bitcoin. However, this is a rather vulnerable position, and miners' interest in cryptocurrency is gradually fading.
Ethereum Classic (ETC / USD), in turn, lost the battle with the air. Lightcoin (LTC / USD), although called “digital silver”, is ready to press it against other cryptocurrencies.
Thus, until representatives of this category prove their worth or ability to take a leading position, it is not worth investing in them. They can go up along with the rest of the market, but the lack of unique characteristics will threaten their prospects.
- Bitcoin Cash (BCH): $ 1003 (2 / 5 / 8 / 7 / 6)
- Ethereum Classic (ETC): $ 19,9 (2 / 4 / 7 / 8 / 6)
- Lightcoin (LTC): $ 173 (4 / 6 / 7 / 7 / 7)
Cryptocurrency platform
Many cryptocurrencies are tied to their platform, which with the help of the blockchain is trying to solve a specific problem.
Ripple is trying to gain a foothold in the international payments market. NEO (NEO / USD) is working on a platform to expand smart contracts. NEM manages and builds smart assets. And the developers of Dash (DASH / USD) are trying to solve the problem of digital payments in a new way.
- Ripple (XRP): $ 0,8 (8 / 9 / 9 / 7 / 8)
- NEM (NEM): $ 0,4 (8 / 8 / 8 / 7 / 9)
- NEO (NEO): $ 84 (9 / 7 / 8 / 7 / 9)
- Dash (DASH): $ 487 (8 / 9 / 6 / 9 / 8)
Anonymous crypto currencies
The goal of other cryptocurrencies, for example, Zcash (ZEC / USD) or Monero (XMR / USD), is to maintain a high anonymity of users and to keep transactions secret. Each of them is arranged in its own way and has unique characteristics. And since confidentiality is one of the fundamental foundations of cryptomir, there will surely be a place in your portfolio for representatives of this category:
- Zcash (ZEC): $ 283 (10 / 8 / 8 / 7 / 8)
- Monero (XMR): $ 253 (9 / 8 / 6 / 8 / 8)
Protocol-related cryptocurrencies
Since we are in the early stages of developing decentralized and blockchain applications, many of the platforms are focused on protocols. In the future, cryptocurrencies will be predominantly tied to applications, but first you need to build the appropriate blockchain infrastructure, so you can include at least one of these cryptocurrencies in your portfolio: EOS (EOS / USD), IOTA (IOTA / USD), MaidSafe or BAT (BAT / USD).
- EOS (EOS): $ 5,7 (10 / 8 / 9 / 6 / 9)
- IOTA (MIOTA): $ 1,3 (10 / 8 / 9 / 8)
- MaidSafe (MAID): $ 0,3 (9 / 9 / 8 / 8 / 9)
- BAT Token (BAT): $ 0,3 (7 / 7 / 8 / 8 / 8)
Other promising currencies and tokens
The following cryptocurrencies are highly speculative, but have a certain potential. Many of them focus on applications that are based on the protocols mentioned above. It is better to refrain from buying until they mature, and take up the formation of a basic cryptocurrency portfolio. Nevertheless, we list several possible options:
- Metal (MTL): $ 4
- Steem (STEEM): $ 2,5
- Tierion (TNT): $ 0,07
- Augur (REP): $ 35
- TenX (PAY): $ 1,4
- 0x (ZRX): $ 0,6
- Sense (SENSE): $ 0,03
- CRYPTO20 (C20): $ 1,5
Tip: Avoid ICO
Today in the cryptocurrency market you can find a lot of questionable primary offerings. Many companies conducting ICO have neither a finished product, nor stable revenue. 90% ICO is devoid of intrinsic value, and the majority of coins issued today are cheaper than during initial placement.
Sooner or later, regulators around the world will take control of this market segment. And the process will be painful for all its participants. Invest in ICO only when there will be mandatory norms for all and projects will be really promising.
What your cryptocurrency portfolio might look like
Assets in the portfolio can be distributed as follows:
- Bitcoin (35%): main asset;
- Ether (35%): primary asset;
- Ripple (10%): minor asset, money transfer platform, diversification;
- Zcash (5%): anonymity / confidentiality, specific application of evidence with zero disclosure;
- EOS (10%): cryptocurrency linked to a protocol. Based on Ether, large targeted market, long term rate;
- IOTA (5%): cryptocurrency tied to a protocol. Strives to become the basis of IoT, a large targeted market, long-term rate.
The inclusion in the portfolio of three to nine cryptocurrencies will optimize profitability and reduce risks. In addition, it can be digital assets with great growth potential that can outrun bitcoin and the air. Before selecting candidates for purchase, it is recommended to establish a minimum threshold for market capitalization. You should not invest in cryptocurrencies with a capitalization of less than 100 million dollars.
It should be noted that over time, the portfolio may lose relevance due to the dynamic nature of the market and cryptocurrency space. Use the principles described in this article for current and future investments.