When thinking about cryptocurrency, it is important to build a framework for evaluation and then use that framework to build a portfolio.
A cryptocurrency is a digital currency deliberated to work as a medium of exchange wherein individuals own coins and their accounts are stored in a ledger existing in a form of computerized database. It uses strong cryptography to secure transaction records, to control the creation of additional coin, and to verify the transfer of coin ownership. It does not exist in any physical form like paper money and is not issued by a central authority.
Cryptocurrency is a great long-term investment if one believes in blockchain technology. Bitcoin is considered as a store of value and according to some experts, Bitcoin aims to replace gold in future. The second largest cryptocurrency by market cap is Ethereum and has a huge potential to disrupt the entire financial services industry.
Even though cryptocurrencies have upside potential, they are risky investments that can easily swing double-digit percentage points in a day. Since the concept of blockchain is relatively new, many cryptocurrencies go unregulated. Cryptocurrency prices often fluctuate much more than any other typical investment. Bitcoin and Ethereum can dip 30 percent before continuing upward.
How to construct Your Cryptocurrency Portfolio in 2021
You need to strategize your investment, which will guide your portfolio. It is quite similar to purchasing a new car, you first look and study the different models and then decide which one suits your requirements best. There are endless options in the cryptocurrency market when assembling a cryptocurrency portfolio. Diligent observation is required to create a portfolio, quite similar to investing in other financial asset classes.You will find more infographics at Statista
When thinking about cryptocurrency, it is important to build a framework for evaluation and then use that framework to build a portfolio. Although it entirely depends on an individual’s decisions regarding the assets and coins to include in his portfolio, we look at some important points that will give you a head start as you venture into the fast-paced cryptocurrency trading field.
Understand the Basics of Cryptocurrency
You must do homework before buying or investing in cryptocurrency. It is very important to first endeavor to understand and apply the basic principles of digital assets and blockchain technology. You must venture into the cryptocurrency-trading arena with a long-term approach. You should be ready to face market volatility.
Cryptocurrency Market Research
Research meticulously, before creating cryptocurrency portfolio in 2021. Learn thoroughly about the team behind the virtual currency before investing. Understand its purpose before making the final decision. However, it is important to remember that not all crypto coins will remain at the top in ranking and prepare for market volatility.
Diversification Plan, Short and Long Term
Diversification is a key aspect to investing to reduce your overall risk-adjusted return. A portfolio with a diverse market cap should have a couple of high, medium and low market cap coins. The diversification helps you plan for both short and long term growth. However, it could be a daunting experience to identify the differences between cryptocurrencies.
Watch: Diversification hunt drives investors towards cryptocurrency assets
Analyzing Community Trends
Cryptocurrency is unlikely to succeed without a strong community. However, it is not necessary that the community remains strong behind a rising crypto. So, there is a need to constantly evaluate the trend around the community supporting the cryptocurrency. The level of involvement on technical discussion boards, forums and social media may give you a brainstorm of the engagement of the community and how the particular cryptocurrency is performing.
Model Cryptocurrency Portfolio
A model cryptocurrency portfolio may look something like this:
- Bitcoin (BTC) 35% – Core: Major currency, Tier 1 asset.
- Ethereum (ETH) 35% – Core: Major currency, Tier 1 asset.
- XRP 10% — Tier 2 asset: Platform for Remittance, Diversification.
- ZCash (ZEC) 5% — Anonymous/ Privacy, ZKPs w/ important use case.
- EOS 10% — Protocol Coin: Building on top of Ether, big market opportunity, long term wait 1-2 years.
- IOTA 5% — Protocol Coin: Building for the IoT, big market opportunity, long-term wait 1-2 years.
There are over a thousand cryptocurrencies being traded on major international cryptocurrency exchanges. Besides Bitcoins, you can also look into other rising cryptocurrencies like Litecoin, Ethereum and Bitcoin Cash. If you want to make profits in this industry, it is essential to strategize properly. If you want to succeed in the crypto trading arena, creating a cryptocurrency-trading portfolio must be among your first steps.