Rome wasn’t built in a day, and neither was any successful investors’ portfolio. As cryptocurrencies have built up a massive market value and industry in the past ten years, it appears certain that it will only continue to grow, so why not get involved now? While professional traders know the key to long term investment prosperity is portfolio diversification, constant market research, and long and short-term instruments, where does a beginner start? In this article we’re going to share with you the key to building a long term cryptocurrency portfolio.
Where To Begin
With over 12,000 cryptocurrencies on the market today, it’s no wonder that building a long term cryptocurrency portfolio might feel overwhelming. Some cryptocurrencies that were hugely successful a few years ago might be obsolete today, while others that were barely noticed are now sitting in the top 10. So how do you find the right investments, and how do you know if one coin is going to be more of a success than another?
Market research. Not only find out everything that the project offers, also check in to see how big their community is and what they are saying. Like any traditional investment instrument, market sentiment is everything. Once you have consolidated your research you will have a good indication of whether this is a good long term investment. To make this process simpler, we’ve broken it down into 5 key steps.
The Key To Building A Long Term Cryptocurrency Portfolio
Here is a step by step guide on how to build a valuable and prosperous crypto portfolio.
Step 1: Pick A Cryptocurrency
Make sure that you DYOR (do your own research) on the crypto you’re interested in, and not just rely on one or two news pieces. Have a look at what people are saying on social media and forums, particularly regarding their long term investment potential.
Step 2: Check The Market Capitalization
Look on trusted sites like CoinMarketCap to determine how much of the market share this crypto holds. The higher the market cap, the larger the market share, and the lower your risk.
Step 3: Research The Project
Behind every cryptocurrency is a project looking to provide a solution, whether it be as an alternative monetary system (Bitcoin) or a blockchain platform on top of which people can build new decentralized applications (Ethereum). Look into what problems the project aims to solve, their development thus far, and whether it has the capabilities to become an industry standard.
Step 4: Diversify Your Portfolio
The key to any successful investment portfolio is diversification. Repeat steps 1, 2, and 3 again and again until you have built yourself a varied mix of digital assets. The more assets you have, the lower your risk and the higher your potential returns. As the saying goes, “don’t put all your eggs in one basket.”
Step 5: Select A Strong, Reliable Wallet
You’re going to need to store these cryptocurrencies in a safe and reliable place. Paper wallets are best for long term hodling, so be sure to find a safe one (preferably multi-currency). You can also use tools to track your long term cryptocurrency investments, platforms like Cointracker and Cryptocompare offer insights into the overall performance of your chosen cryptocurrencies.
Read more: How To Protect My Cryptocurrency Portfolio
How To Begin Building A Long Term Cryptocurrency Portfolio
Now that you have the steps, where do you actually begin? We’ve broken down the crypto industry into several core concepts to make the choosing process a little more refined. We’re going to look at core cryptocurrencies, protocol, anonymous, and miscaleanous, to help you navigate the market with a little bit more confidence.
This category refers to the biggest pillars of the market, namely Bitcoin (BTC) and Ethereum (ETH). While Bitcoin is the dominant cryptocurrency, holding 45% of the market’s value at the time of writing, Ethereum is equally powerful. The Ethereum platform is responsible for providing dapp (decentralized application) development across a number of industries, decentralized exchanges, and DeFi platforms. Bitcoin and Ethereum hold the highest market capitalization within the market, respectively.
This category is for the cryptocurrencies with breakthrough technological solutions that have proven themselves over the past few years. Following the ICO boom of 2018, many crypto projects have folded, while a few bright ideas have remained. Chainlink (LINK) is an example of this, as it integrates blockchain networks with outside data. Cardano (ADA) and Polkadot (DOT) also feature in this category due to their impressive projects and proven credibility.
Anonymous cryptocurrencies highlight one of the core features of the industry’s initial appeal. The promise of private transactions will always be a draw card, and several projects focus on just that. With highly encrypted, untraceable transactions, Monero (XMR), Dash (DASH), and ZCash (ZEC) are the leading cryptocurrencies offering this service.
This category is for other investment options that don’t necessarily fit into the ones above. Cryptocurrencies like Steller (XLM), Bitcoin Cash (BCH) and Litecoin (LTC) all offer great use cases and are enjoying steadily increasing adoption. Also, similar to Ethereum, Tron (TRX) and EOS (EOS) provide ecosystems for others to build on, which is an equally fast developing space within the industry.
An Example Of A Cryptocurrency Portfolio
Here are some common tips from industry insiders given to people looking to build and grow their cryptocurrency portfolio successfully. Outlined below is an example of what cryptocurrencies to incorporate, as well as an indication of how much of each. Please note that this is not financial advice but merely a look at what a mock crypto portfolio could look like.
- Aim to have at least 40% (to 100%) of your portfolio invested in Bitcoin.
- Ethereum is also a valuable contributor to the space, consider investing 10% of your portfolio.
- Try veer away from DeFi and DEX coins, while their returns might be great at the time, try to opt for substantial projects that are suited to a “long term” investment strategy.
- Stay clear of meme tokens.
- Only venture into staking cryptocurrencies if you have the appropriate amount of knowledge to do so.
- Explore smart contract platforms. Aim to invest roughly 25% of your portfolio in the major smart-contract-driven platforms, alongside 10% for Ethereum as mentioned above, look at cryptocurrencies such as Cardano (ADA) and Solana (SOL).
- Consider investing 15% into interoperable cryptocurrency platforms like Polkadot (DOT) and Cosmos (ATOM). These networks focus on allowing blockchains to communicate with one another, creating a more functional web within the blockchain ecosystem.
- Oracle networks are gaining notice as they provide the next generation of blockchain integration: allowing blockchain networks to bring in real-world data. Consider allocating 10% of your portfolio to this category, examples include Chainlink (LINK) and Band Protocol (BAND).
As mentioned above, this is simply an example based on research and industry insiders and is by no means financial advice.
Build The Right Cryptocurrency Portfolio For You
While we hope to offer some advice on the key to building a long term cryptocurrency portfolio and facilitate the purchasing of all the cryptocurrencies mentioned in this article, we are by no means offering financial advice nor any certainty over any cryptocurrencies success. As we’ve mentioned before, do your own (thorough) research and find the right digital assets to build up your own crypto portfolio.