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3 Questions to ask when designing your crypto portfolio

25 Jul 2018, 00:00, ,

With literally hundreds of coins to choose from, structuring a digital asset portfolio is a daunting task - but coming up with the answers to 3 simple questions should help anyone create an investment thesis that is right for them

So, how do you choose the right combination of coins for the best possible return? Here, we explore the three questions I consistently ask myself to create the best balance and diversified exposure.

1) Liquid or illiquid assets?

The first question to ask is how liquid do you want your portfolio to be? In general terms, there are two options to choose from. ICOs are the more illiquid option because your money will be tied up until the coin goes public and starts trading.

Tokens that are already trading on exchanges are the second option. You can buy and sell these tokens easily, which gives them more liquidity.

If you are a patient person who does not like to check market changes every day, the ICO route may be a smart investment for you. Alternatively, investing in tokens that are already on exchanges allows you to freely buy and sell whenever the market increases or decreases. It really depends on how active you want to be.

Further to the ICO question. While they may offer a greater return they will only do so if they go the distance. A recent Boston Collegestudy found that the average ICO returns 82 percent for investors. But the same study also found that only 44 percent of ICOs survive in the long run, and that generally ICO returns have been decreasing over time.

This means that while ICOs can potentially offer a greater return, they can also potentially fold before ever being listed on an exchange.

2) Tried and true — or newer, riskier coins?

Now that you’ve decided how liquid you want your portfolio to be, you need to decide how risky you want to be. Do you want to be a risk-taker and invest in newer, more precarious coins that have recently been added to exchanges?

Or would you rather play it safe and invest in the tried and true top coins? There is one key difference between these two types of coins. The newer coins offer higher returns, but come with more risk, while the top market coins ebb and flow with market gains and losses.

My goal as a crypto fund manager is to consistently beat bitcoin. With this goal in mind, I invest two-thirds of my portfolio in safer, more established coins, with the remaining third in newer, riskier coins. If I pick the correct newer coins, this strategy ensures I will be able to beat the market without having to miss out on a market-wide bull run, which requires investment in the established coins.

3) Which region and crypto sector is right for me?

At this juncture, you have decided how liquid your portfolio is and which type of coins you are investing in. The next step is to decide which specific coins to invest in. For example, if you decided on a 50/50 split between the more established coins and the newer, riskier coins, you now have to choose between two dozen of the top coins and over 1500 of the riskier coins.

Determining which specific coins to buy can be overwhelming, and I suggest two strategies to help with the research.

The first is to narrow down the coins to the ones that are in your region of the world. For example, you can decide to prioritize all the coins that are big in New York, or you can focus on projects exclusively in the Philippines. The reason for this regional focus is that investors from similar parts of the world have similar goals. For instance, Asian investors tend to focus on price and short-term gains, while American investors typically focus on long-term returns. Which of these themes most closely matches your investment philosophy?

This strategy is also helpful if you are a crypto enthusiast attending conferences and events in your area. Generally, the people closely associated with the coins you invest in will frequent the same events, so focusing on one region helps you better understand the intentions of investors and coin founders.

The second strategy is to exclusively research a few token sectors that interest you. Some examples of token sectors include payment coins, gaming tokens, developer platforms, decentralized and centralized exchanges. For example, I am currently focusing my research on exchanges (both centralized and decentralized) and tokenized funds.

If you choose sectors that interest you, you will enjoy doing research on those coins. In turn, this will help keep you motivated and informed about your investment options and lead you to make better investment decisions.

Navigating the volatile digital token market is not easy, but keeping the aforementioned three questions top of mind will help ensure your portfolio is optimized per your preferences and interests.

Disclaimer: This article has been presented for informational and educational purposes only. Readers are advised to conduct their own independent research into individual assets before making a purchase decision.

About the author

Ben Marks is the founder and CEO of Blocktrade Capital, a weighted index fund for crypto assets. Ben has been invested in Bitcoin since early 2014, and prior to that worked in Bank of America’s Home Loans division and Wells Fargo’s Asset-Based Lending Group.

With literally hundreds of coins to choose from, structuring a digital asset portfolio is a daunting task – but coming up with the answers to 3 simple questions should help anyone create an investment thesis that is right for them


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