How To Build A Strong Crypto Portfolio?

The crypto asset market is abundant with coins and tokens seeking your attention to park some of your capital. As an investor, you will eventually run into a dilemma over which assets to pick in your portfolio. While it is subjective and varies according to an individual's risk appetite and financial needs, there is always a balance that you can achieve to strengthen your investment portfolio with lower risk while maximizing returns over the long term. We explore the various strategies that you can use to build your crypto portfolio today.

Crypto as part of your overall portfolio

Crypto assets are a new breed of asset class with potential for high returns but with equally high risk. They are growing in adoption worldwide and are now at a stage where they merit inclusion in every future safe portfolio of yours. Initially, when you enter, you can start with a crypto allocation of up to 2% of the overall portfolio and slowly increase the share with time. They can be counterbalanced by investments in fixed deposits, gold, realty and even cash. The best way to think about it is - your crypto capital is the money that you can afford to lose completely. By keeping the riskier asset to a minimum, it is easier to mitigate periods of high volatility.

Within crypto, Bitcoin is the king

Bitcoin is the leading crypto with a 44% share of total crypto market cap. That means, market trends are still heavily influenced by price actions of Bitcoin. The best way to start a crypto portfolio is to give at least a 60% share to Bitcoin followed by a share in Ethereum, which is the second largest crypto.

An ideal portfolio for risk adjusted returns in future is estimated at 70% Bitcoin, 30% Ethereum. After a few months of insight into how the crypto assets work, you can venture out to invest in other leading cryptocurrencies (the top 20 as per coinmarketcap.com).

Most altcoins don’t survive a cycle

The crypto market moves in a 4 year cycle of Bitcoin (brought about by an event known as halving). Within this cycle, there are periods of accumulation (bear market) as well as intense growth (bull market). Predicting when and how a cycle moves is tough and hence our strategy must be able to accommodate all periods within them.

Bitcoin holds its ground throughout the cycle. While altcoins, coins other than Bitcoin and Ethereum, grow disproportionately in a bull market, they also deflate in value quicker. Many of the altcoins can also go bust quickly. Always understand the risks when investing in random crypto assets however attractive the returns appear. If you analyze the top 15 crypto list from 2017, most of them are not even in the top 100 list.

Invest for the long term

A key practice that helps build a strong portfolio in crypto is that of rupee cost averaging - where you time your buys regularly irrespective of market movements to ensure your input costs are averaged.

Even if you buy an asset at a high price, the market will likely bail you out with time. Trust in the market fundamentals and let the portfolio do the work for you. Do not worry about day-to-day changes in price and always try to top up your portfolio when declines become significant. A patient investor wins in this volatile market.

(Vikram Subburaj, The author is the CEO, Giottus Crypto Exchange. Giottus is India's leading Crypto Currency Exchange to buy, sell, and trade Bitcoin (BTC), Ripple (XRP), Ethereum (ETH), Tron (TRX), Bitcoin Cash (BCH))