If you have ever invested in the stock market, or you know how it works, you can understand how uncertain things can be. The same is true for cryptocurrencies. One day a certain currency is at its peak, in the next couple of days, it might reach the lowest value ever.
That’s why building a cryptocurrency portfolio becomes a little tricky. Research is the base of any strong cryptocurrency portfolio, and it alone doesn’t suffice. Luck is another factor, don’t live in the illusion that everything’s in your control.
Though there are several trading pointers you can consider while building your cryptocurrency portfolio, and increase your chances of success.
- Learn Basics of Crypto
First things first, you need to learn how crypto works before buying any coin. Would you invest in any business without learning how it works, and what are the chances of your success? Of course, never.
Crypto can be much more complex to understand. However, if you understand the basics, decision-making in the future will be easy.
There are several factors that can affect the value of a certain coin:
- The supply and demand of a certain coin
- Number of competing currencies
- Internal governance
- Regulations governing its sales
- Availability on trade exchanges
You might be investing your lifelong savings in cryptocurrency. Wouldn’t you like to do research and find out about the price history and performance of all the possible coins you can buy?
Take the example of bitcoin. You can find all about its history, when it was launched, when it reached its peak, what was its lowest value, etc. Buying cryptocurrency can be risky but don’t you think the risk is worth it? One day you will buy bitcoin in dubai at a fairly low rate and the other day you will find the rates hiking.
The trends that affected its value and its price history will help you to decide if its’ the right time to invest in it or not. The same goes for any other coin.
Another thing to research is who are the top names or firms investing in a certain coin. If venture capital firms are openly investing and supporting a particular coin, it’s a good indication.
It’s less likely that the coin will collapse anytime soon. Remember, the bigger and credible the investors are, the less likely the currency will suffer from a prolonged decline.
Take the example of bitcoin, it has seen ups and downs but what happens in the end? Every now and then it gets up and sets a new record.
Strong currencies go through turbulent times and get back to normal because the investors never pull back. Investors buy the dip and reap great profits.
And make sure you don’t restrict yourself to a single currency. Embrace diversity and have multiple coins in your portfolio, so you don’t end up putting all your eggs in one basket.
And to diversify your portfolio, consider the market cap of coins. A balanced portfolio has large market cap coins, medium market cap coins, and small market cap coins.
For example, 50% high cap coins, 30% medium cap coins, and 20% small cap coins.
Not sure what are large, medium, and small market caps?
Top 10 performing coins in a market fall in the large category, top 20 in the medium, and the remaining ones in the small.
As of now, cryptocurrency is addressing a variety of markets. These include publishing (Po.et), storage (Storj), lending (ETHLend), etc. The thing is, not all of these markets might survive. So you better diversify your portfolio in terms of industries.
Invest in different industries, so if one crashes while the other one booms, you don’t end up losing all your investment. And in the best-case scenario, you might cover your loss with the profit earned from another coin.
The whitepaper contains the goals and objectives of the people behind a currency. What’s their vision, what they want to achieve in upcoming years, and what problem they aim to solve.
Read their white paper and see if their vision is a realistic one or they are living in fantasies. Possibly, at some time they might run out of funds or the technology they are working on might not be as useful for people as they had thought.
Absorbing the vision behind a certain technology and coin would give you an idea of how long it can last; or if it’s capable of surviving dips.
This is one of the neglected aspects of building a cryptocurrency portfolio. We often do research about the current and past value of a coin, but never consider the size of its community.
No coin can survive without a strong community. The more a coin grows the bigger the community gets. And with a bigger community, there are always greater chances of trading.
If you consider all the top-performing coins today, such as Litecoin (LTC), Ethereum (ETH), and Bitcoin Cash (BCH), you’ll observe each of these have a great community worldwide.