[dropcap]B[/dropcap]itcoin and all altcoins are like stocks and commodities. When you invest in stocks and their values go up, you earn profits. When the value goes down, you lose money. Cryptocurrencies are also volatile, much more than stocks. Investing in altcoins requires that you build a crypto portfolio; one that you trust could earn you returns in the long run.
There are more than 1,500 registered altcoins in the world, each engineered to solve a particular problem by utilizing blockchain-based technologies. Some of the startups have ideas that will be extremely useful 10 years from now. Some will fade out before 2020.
If you want to invest in cryptocurrencies and build wealth, there are certain steps you should take. You have to decide whether you want to follow hype to invest or you build a strategy to help you create wealth.
This guide explores some of the important things you need to undertake if you want to invest in cryptocurrencies. For starters, I assume you already know the following:
- How to secure cryptocurrencies with a safe personal wallet
- The best crypto exchanges for a bitcoin investor
- Crypto Portfolio tools you should have
Choosing assets for a crypto portfolio
Many serious investors have a crypto portfolio with at least three cryptocurrencies. The investors know that putting trust in one coin can be disastrous. And even if the coin is a reputable crypto like Bitcoin, they know that there are far too many opportunities in altcoins to just pass them over.
Don’t believe me? The table below reflects how different cryptocurrencies performed in 2017. Ripple, the blockchain startup that targets financial institutions, led the charts with a growth rate of more than 36,000%.
|Cryptocurrency||Growth rate in 2017|
Investing $100 in Ripple at the beginning of 2017 could have earned you $36,000 by January this year. Bitcoin grew by 1,318%, ranking it at 14th place among the best performing cryptocurrencies in 2017.
Most of the top 100 cryptocurrencies grew by more than 100% in 2017. But if you are like most investors, you have no plans in investing in more than 10 coins. A good crypto portfolio should be guided by five important principles:
Always do your own research. Most coins coming out lately are backed by whale investors whose main goal is to pump money into the coins for a while and then dump them for profits. Doing comprehensive research can help you identify a coin with prospects of succeeding.
Find out the team behind a coin and their accomplishments before you backup their project. Learn what industry the startup targets and read their whitepaper to learn how they plan to achieve what’s in there.
Never invest in a coin without understanding its purpose. It’s easy to believe in the coins ranked at the top 10 positions based on market cap. However, the truth is that not all the top coins are going to remain at the top for long.
See Also: Seeing through the Bitcoin illusion
Blockchain projects with low scalability are going to find themselves in tough positions in the near future. Projects with low or now fees and can handle scalability, on the other hand, will probably earn higher ranks.
Cryptocurrencies can be categorized into different sections based on their purposes. Bitcoin, for example, is a currency coin developed to buy goods and services just like any FIAT currency. Ethereum is a platform coin used to purchase smart contracts and fund ICOs.
From an investor’s perspective, it makes more sense to invest in both currency and platform coins rather than to invest in currency coins alone. If trends are anything to go by, only one or two cryptocurrencies remain dominant in each category.
Currency coins: How many currency coins do you know? Most people know of bitcoin but there are more than 20 coins with the exact business model as bitcoin. Their chances of success are low but bitcoin’s prospects are high.
Platform Coins: Ethereum was once the only popular platform blockchain for deploying decentralized applications. Today, EOS, an ICO token once deployed on ethereum has a blockchain engineered to handle scalability better than ethereum. There are several other ethereum alternatives. Some of them have high prospects and would make a good addition to any portfolio.
Privacy coins: Lately, privacy coins have been growing in popularity as well. However, only Monero, Zcash and Dash remain popular among them.Cryptocurrencies can also be categorized as utility tokens or as stable coins like USDT (Tether). Most ICO tokens are utility coins built to offer services on a specific blockchain based platform.
When building a crypto portfolio it is important diversify your list of invested coins. Not only does diversifying a portfolio help spread risks in the volatile cryptocurrency markets, but it also helps you maximize profits.
The crypto portfolio above could be an investment of $1,000 but it is diversified to reflect the different types of coins in the industry. I chose the exact coins in this portfolio because I believe they have high growth prospects. Your portfolio should also consist of coins that you really believe, so that even if they lose value in between months you are confident enough to continue hodling them for the long term.
#3: Confidence in the coins
Hodling is the basic principle for some of the most successful cryptocurrency investors. Think of bitcoin investors who purchased the coin when it was still valued at $10 and they still own them today.
Bitcoin was valued at $10 in 2010, meaning $100 could get you 1000 BTC. At the time of writing, bitcoin is trading at more than $7,600. An investor who held their 1000 BTC in the last eight years has at least $7.6 million.
An investor who held their Binance coins in the last 12 months earned more than 100% in return.
Confidence in the coins you invested in is an important principle for any crypto investor. However, you probably wouldn’t have invested in a coin if you didn’t have confidence in its project. Research as much as you can in a coin and if you are confident in its prospects, hold onto the coins for as long as possible.
# 4: Ability to follow trends and act accordingly
Investing in cryptocurrencies won’t be a smooth ride. There are lots of ups and downs. It’s important to stay ahead of every other trader by consistently following important news and assessing decisions made by the team behind any coins you invest in.
The recent launch of the EOS blockchain, for example, is having a big influence on the coin’s performance. Tron’s accusations of plagiarism really tarnished its prospects early in the year. Stay updated with news so that you can anticipate which coins in your portfolio are likely to continue gaining value and which ones won’t.
If certain coins are gaining value at a much higher rate than others, pump more money into them. If certain coins are really getting dumped and you believe they won’t remain valuable for long, sell them and invest in other coins.
# 5: Rational decision making
The fifth and one of the most important principles a crypto investor should have is the ability to think and act rationally. In an industry where most coins’ prices are influenced by hype and emotional trading, you must strive to retain your sanity.
Never invest simply because everyone else is investing. Never allow fear to influence your decision making process. If you have to dump a coin, analyze its project properly and have a reason to do it.
Some cryptocurrencies are experiencing unprecedented growth rates in 2018. Some are losing value every day. If you have to invest, build a crypto portfolio. Research about each coin you want to invest in and diversify your portfolio accordingly.