Everyone knows someone that knows crypto is going to the moon.
We tend to lean in that direction. We’re biased obviously, but having followed this space for a few years we can’t help but think that sooner than later some cryptocurrencies are going to be worth many times what they are today. And others will crash or burn up in the atmosphere.
It’s easy to predict that the crypto market will remain highly volatile over shorter time frames. Crypto tends to maintain a steady growth curve once you zoom out over a few months.
Don’t over-think it.
If you don’t already own at some Bitcoin or Ethereum, it’s worthwhile to simply “get off zero”. Start by buying a small amount of Bitcoin that you’re comfortable with.
You don’t have to buy a whole Bitcoin (BTC) by the way.
Owning some amount of Bitcoin and Ethereum seems uncontroversial. Don’t worry about timing the market or making a return on this initial investment. These are blue chip cryptos and they’re likely to do well over time. The point is to get started with an amount you’re comfortable with (and not put yourself at financial risk).
Start by Getting Off Zero.
– Raoul Pal, RealVision Crypto
Bitcoin and Ethereum
Most crypto portfolios have these two as a base.
They’ve been around the longest, they have the highest value, the largest market caps and the first mover advantage.
Almost everyone who has invested in crypto by this point holds some amount of them and likely wishes that they’d bought more when they started out.
The question isn’t Should you include these in your portfolio, it’s What’s the best allocation?
Here’s a look at their prices from one year to the next going back to 2015:
|JAN 1st||BTC Price||ETH Price|
|Rounded to nearest $USD. via CoinGecko|
Based on the above data, the obvious conclusion is that everyone should probably allocate some percentage of their total investment portfolio to each of these two well established digital assets.
Also… it’d have been good to have a crystal ball back in 2015 or 2011, but that’s neither here nor there.
For a lot of people these two blue chips are the foundation of their crypto portfolio.
BTC is like “Digital Gold” – essentially a store of value.
ETH is more like “Digital Oil” – provides utility and can be used to build things.
Creating and Managing a Crypto Portfolio Comes Down to These Four Steps:
- Buy some BTC / ETH on a Crypto Exchange (like Coinbase, FTX or Newton).
- Move some of your crypto into a private self-custody wallet (like Exodus) to earn staking rewards.
- Set up a cold storage wallet (like Trezor or Ledger) and move some of your crypto offline.
- HODL but consider taking profits (sell some crypto by converting it to USDC)
The odds are you’ll be doing pretty well in a year or two or three – especially when compared to other investments you might have made instead.
BTC and ETH are the biggest (and possibly the best) but they aren’t the only game in town.
There are thousands of other cryptocurrencies and as a result there’s potential to go beyond these two staples. This is where it gets more complicated and more interesting. Many newer categories like NFTs, DeFi, and Play-to-Earn gaming are just getting started.
Note: Any coin or token that isn’t BTC is considered an “Altcoin” believe it or not.
ETH is the original Altcoin.
Sure, everyone wants to precinct (and buy) the next crypto that will appreciate the fastest and see the biggest overall gains. However, if you expect to be in the crypto market for the longer term, this should not be the main thing that drives you. Be smart. Be disciplined. Doing your own research is key when choosing between digital assets.
Time in the market, not timing the market.
– That’s what they say
Altcoins is where things start to get interesting.
Look at just three of the top performing altcoins over the past year. Incredibly, they’ve each vastly outperformed the two crypto giants (which themselves reached all time highs in 2021).
Here’s how this looks:
|Symbol||JAN 2021||JAN 2022||ATH||Return|
|Returns after 1 year. Listed in $USD.
It’s hard to believe (but true) that investing $1000 in Polygon (MATIC) on January 1st, 2021 would have gotten you 58,823.5 MATIC tokens and their value would be $149,411.69 by the end of that same year.
Crypto investing is still in the early stages but it’s hard to imagine seeing gains like this repeat as the top altcoins gain adoption and larger market caps. The point of sharing this data is to show potential.
We chose to look at these three cryptos because they rose into the top twenty by market cap in less than a year and they’d been on our radar for awhile. There are more examples of coins that wildly exceeded expectations, and of course… ones that did not. (BCH, LTC or EOS)
Also if one were to look at the start of 2022 the pricing of each of these three stars has retracted significantly.
So, where does this leave us? Which Altcoins offer the greatest potential with the least amount of risk?
Unfortunately nobody has a crystal ball. The best answer for someone new to the space is usually to start by looking at the top 20 or so cryptos by market cap.
You can use CoinMarketCap or CoinGecko for research and pricing data.
Here’s a list of top cryptos (excluding Stablecoins) by market cap:
- BNB (Binance)
- XRP (Ripple)
- ADA (Cardano)
- Solana (SOL)
- Polkadot (DOT)
- AVAX (Avalanche)
- MATIC (Polygon)
Complete list is available on CoinGecko
In order to decide whether to buy Altcoin A or Altcoin B, or how to allocate between them, you’ll want to understand a few things about them. For example:
- Their utility
- Leadership / Founders
- Potential Risks
- The Closest Competition
You’ll have to do this for each and every coin if you want to build up your confidence.
Cryptos by Category
Creating a diverse mix of digital assets means you finding cryptos that are not highly correlated. One way to do that is to look at is the different categories that cryptocurrencies are broken into.
These aren’t perfectly standardized but here are a few digital asset classes that are well established. You can always review larger, more comprehensive category lists on CoinGecko, CoinMarketCap or Token Metrics (paid).
- Blue Chips (Store of Value)
- Smart Contracts (New Technology)
- DeFi (Banking)
- NFTs (Digital Art)
- Play2Earn (Gaming)
- Metaverse (Digital Real Estate)
- Meme Tokens (??)
Make sure your assets are not highly correlated to each other.
– Ian Balina, TokenMetrics
As previously stated, blue chips means stability and proven performance over a longer period of time.
BTC and ETH are considered blue chips in crypto because they’ve had a lot more adoption. Many companies (and countries) are already integrating Bitcoin payments and Ethereum is still the reigning king in the DeFi and NFT ecosystems.
In our humble opinion:
Allocation to Bitcoin and Ethereum
40-60% of total
2. Smart Contracts
Smart Contracts are like programmable money. Ethereum was first to introduce this idea and has been in the number two spot ever since. However, there are several newer cryptos that have been able to build on or piggy-back Ethereum while it continues to work towards a v 2.0.
Besides ETH, consider adding the top cryptos in this category:
ADA, AVAX, BNB, LINK, SOL, XLM, ZIL
Allocation opinion: 20% of total
DeFi (or “decentralized finance”) is an umbrella term for financial services on public blockchains, primarily Ethereum. With DeFi, you can do most of the things that banks support — earn interest, borrow, lend, buy insurance, trade derivatives, trade assets, and more — but it’s faster and doesn’t require paperwork or a third party. – via Coinbase
In other words DeFi is a major category that any diversified crypto portfolio should include. This category skyrocketed in 2018/19 and it is not likely to go away anytime soon.
Top DeFi cryptos include:
AAVE, AVAX, CAKE, FTM, LINK, LUNA, MATIC, SUSHI, UNI,
Swaps also fit into DeFi:
CAKE, SUSHI, SUNDAE, UNI
Allocation opinion: 15% of total
4. NFT Coins
If you haven’t already heard enough about NFTs – these are blockchain based, tokenized digital collectibles with built in digital rights management. Think of art, music, collectables, tickets, etc.
NFTs are not interchangeable for other similar items because they each have their own unique properties. Unlike currency.
You don’t need to try to buy a Bored Ape or Crypto Punk (nor can you afford to). You also don’t need to try to get in early on the next abstract artist expression that’s going to be worth a fortune, instead you can look at the tokens and ecosystems that power them.
Note: Most of this runs on Ethereum using the ERC-721 standard but because gas fees are very expensive using ETH, other blockchains like Polygon, Solana, and Theta are building their own NFT ecosystems.
Top NFT projects include: