Five Top Tips For Managing Your Crypto Portfolio
I bought my first bitcoin in April 2015, and by that summer, I was investing in selected cryptos.
I started investing over thirty years ago when, at the age of 13, I shared a subscription to the Penny Share Guide with a school friend, and we traded small cap stocks via my Mum’s stockbroker. Over the years I’ve invested in stocks, property, gold, silver and bonds, so when it came to crypto, I mostly applied the same techniques of research and filtering that I’ve used all my life. I’ll write more about that another time, but I will give you this for free – seek out, listen to and follow true experts! We never stop learning.
In some ways, though, buying cryptos is the easy bit! What’s harder is managing your portfolio on a day-to-day basis. You have the basic bitcoin price against the dollar (or your fiat currency of choice). You have the price in bitcoin of each of your cryptos, as well as the total value of your holdings. You have frequent, sometimes rapid price movements. There’s a lot going on, especially once you get above three or four coins.
Given the eye-watering percentage growth seen in many cryptos, particularly this past year, it’s worth getting this management element right early on, because you could wake up one day to find your modest holdings have turned into a six, seven, even eight-figure asset. And you do not want to be explaining to your kids or grandkids how you blew a fortune because you lost track of what was going on with your investments, and then you misplaced a password, or a key, or a wallet. It’s already happened – you know the stories – so don’t become one of those people.
In service to your crypto investment efforts, then, I humbly offer you Five Top Tips for Managing Your Crypto Portfolio.
1. Get Your Conversions Right
This may seem like a pretty obvious one but, coming as I did from the more traditional investment world, it’s one I missed for a surprisingly long time!
Mostly, I buy cryptos with bitcoin (occasionally Ethereum). I hold enough bitcoin on the exchanges so that I can take a position fast, as and when an opportunity arises, and I hold the bulk of my BTC and ERH in an offline cold wallet – I like Ledger best, though I also have Trezor.
The trap I fell into for quite a while was just looking at the bitcoin price of my coins. If it was higher than I paid, happy days. If it was lower, I’d sit it out. Simples, right?
Well, no. What I missed, until early this year, was the effect of the rising price of bitcoin. What this meant was that, in some cases, the current bitcoin price for a coin was markedly down from what I paid for it, but when I did the conversion to dollars, it turns out I was in profit anyway!
Let’s take a real example.
I bought Civic (CVC) on September 25th, 2017, and I paid 0.00007998 BTC per coin. Today, as I write, the CVC price is 0.00006549. That looks disastrous! That’s an 18% drop in BTC terms in three months.
However, in dollar terms, that same holding is up by 168%, simply as a result of the massive rise of bitcoin over the same period; from just under $4,000 on September 25th, to just over $14,300 today.
So, here’s the specific actions to take as you build your portfolio and record your buys, sells, and profits / losses.
• Each and every time you buy a coin, make sure you record the cost in dollars, euros, pounds, or whichever is your fiat currency of choice. Then you have your base price for each investment in both BTC and your fiat currency.
• If you have existing holdings where you’ve not done that, find a good historic chart of the bitcoin price (I tend to use www.coindesk.com) and note down the price of bitcoin on the day you bought the coin. Then, take the total cost of your individual holding in BTC (not the cost per coin) and multiply it by the price of BTC on the day or your purchase. That gives you your base cost in your fiat currency of choice.
• Then, you can go to the value of that holding today, multiply it by the price of BTC today, and get your dollar value today, and see immediately if it’s in profit, showing a loss, or flat.
This leads me neatly on to Top Tip Number 2…
2. Step Away From the Spreadsheet!
The double conversion described above, to track your holdings in terms of both BTC and fiat, is easy enough to do. However, it quickly becomes a pain if you want to track a coin day by day, and massively more so when you have six or eight coins to track simultaneously. Again, being old-school, it took me a while to find a solution good enough to drag me away from my manual spreadsheets.
And the solution I love is at www.cryptocompare.com. It’s a very rich site for research, for coin metrics, and for connecting with other investors through the forum, but where they started was with their portfolio tool, and it is very, very good.
It allows you to plug in your purchases, either immediately they happen or, in my case, going back several years. You can choose, at any time. which currency the portfolio is denominated in, including BTC, of course.
On the Overview page it shows Portfolio Acquisition Cost, Realised P&L (which tracks how much you’ve pulled out in profit), Current P&L, the overall value of your holdings, and a P&L figure for the past 24 hours. It also gives you your least and most profitable crypto, and the overall low and high of your portfolio.
In addition to Overview, there are also tabs for Risk Analysis, Advanced Charts and Accounting.
All for free.
I’ll mention the one mistake I made when creating my portfolio on this site, so you don’t make the same one.
If you’re going back and putting in historic purchases (such as my purchase of Positron (TRON) back in August, 2015), make sure you put in the total number of coins purchased at that time. I got myself in a knot because I initially put in the number of coins I hold now, so when I came to input details of the sale of part of my initial holding, it threw everything out and I had to start over.
So, let’s say you bought 10,000 XRP in February, 2017. The price went up, so you sold 2,000 in May, taking some profit and leaving a holding of 8,000. When you input this into CryptoCompare, make sure you put in the details of the purchase as it happened, for the full 10,000 coins. Then, you’ll go back into that holding, click on the Sell tab, and put in the details of your sale of the 2,000. This will then reduce your current holding to 8,000, to take it up to date, and it will show your profit under Realised P&L in the overview.
OK, so why would anyone go and sell part of their holdings? I’m so glad you asked…
3. Lock in Your Profits Early
My apologies to the old hands who know most of this, but sometimes it’s worth explaining the seemingly obvious, especially for the benefit of those who are just starting out.
We know these coins can move fast – in either direction! We know to diversify our portfolio (which will be the subject of a later post). And we know not to mortgage our granny to put as much as possible into cryptos. The market is still young, largely unregulated, and highly risky.
So let’s be sensible about this, and lock in profits early.
In the above example, you bought Ripple in February 2017, and let’s say you paid 0.00000631 per coin (which is where the price was on February 13th). So, 10,000 XRP costs you 0.0631 BTC, or US$62.95.
You got in at the right time, because in April it spikes upwards, and then in May it just takes off. By May 8th you’re wondering how much higher it can go, so you sell 2,000 of your 10,000 for 0.00008812.
Once you’ve done your 2-way conversions, you realise that you just made US$289 on that sale (less your initial $62.95 investment).
Which means you have your entire investment back again (tick!); you’ve pocketed a healthy $226 in profit, less dealing costs (double tick!); PLUS you still have 8,000 XRP, effectively for free, to do with whatever you wish (Massive Tick!!!) Oh, and you’ve also added liquid funds to your trading account, which you can either leave in there, pull out into fiat currency, or transfer to your cold wallet.
I do this with almost every coin I buy, and it makes for a much more relaxed attitude, especially when the market goes through a correction, or a flash-crash. Now, with an effectively free holding of 8,000 XRP, you really don’t mind what happens to the price day to day because, as long as Ripple doesn’t go to zero, you have an asset which is 100% profit.
And speaking of flash-crashes…
4. Don’t Fret the Dips – Buy Them!
Cryptos are a young and volatile market. It’s the Wild West out there, and prices fluctuate wildly.
Don’t Worry About It!
Unless you’re trying to day-trade these things – and I would not recommend that as a strategy, especially if you’re just starting out – then you’re in it for the long haul. Buy and hold (once I’ve locked in some profits, as per the previous Top Tip) has done me very nicely, thank you, and I see no reason to change right now.
So, I accept I’m holding these coins for a while, and probably a long while, and I accept that the market moves, day by day, and sometimes drastically. It’s no big deal.
OK, I do accept that if you bought a few BTC last month at $19,000, and you’re looking at a paper loss (that is, an unrealised loss) of $3,000 right now, that’s not a comfortable place to be. But if you bought your BTC six months ago, or three years ago, you’ll be seeing a reduction in your paper profits, which you’re be pretty sure will come back again in the fullness of time.
In terms of your attitude to dips in the BTC market, the market in general, or a holding of yours in particular, it’s best to see them as buying opportunities, rather than disasters. Not only does this mean you can build your holding by paying less than you did the first time, it also means you average down the cost of your entire holding.
Let me explain that.
Go back to the XRP example in the previous Top Tip, and let’s create a different reality for a moment.
Say you bought in February, as before, and you paid US62.95 for 10,000 Ripple coins. Call it US$63.00, for ease of working.
Now, instead of the coin going up, let’s assume you saw a fall in price over the next couple of months to the point where, having done your double conversion, you realise that the price has effectively halved. (Just because we’re in a bull market at the moment, don’t for a moment believe this is unlikely! It happens, as do even more precipitous drops…just to set your expectations).
Now, part of you is kicking yourself.
“Goddammit! If only I’d have held off, I could have bought my 10,000 Ripple now for only US$31.50!”
But look at it another way. Here’s an opportunity (assuming your research on Ripple still stands up to scrutiny, of course, and the underlying investment still makes sense) to buy another 10,000 Ripple, this time at half price!
This has an interesting effect on your portfolio. Now, instead of holding 10,000 XRP at 0.00000631 per coin, you now have 10,000 at 0.00000631 per coin, and another 10,000 at 0.000003155 per coin. And, by averaging these two holdings, what you actually have is 20,000 XRP at an average cost of 0.00000631 + 0.000003155 / 2 = 0.00000473.
By buying the same for less later, you bring down the overall price that you paid. And that, of course, has a positive effect on your profits when you come to sell.
(As far as I can tell, the portfolio management tool on CryptoCompare does not handle this type of scenario at present. I averaged down my Circuits (CIRC) holding back in 2015 with two purchases at two different prices, and they show up as two separate holdings. It’s my only criticism so far!)
Even if you choose not to buy again on the dips, don’t panic, don’t sell, don’t worry, and don’t lose sleep. If your research is solid, and the coin is good, it’ll come back. A paper loss is only theoretical until it’s realised – so don’t realise it!
And finally…
5. Enjoy Yourself!
It’s very easy to get pulled ever deeper into the crypto world. It’s exciting. It’s addictive. It can take over your life!
Make sure it doesn’t.
Keep a sense of perspective. Crypto should not be making up any more than 5-10% of your overall investment portfolio, unless you’re very wealthy and have a few years of experience under your belt, in which case you might chose to bump that up, but only be a bit.
When you’re first starting out, only invest money you can afford to lose. That way, you’ll sleep at night and enjoy the profits you do manage to make – and, in this current market, profits are not at all hard to come by, though this won’t last forever.
Don’t spend every spare waking minute trawling through data and staring at charts. I used to day trade forex, and I’ve been there. Yes, if can be exciting and profitable, but it’s no way to spend your life. If you knew this was your last day on Earth, would you spend it checking the Litecoin chart every five minutes? Probably not.
Connect with fellow cryptonauts! Investing can be a lonely business, especially in something as relatively new as crypto, so reach out to others. Learn. Share. Discuss. There’s some really good people around – many on this very site. (There’s also a good few numpties, too, as in any walk of life, who can be safely ignored…)
My view generally is, if you’re not enjoying it, why are you doing it? Financial rewards alone ware not enough. Smile and have fun, or go and find something that truly does light your fire.
Expect to Thrive!