HOW MUCH to INVEST in a CRYPTO

in #cryptocurrency2 years ago

You have a crypto portfolio and you want to add another coin to it. How much should you buy?

Obviously affordability plays a large part here, but you don't have to buy everything at once. You can stagger your buys up until you have enough of "new crypto coin X" to make you happy.

But what is enough? How do you know when you have enough? What if the price changes?

Fear not! Bit Brain is here to help you.

Here is how I do it...

blue-easter-egg-947431.jpg
From Pexels.com. Photo by Alizee Marchand.

HOW MUCH to INVEST in a CRYPTO

Let's say you hold four different cryptocurrencies. They can be from the top ten of coinmarketcap, they can be four random coins, they can be anything. Now you want to add an fifth coin. You see that Binance coin (BNB) has been climbing strongly recently and you've decided to add it to your portfolio. You know that because Bit Brain has told you before that Binance exchange is going to become decentralised and develop its own blockchain. You anticipate BNB doing very well in the future.

How much BNB should you buy?

Let's say that you already hold the following cryptos in the amounts as indicated:

  • Vechain (VEN) - $1000 (about 320.5 VEN)
  • KuCoin Shares (KCS) - $500 (about 199.2 KCS)
  • Tenx (PAY) - $ 200 (about 323.6 PAY)
  • UTrust (UTK) - $100 (about 142.8 UTK)

What I want you to do now is to figure out how much of the total supply of each you own. What I actually want you to do is to calculate a ratio. For this you need to look at the "Total supply" of the coin, this figure:

VEN mod.png
From https://coinmarketcap.com/currencies/vechain/

You hold 320.5 VEN. Total supply of VEN is 873 378 637.

Therefore: the fraction of the Total Supply of VEN that you hold is 873 378 637 / 320.5 = 2 725 050,35.

For every 2 725 050,35 that have been minted, you hold 1 of them.

Since this is not a mathematics exam and the result will just be a guideline for you, feel free to simplify:

900 000 000 / 300 = 3 000 000

You hold about 1 VEN for every 3 000 000 in existence. Ratio = 1:3 000 000

Now work it out for your other coins: (All results rounded off)

KCS: 180 000 000 supply / 200 held = 900 000. Ratio = 1:900 000

PAY: 200 000 000 supply / 300 held = 700 000. Ratio = 1:700 000

UTK: 500 000 000 supply / 150 held = 3 000 000. Ratio 1:3 000 000

What does this show us?

It shows that you hold your current coins at the ratios of 1:3 000 000, 1:900 000, 1:700 000 and 1:3 000 000.

So on average you hold your coins at a ratio of about 1: 2 000 000 of the Total Supply of each. ((3 000 000 + 3 000 000 + 900 000 + 700 000) / 4 = 1 900 000)

Relative to VEN and UTK, you see that you hold more KCS and PAY. Perhaps you prefer KCS and PAY. This is fine, you don't have to hold the same amount of everything, we're only looking for a benchmark here.

Over to BNB

BNB.png
From https://coinmarketcap.com/currencies/binance-coin/

We can round that Total Supply off to 200 000 000. What a pleasure to work with since we want to buy at a ratio of 1:2 000 000.

200 000 000 BNB / 2 000 000 = 100 BNB

I must buy approximately 100 BNB

Remember that you don't have to buy it all at once, it's just a target to aim for to put your new BNB holdings approximately in line with the rest of your portfolio.

Why use Total Supply and not Current Supply?

Current Supply is problematic. It constantly changes. PAY and KCS have both only reached about half of their Total Supply. As Current Supply grows, you will find that your investment gets diluted. You don't want to only buy 50 BNB and then later find that your ratio has dropped from 1:2 000 000 to 1:4 000 000.

Why use this method at all?

Because a ratio never changes. No matter how my coins fare vs BTC or USD, I know what I hold relative to their Total Supply. It's not to say that I have to buy at this ratio. My CargoX holdings are about 40x higher than my normal ratio! But this is good, and you can already see why, I now know that I hold much more CargoX, relatively speaking, than my other coins. My BTC is way below my normal ratio - I simply can't afford so much BTC. That's useful to me too, I know that I should strive to top up my BTC amount, possibly by selling off altcoins that have done very well.

It's not a rule, it's a benchmark. I find it to be very useful. Once you know your ratio, in this example 1:2 000 000, you can easily see what you should buy of any coin you want to invest in. Just look at the CMC Market cap in millions, round it off, and (in this case) divide by 2. In a hurry I often just use the the circulating supply off the CMC main page, just to get an idea:

Screenshot_1.png
From https://coinmarketcap.com

Just don't try it with top 10 coins if you hold mainly lower ranked coins, it will get too expensive.

Footnotes

This is not a specific BNB promotion, I picked that coin at random. But BNB IS a Bit Brain recommended coin. I see it doing very well in the future, for reasons already mentioned and the fact that it saves transaction fees. If you're not using Binance already then you really should be! Here is my referral link: https://www.binance.com/?ref=10191168

BNB was perhaps a poor example to use because it features a changing Total Supply! Binance do regular token burns which get rid of some BNB tokens forever. This also makes the value of existing tokens climb!

If you specifically want to hold/buy more of one coin than the others (like I do with CargoX), then just adjust your ratio for that coin. Double it, make it 10x, whatever suits you.

I swear that I did not work out the 200 000 000 Total Supply of BNB and 1:2 000 000 ratio before the time, that was just blind luck! 😃

I hope that helps you in future. How do you choose how much of a coin to buy? Do you like my method? As always I welcome feedback (so that I can tell you why you're wrong and why I'm right! 😆)

Yours in crypto,
Bit Brain

DISCLAIMER:
I am neither a financial advisor nor a professional trader/investor. This is not financial advice, investment advice or trading advice. Unless otherwise stated, all my posts are my opinion and nothing more. Crypto is highly volatile and you can easily lose everything in crypto. You invest at your own risk! Information I post may be erroneous or construed as being misleading. I will not be held responsible for anything which is incorrect, missing, out-of-date or fabricated. Any information you use is done so at your own risk. Always Do Your Own Research (DYOR) and realise that you and you alone are responsible for your crypto portfolio and whatever happens to it.

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Very cool way to keep your ratios even to the investment in the whole chain instead of even $$ in your portfolio. Thanks for making me think differently.

Sure thing. You soon adapt to thinking that way. If anything, it's even more useful in deciding what to sell than deciding what to buy.

Apologies to all, there is a copy & paste error on the pic where I show a buy amount of 5000 HSR. It should only be 22 HSR.

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