Steemit Crypto Academy | Week3 : Designing a Cryptocurrency Investment portfolio
Though Cryptocurrencies are still in their development stage, they have proven to be one of the potential and highly profitable investment opportunities that have turned many individuals into millionaires and billionaires. Many companies have made huge and significant investments in Cryptocurrencies over the years, take for instance the most recent investment of $1.5billion in Bitcoin by Tesla that happened in February this year. This literally implies that Cryptocurrencies are a great potential investment opportunity gaining traction every other day.
A variety of Cryptocurrency types have mushroomed over the years since their conception in 2009 following the innovation and success story of Bitcoin. You may be having a desire to take a bold step and invest in a variety of Cryptocurrencies after learning of the financial revolution it has caused in the lives of very many people out there.
This may be on your mind; I want to invest in Cryptocurrencies but what Cryptocurrencies can I really invest in? This is what ushers in the idea of designing a Cryptocurrency Investment portfolio.
A Cryptocurrency Investment portfolio is simply a list of Cryptocurrencies that you have invested in. This is designed after making thorough research on the different Cryptocurrencies by subjecting every one of them to fundamental analysis to find out whether they are viable and worth your investments.
Reasons for designing a Cryptocurrency investment portfolio
For risk management
It’s important to note Cryptocurrency investment is a highly risky venture. What is a risk?
A risk is simply any profitable undertaking that people get involved in and may result in profits for success or losses for failure. Investing in Cryptocurrencies exposes you to 2 major risks;
The Crypto market risk;
Bitcoin correlates to other Cryptocurrencies. Literally meaning, whatever happens to Bitcoin it also affects other Cryptocurrencies. When the Bitcoin price increases, other cryptocurrencies follow suit and when it declines in price, other Cryptocurrencies also decline in their price value.
The Crypto specific risk; can be in form of network failure of a given crypto project, acts of fraud in a given crypto project, for example, the project owners stealing the investors' funds. These can be combated through the diversification of your Crypto portfolio.
Maximizing your gains from the highly bullish coins that are on your portfolio
Keeping other factors constant, different coins fluctuate differently in the Crypto market. When you have a diversified Crypto portfolio, it enables you to earn huge profits when such coins increase in value with relatively bigger percentages. For example, an Altcoin can increase by 100% while a major coin such as Bitcoin may have increased by 5%. Therefore such a huge price increment of Altcoins makes your portfolio grow over time.
Factors to consider when designing your Cryptocurrency investment portfolio.
The prevailing Crypto Market situation
There are 2 Crypto market conditions that affect someone’s investment decision. It’s therefore important to know the best time to buy a Cryptocurrency. Investors buy in the bear market condition. In other words, they buy in times when the Cryptocurrencies have declined in value. They hold their position and grow their investment portfolio when the crypto prices increase in value.
For example towards the end of this week, we have experienced a huge Crypto market dip. Bitcoin declined in price value from over 60k to around 48k and even other coins followed suit. Wise investors are now buying in and securing up positions in the current bear market.
Investing and Trading
Before considering investing in any of the Cryptocurrencies, investors to do enough research study on the different Cryptocurrencies. Crypto is highly rewarding, but also a highly risky venture. You can lose all your life savings if you blindly invest in it. Take for instance some investors that have fallen into traps of scams and fraud Crypto projects that eventually closed and vanished with their life savings.
Investors do fundamental analysis on the different crypto projects before considering investing in them. This is done to find out whether a particular Cryptocurrency is viable and worth their investment. This entails checking out the technical whitepaper, finding out the size of the community of a particular Crypto project. These deal in a particular
Cryptocurrency on a long term basis.
On the other hand, traders employ technical analysis, in order to forecast the future prices of some particular coins of their interest. It entails reading candlestick charts, using indicators such as the moving averages and so on. This is usually done on a short term basis while taking advantage of the high volatility in the Crypto markets.
Invest in Cryptocurrencies that you are well knowledgeable about. For example, I normally invest in Steem by buying and powering it up on Steemit.com because I have good knowledge about it. You should never invest in a Cryptocurrency that you do not know about. Otherwise, you might fall victim to scam coins. You are supposed to do enough research about a particular coin before considering investing in it. If you are an expert who is well knowledgeable about a particular coin then go ahead and add it to your investment portfolio.
A balanced Cryptocurrency investment portfolio
In order to manage the Cryptocurrency investment risk, you have to ensure that your Cryptocurrency investment portfolio is well balanced. Your portfolio should at least include the following Cryptocurrencies
2 major Cryptocurrencies such as;
Bitcoin is known as the grand-daddy of all other coins. It’s a highly popular Cryptocurrency and highly demanded. Having it on your Cryptocurrency investment portfolio narrows down the risk of losing your funds to other less popular and low demanded coins. Bitcoin’s high demand is attributed to the fact that for one to purchase other Altcoins; he/she has to first purchase Bitcoins.
Ethereum is another major Cryptocurrency. It’s well known for smart contracts. The Ethereum blockchain has so many developments and projects built on it. These are gradually increasing its price value due to the ever-increasing demand for Ethereum.
Passive income coins
You will also want to diversify your Crypto portfolio by including a passive income Cryptocurrency such as Steem, TRX, etc. Passive income coins reward investors for holding/staking those coins. This is something great that can help you manage the Crypto investment risk through earning some coins from the included passive income coins in your portfolio. The rewards earned can at some point be used to cover up any losses made from other Cryptocurrencies in your portfolio.
A well balanced Cryptocurrency investment portfolio should also include a stable coin. This helps out in emergency times when you need some cash to cater for your daily life needs. You will also need some money reserved in a stable coin for purposes of buying some Cryptocurrencies during the bear Crypto market conditions.
A Cryptocurrency portfolio tracker.
There are some good Crypto portfolio trackers that can help you in tracking the various Cryptocurrency assets in your portfolio. Research has it, that the best Crypto portfolio should have up to 20 assets. It can be so challenging in tracking all those 20 Crypto assets. With a Crypto portfolio tracker, it makes it easy to keep up to date with the various information and statistics about the performance of the crypto assets in your portfolio. Some of the best Crypto portfolio trackers include Blockfolio, Delta, Coin Stats app, Bituniverse, etc.
Inconclusion, a well designed and balanced Cryptocurrency investment portfolio is a must-have for anyone wishing to invest and succeed in the highly profitable Crypto market.
Using an initial investment of $50, practically design your own cryptocurrency investment portfolio.
- Your Crypto portfolio should have 6 Cryptocurrencies and briefly explain why you have chosen to invest in each one of them.
- Use a Crypto wallet of your choice to hold your 6 cryptocurrencies.
- Wait for a day or 2days, then showcase the final results of your investment portfolio.
- Use proper screenshots to showcase before and after. Is your total crypto portfolio in profits or losses? Which cryptocurrencies have increased in value and made you some profits? And which ones have declined in price value and made you some losses? Or have all of them made you profits? What’s the growth percentage of your Crypto trading portfolio after the 1 or 2days waiting period?
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- This homework task runs till 1st/05/2021, Time: 11:59 pm UTC.