In this post we want to review the points to take into account if we want to build a cryptocurrency investment portfolio that withstands the ups and downs of the market. We do not try to give investment advice but to inform on how to manage risk and choose a good strategy before making our investments in cryptoassets.
Determine risk tolerance
In order to build a solid portfolio, it is essential to determine the risk tolerance we want to assume in the markets. When the markets are reaching their peak of expectation and euphoria, it is best to reduce your risk tolerance and secure your investment by accumulating conservative assets such as stablecoins. When the market is reaching the moment of panic, it is time to start being more aggressive and convert those stablecoins into altcoins with a higher risk profile but which can generate higher returns.
Determining the risk we want to take is our investment thesis. To make a choice we should ask ourselves some questions such as... How long have I been investing in cryptocurrencies, what level of knowledge do I have about them, what would happen if there was a market crash and the value of my portfolio was reduced by 90%, do I have other assets and other sources of income different from investing in cryptocurrencies, do I have other assets and other sources of income different from investing in cryptocurrencies, what would happen if there was a market crash and the value of my portfolio was reduced by 90%, do I have other assets and other sources of income different from investing in cryptocurrencies?
After answering these questions we should be able to classify our risk tolerance level as Low, Medium or High. Depending on this, there are several investment theses appropriate for each profile.
Low risk or 50/50 thesis
This strategy consists of splitting the investment in two assets: 50% in Bitcoin and 50% in Ethereum. It is ideal for people with no or little experience, with a low risk tolerance profile, no knowledge of DeFi and who operate through known centralized exchanges and do not know how to use DEX.
Medium risk thesis
If, on the other hand, you already have some experience in investing in cryptocurrencies and a medium risk tolerance, it is recommended to start diversifying your portfolio. In this case, the ideal would be to distribute 25% in Bitcoin, 25% in Ethereum and 50% in higher risk Altcoins.
We should always look for Altcoins that support solid projects, that have utility and that are framed and developing a sector such as web3, Ethereum layer 2, alternatives to layer 1, DeFi, deeptech, infrastructure, derivative products, NFTs, metaverses, gaming... In future posts we will talk at length about Altcoins analysis.
Security portfolio
What if we are in a down market and want to protect our portfolio? We could convert everything to stablecoins but we would lose all our exposure to the market and no one really knows what could happen. For these moments we want to reserve 50% in stablecoins, 20% in Bitcoin, 20% in Ethereum and 10% in Altcoins.
High risk thesis
If we have advanced knowledge, a high risk tolerance level and want to prepare a portfolio expecting a bull market we could distribute 15% in Bitcoin, 15% in Ethereum, 15% in deep tech / blockchain infrastructures, 15% in Ethereum layer 2 solutions and 50% in Altcoins from different sectors.
Conclusions
There are many other aspects to take into account in order to build an optimal portfolio but, for it to be stable over time, the key is to know when and how to balance your investment between Altcoins and Stablecoins without being too optimistic or aggressive.
It is also not recommended to diversify your capital too much in many different currencies, you have to choose a strategy and stick to it.
Remember that this post is not intended to provide financial advice but financial education. We hope you have found this information useful. Do not hesitate to contact Vicox Legal for any legal matter related to cryptocurrencies.
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