Disclaimer: Your funds are your responsibility. All information in this article is reflecting my own investing strategy and should not be taken as financial advice.
As of today, there are 9233 coins listed on Coingecko, and probably 10x that number that are floating in the wilderness of DeFi. Finding the right one to invest in is definitely the hardest part of your crypto journey and sometimes keeping things simple may actually be the answer to that problem. Let me explain.
Networks VS Services
To get to the bottom of asset management, we must first understand the assets we are managing. Let's start with the basics and use the Ethereum network as our preferred chain for this explanation.
If you were given $1000 to invest in one of the following three cryptocurrencies, which one would you invest in?
Ethereum
Uniswap
AAVE
Those that prefer investments with bigger short-term upside may go with the lower cap choices, in this case, Uniswap and AAVE. The simple logic behind this is that ETH may already be priced in. It has a market cap of almost half a trillion US dollars and performing a 100% price increase would require immense amounts of money. And you would probably be right. Unless...
What if instead of $1k you were given 1 Million Dollars. Would you still take the gamble or "play it safe" with Ethereum?
Whichever way you put things on paper, your long-term investments should be oriented towards networks, not the projects built on top of them. Here's why:
Uniswap will always need Ethereum, if it wants to operate within the Ethereum ecosystem, and AAVE will always need Uniswap if it wants to participate in the ETH market. Ethereum, on the other hand, needs none of them to be successful and that is a huge difference.
The same goes for many "OG" networks that will soon have their own ecosystems enter the competition. Litecoin already has games built on top of it, BCH is slowly catching up and even Dogecoin may get an overhaul since Elon Musk announced his involvement in May this year. Many reasons for you to expect these to continue to grow over the next 10 or even 20 years as their full potential is still widely unknwon.
I consider these investments the foundation of every portfolio and once deployed in your wallet they should not be moved for at least a few years. For me personally, they make up 50% of the total invested amount. To be clear, Hive also makes this list since it is the home to Splinterlands, LeoFinance, new emerging games and projects, and who knows how many great ideas that will come in the future. At one point people will get frustrated with the insane transaction fees and slow performance, and Hive will be waiting with an already built and thought-out solution.
Short and Mid-Term Investmets AKA Risky Plays
Once you have built your foundation you can start looking for some "quick gains". Since there are may of them that are already considered as the "blue chip" tokens of our industry, I have allocated 40% of my portfolio space to them.
Finding the right ones is obviously the hardest part but you should be able to follow the money. Ask a few simple questions and you will get your answers.
Is the project profitable?
Do they have paying customers?
Is there room for even more growth in the near future?
How is their competition doing and can they outpace them at any point in time?
Many investors measure success based on the project's market cap but that is just the tip of the iceberg. If you are investing in ideas that don't actually generate a profit they are very likely to fail. Splinterlands is a great example because it requires every new player to purchase the spellbook and that is just the first step of getting involved.
This creates a two-way cash flow with money coming in from new and existing players and money flowing out in the form of rewards. Long-term success will require establishing an equilibrium between the two and if you see that happening, you have found your first risky play.
The Importance of Liquid Funds
The last step of setting up our ideal portfolio is leaving room for liquid funds. This can be the last 10% and I personally keep that in stablecoins but that choice should always be yours. These funds are used for very short-term plays that may bring in quick profits.
You may come across some insider information or news about upcoming developments that will surely increase the prices so instead of liquidating your long-term positions, you will have some gambling money on the side.
Liquid funds can also be used to build up your long and short-term positions when the markets take a hard hit but you still feel bullish. Scooping up some cheap coins can be a very rewarding experience when the prices rebound.
The third option would be to put those funds to work in DeFi until a good opportunity comes. There are many farms and protocols offering reasonable returns for stablecoin deposits. This allows you to farm with no impermanent loss since you are pooling two different stablecoins most of the time.
Flexible Funds
If you followed me closely so far you probably know that an ideal portfolio (according to Jerry) will be built like this:
50% - The Foundation
40% - "Risky Investments"
10% - Liquid Funds
It may sound very simple but this portfolio offers a lot of flexibility. In times of need you will not be forced to sell your assets because most of them can be used as collateral. For example, if you have ETH and BTC sitting in a wallet but need some cash on hand immediately, why not bridge those funds over to Matic and take a loan from AAVE using your ETH and BTC as collateral?
If the price keeps going up you are still exposed to 100% of your assets and the debt will virtually pay itself off. And since you are invested in the most popular and videly used currencies, you will be allowed to use them as collateral almost anywhere you go in the crypto world.
Of course, this comes with two risk factors involved - exploits and liquidations. Protocol breaches and exploits are everyday events in the crypto space so even depositing your funds to take out a loan can be a costly move. Market crashes aren't a new theme as well and overnight liquidations should be considered at all times. More on lending protocols and how they work can be found here.
Hardware wallets should always be your first choice, unless you really need to move your funds for the reasons mentioned above.
Tips and Tricks
To end this off let's talk about FOMO and bad trades for a bit. It is very easy to get caught up in the craze, spend tons of cash on stupid plays and hate yourself for months to come. And if you really look back, how many of those calls you made during FOMO hours actually ended being profitable?
Exactly...
Prove yourself wrong with margin trading - Let's say that you see that XRP is sitting at $1.1999 and you get that feeling that this is the last time we will see this price, and you get an urge to invest $500 right now. Instead of doing that take out $50 of your money, deposit on an exchange that has leverage trading, use 10x leverage, and open a position. You will be exposed to the same amount of coins and if you end up being wrong it won't cost you as much as it could.
Avoid doing this often because 10x leverage is always a gamble, no matter how confident you feel about the market.
Keep personal notes - Every tame you ape into a project write that down in a journal or a text document. Add the reason behind that decision and where you think the price will be in the next 7 days or a month. Do this consistently and evaluate your results every once in a while. If you are in profit keep up the good work, but if you end up with overall looses reflect on your past mistakes and apply that knowledge next time an "opportunity" comes along.
Locked/Vested funds are your friend - Projects like Curve on ETH or Ellipsis finance on BSC offer a form of yield farming that requires you to lock your funds for 3 months or more. This idea sounds horrible because you can't access your funds whenever you want but if played properly, it can be a life saver.
Instead of locking everything at once, invest in smaller chunks every week. If you are locking funds for 3 months, divide your investment into 12 chunks and add one every week for the next 3 months. After the cycle is complete you will end up getting a portion of your investment back every next week. Depending on how the project is doing you may chose to compound for another 3 months and repeat the cycle.
This helps with those that are prone to FOMO but want to be involved in a long-term investment. When the urge comes to start selling your "old" coins for new ones, you simply won't be able to do that and in many cases, you will thank your past self for making that decision.
When in profits, secure some with stablecoins - Doubling your investment is an amazing achievement, even for those that consider themselves as small investors. It means that your bet has paid off but profits on paper don't mean much unless they are realized. My rule of thumb is to take some as soon as you get over 100% with your investment. Selling only 25% of your stack would give you back 50% of your initial investment while keeping 75% of the stack.
This rule applies only for short and mid-term plays and should not be a preferred choice for your long-term investments.
Don't pick the winners, bet on all of them - Uniswap, 1Inch, Sushiswap, BAOswap... All of them are trying to capture the most liquidity and become the leading DEX on Ethereum but no one knows who will emerge as the absolute leader. Uniswap looked like a sure winner but over time Sushi and 1Inch started to evolve and offer new services to their customers.
Such a climate makes it completely impossible to pick a winner so in times of doubt, bet on all of them. VC funds to this all the time. When an emerging technology is ripe for bringing in huge gains they invest in every single company that is working with that tech. All of their failed investments will be covered by that one winner that will consume the market.
Remember To Breathe - Crypto investing can feel like a full time job so taking a vacation every once in a while will be good for you and your health. This is not possible if you don't have a clear plan for the future and if you are always chasing for the next big thing.
Do your research, diversify as much as you think is necessary, have some liquid funds on hand at all times, and remember to breathe. We are all going to make it.
Posted Using LeoFinance Beta
Thanks for writing such a great and detailed article. I really appreciate your efforts. I have a question please: you mentioned that dogecoin and litecoin are considered foundations and you invest 50% your portfolio into them (along with other cryptocurrencies). But I don't understand how to make the difference between high risk cryptocurrencies and the ones with good foundations. For instance, we all agree that Ethereum has strong foundations, but dogecoin, despite being so old in the space, is considered a shitcoin by many investors and its founder himself admits that it was created as a "joke". Add to that, there isn't really much going on in the litecoin network . I personnaly think Polkadot is a better investment than both of them. So how can I make the difference between the foundation coins and the high risk ones?
Thanks. I'm glad you liked it.
As for your questions, it will always come down to your own research and how convinced you are that your choice is better than mine.
Polkadot and ETH, for example, are two separate things. ETH is slow and clunky because it is being secured by millions of miners worldwide and it takes much longer to validate a transaction, while Polkadot will be much faster because it will be secured by a handful of nodes thus compromising security for speed.
Explore the blockchain trilemma problem to better understand this whole thing. Thinking long-term which of these projects has a higher chance to attract more funds and users? No one really knows so you will be forced to make your own bet or follow someone else's.
I'll be writing an article on this subject in the coming days so be sure to stay tuned.
Posted Using LeoFinance Beta