Read This Before Starting with Your Cryptocurrency Portfolio
By: Sandoche Adittane
Tags: Cryptocurrency Investment, Bitcoin, Ethereum, Investing, Cryptocurrency

Read This Before Starting with Your Cryptocurrency Portfolio

#8 — How to choose the cryptocurrencies to invest on, and how to build a strategy

Investing in cryptocurrencies is quite complicated, as complicated has monopoly, it’s not a game though , you have real money this time 😅—Source: https://www.facebook.com/cryptohubcentral/

Do know what cryptocurrencies to buy? I didn’t know either. Actually, I still don’t know what are the cryptocurrencies that will make me a millionaire. What I can tell you is how to build a portfolio, what are the questions to ask yourself, and a few rules that can help you to create a strategy.

This article is part of my Learning challenge where I learn about one topic each month. As you can imagine, this month, I was learning about trading & cryptocurrencies. I based this studies on a book and a few article and ended up investing 1000€ on cryptocurrencies. Click here, if you want to know more about my methodology.

How to build our portfolio

Diversify

The first rule to build a portfolio is to diversify it and the reason is simple, if you only buy one cryptocurrency and it crashes you lose all your money. By diversifying you reduce this risk. But in cryptocurrencies, at least today there is something you cannot fight against: when the bitcoin crashes, almost everything crashes (at least their price in USD). Because most of the altcoins are mostly traded with BTC. So their price is translated in BTC and then from BTC to USD.

Know what you buy

The second rule is simple

Invest in what you know — Peter Lynch

Actually, I would change it to Invest in what you know, understand and believe in. For example, if you don’t believe in the decentralization of currencies, don’t invest in cryptocurrency 😏.

Invest money you are ready to loose

The third rule is actually the main rule, I already said it and I will say it again, invest money that you don’t need right now, and also money you are ready to loose. Also, and this is specific in cryptocurrency since it’s something relatively new, and quite volatile, always keep in mind that you can lose all the money you invested in it.

Diversify your portfolio. The taxonomy

Before diversifying your portfolio of cryptocurrency you should diversify your investments depending on how much risk you want to take, you can put some money in your bank savings account, then a bit in stocks and finally in cryptocurrencies.

Let’s talk about how to diversify in the cryptocurrencies market. There are different ways to diversify. Try not to buy only the same type of coin. To do this, you need to know what are the type of coins which exist and the different taxonomies to classify coins.

Type of cryptocurrencies (Currency, Platform — includes smart contracts, Utility, Security, Asset-backed)

Proof type (Proof of Stake, Proof of Work, …)

Hashing algorithms (Scrypt, SHA-256, …)

Mining profitability

Anonymity

Market capitalization (hight, middle, low)

ICO

Forked from

Number of transaction per second

Volatility

Price correlation to another currency

There are a lot of categories, you don’t need to buy all of them but avoid buying only one type of currency.

You can get some of this information there:

Coingecko — https://www.coingecko.com

CryptoCompare — https://www.cryptocompare.com

On the official website of the coin

Or just google it

Understand your coins

You can find the questions you can ask yourself before buying a cryptocurrency.

Does this coin/project have a purpose? If so what? Can they solve a real problem? How good is their team? How long have they been around? How strong is their code base? Do they have a roadmap? Are they transparent?

Questions coming from this article, that I recommend you to read!

Here are a few coins which I tried to group together using some of the previous taxonomy.

Currencies/Digital Cash