Bitcoin could be worth $100,000 in 5 years!
Bitcoin is in a bubble!
Currently these two sentiments are being thrown around in equal measure and it would appear that a mania has taken hold of retail investors in the crypto space. If you have been sitting on the sidelines, it can’t have been easy seeing bitcoin and other cryptocurrencies taking off in value while you see none of those returns.
Luckily it’s not too late to build your own cryptocurrency portfolio and we’re going to walk you through just that.
There are two ways to go here, option one is to build a long-term portfolio that you don’t really look at too much, similar to what many people do with ETFs in a retirement portfolio. The other option to build a more dynamic portfolio that you will be using to trade cryptocurrencies on a regular basis.
We are going to discuss the former option: building a diversified long-term portfolio. There might be less reward going this route, but it’s far less headache as well.
First, ask yourself how much capital you want to risk to cryptocurrencies. A good rule of thumb for speculative investments like this is to not risk more than you can afford. Typically that works out to 1% of your net worth for most people. If you’re not sure you can always put in half that amount and see how it feels. Ask yourself – would I be ok with losing all of this money tomorrow?
The next thing to do is figure out the plan of attack for diversification. The easiest and most straight-forward way would be to invest in the top 5 or 10 coins by market cap. The top 5 coins represents about 70% of the entire crypto-space and the top 10 would be roughly 80%. By investing in the top 5 or 10 coins you are automatically protecting yourself by only investing in coins with plenty of trading volume and some popularity behind them. At the same time you are giving yourself exposure to the entire cryptocurrency market. This is similar to investing in the S&P 500 as a means of proxying the entire US market.
Once you’ve got the coins in mind, you can simply invest an amount equivalent to the coin’s market share. So for example, let’s say one has $1000 total to invest and the plan is to invest in the top 5 coins by market cap right now. Those are: Bitcoin, Ethereum, Ripple, Bitcoin Cash and Cardano.
From there, if Bitcoin represents 50% of the total then I would invest $500 in Bitcoin. Ethereum is another 25% of the total so place $250 in that. Continue down the list until the entire $1000 has been allocated.
Here’s what the final list might look like.
Congratulations, you’ve got yourself a diversified cryptocurrency portfolio. From there you can decide to check in on your portfolio once a quarter and rebalance your holdings as things change. So if you check on it in three months and Ethereum has taken over Bitcoin in terms of market cap then you would adjust your holdings accordingly.