Cryptocurrency Portfolio Optimization: Coin Bags for 5 Different Types of Holder
Assembling an optimal cryptocurrency portfolio is an open-ended task with many different paths to success.
Portfolios are built on a variety of virtues, and the coins held therein are dictated by a number of factors. Ease-of-access, past performance, future optimism, emotional connection, and basic knowledge (or a lack thereof) can all contribute to the shape of a portfolio.
So without (too much) judgement, let’s sample the variety by taking a look at 5 different portfolio types. At the end we’ll compare them to ‘professional portfolios’ in the form of crypto investment funds.
5 Cryptocurrency Portfolio Investment Methods
1. The Normie
This is for the person who just got into crypto a few months ago. He’s started watching YouTube videos and has got set up on crypto-twitter, and maybe he’s even downloaded Telegram for the first time.
But he still doesn’t know much about cryptocurrency, and he trusts it even less. But like the rest of us, he sees the potential for profit in a very volatile asset and wants to take a chance.
Maybe ‘The Normie’ could be personified by the barber I spoke to recently (it’s always a barber). He asked me the value of Bitcoin right now, and I told him roughly $4,000. He asked the value of ‘that other one…’, to which I probed: Ethereum? Yes! Eretherum, he says. How much is that worth? I told him roughly $130.
His reaction? He tutted, shook his head, and said: “See, I knew that Ethereum wasn’t as good.”
There are many people out there who only know the word ‘Bitcoin’ and nothing else. Some of them will have been introduced to it via Jack Dorsey’s Cash App, which only caters for the purchase of Bitcoin and no other cryptocurrency.
The Bitcoin Only Method?
It’s not the most exotic, nor the most profitable in the short or mid-term. But Bitcoin does have some stability and reputation that most altcoins don’t. If I had to choose between investing in Bitcoin only versus other non-crypto assets, I’d probably still stick with BTC.
Suggested Coins: Bitcoin (BTC). Maybe adds some Ethereum (ETH) later as they become more adventurous.
2. The Mainstream
This is one step up from the ‘Normie’ bag, and is the preferred choice of the investor who doesn’t necessarily know too much about cryptography, blockchains, consensus algorithms… but knows enough to go where the money is.
The mainstream portfolio tends to focus on coins in and around the top ten by market cap. It prioritizes high-volume coins that are seen as established fixtures in the crypto space. These coins are available on just about every major exchange, and they usually benefit from having pairings with Tether (USDT) and other dollar-pegged stablecoins.
The coins in this bag are present on Binance, Bitfinex and Coinbase – and if they aren’t, they usually have an angry community of holders calling for their additions. These coins are referred to as the major altcoins, and at least one of them is likely to be present in most crypto portfolios already.
Suggested Coins: Bitcoin (BTC), Ethereum (ETH), XRP (XRP), Litecoin (LTC), Bitcoin Cash (BCH)…and most of the top ten cryptocurrencies. Also those ‘major’ coins currently outside the top ten such as Dash (DASH), Monero (XMR), NEO (NEO), Tron (TRX), etc.
3. The Contrarian
The contrarian portfolio can either be seen as a reflection of the holder’s mental state, or as a calculated risk in an attempt to undercut the market and tread where others dare not.
Too cynical to believe in the Ethereum scam, too future-thinking to care about the outdated Bitcoin, this holder prefers to cut his own path through the crypto landscape, often investing heavily in small-cap altcoins that he really ‘believes in’.
The perfect example of this is the man who slept in his car and worked two jobs so that he could invest all of his salary into crypto. The man’s story initially brought praise and admiration when he first posted it on 4chan. But when he revealed his entire portfolio consisted of ColossusXT (COLX), FundRequest (FND), Pal Network (PAL) and Dero (DERO)… public opinion quickly turned on him.
There are enough examples of small-cap holders getting rich by this method that it will always have its adherents. It’s a high-risk gamble, but not one that comes with much rhyme, reason or methodology.
Suggested Coins: How can you predict the whims of the heart?
4. The Hope it Sticks
This is the hit and hope method; quantity over quality; the guy who buys fifty different lottery tickets and then prays to fifty different gods.
The sheer volume of coins bought here means that the money invested in each of them is naturally lessened. However, as discussed recently on Hacked, even a $500 dollar investment in a small-cap altcoin can return substantial gains assuming the market returns to at least its former all-time high.
This portfolio is most likely to be maxed out with multiple platform altcoins given the free airdrops they include. The quantity over quality method means this portfolio is likely to have the most shitcoins. But depending on market conditions, shitcoins can either be a good or bad thing.
My own temperament is such that I avoided the ICO craze, and did not load up on all the new tokens that launched in the past year and a half. While that afforded my ego a feeling of intellectual superiority and maturity – it could easily have cost my pocket at least a five or six-figure sum.
Some Sh*t Sticks…
Therefore the ‘Hope it Sticks’ method is not to be sniffed at entirely. There’s a time and a place for what we term ‘shitcoins’. They may not be useful in the long term but if you can afford to lose $100 then there are worse gambles out there in the short term.
Suggested Coins: Too many to name. Most of the ‘Mainstream’ bag, plus all the highest rated ICO coins on Ian Balina’s spreadsheet, and all the highest rated ICO’s on ICO Bench. Everything else. Dentacoin (DCN). Dent (DENT). Buggyra Coin Zero (BCZERO)
5. The Follow the Leader
This one is simple, logical, and comes with multiple benefits. The idea is that you go Where the Money Can Most Easily Flow, and invest in coins which are already set up and available on major exchanges.
Coins on fiat-to-crypto on-ramps like Coinbase are deemed to be more valuable than those available on Binance, purely because of easy access to the U.S dollar, British pound, and euro.
Users who opt for this method can also benefit from having all their coins stored in one place, with only one login required on the day the peak comes and they decide to sell. Hardened crypto users would balk at leaving all their funds on an exchange, but for the average Joe coming in off the street, this can give them all the access to the crypto gold rush without all the hassle of multiple wallets and private keys.
Coinbase actually offers a packaged bundle of cryptocurrencies just for this purpose. As we can see, the makeup of the bag resembles that of ‘The Mainstream’ portfolio. You could even say that the heavy distribution of Bitcoin makes it closer to that of a ‘Normie’.
But as always it’s a double-edged sword – altcoins have pumped to a greater extent than Bitcoin recently, but when the market falls, the alts usually fall harder than BTC. This yearly chart from the Coinbase bundle shows that the presence of BTC acted as a loss stabilizer, stopping the value of the bundle from falling further.
With the recent addition of XRP, Stellar, and Zcash to Coinbase, don’t be surprised if this bundle becomes more sophisticated in the future. Furthermore, users who don’t mind using Coinbase as a wallet service can essentially create their own bundle from the coins already listed.
Suggested Coins: The current Coinbase Bundle line-up, plus XRP, Stellar (XLM) and Zcash (ZEC). Throw in Basic Attention Token (BAT) and Ox (ZRX) because why not. Adjust weight to your liking as and when the market rises or falls.
Comparison: Professional Crypto Fund Investments
Following on from the bundle offered by Coinbase, let’s examine two other equivalents of the coin bundle – the crypto fund.
Taking a look at the crypto investment fund on Crypto20.com, we see what is basically the top twenty or so coins by market cap, minus Tether.
As per data from Crypto20.com’s website, the value of this fund fell drastically in line with the broader market during 2018.
This kind of diversification can be seen as a weakness on the way down, but as seen from the fund’s growth in the last two months, it helps on the way up.
That’s because you don’t need to anticipate which coin is going to pump, but can instead benefit from the leading coins’ broader movements.
Grayscale Crypto Fund
The Grayscale stats paint a similar picture. The fund is still well down for the year, but has shown profit in the last year to date, previous quarter, and month.
The weighting of the coins in these funds will also dictate overall performance, as will the timing of their addition. If Grayscale added XRP before Q3 2018 then its funds overall numbers will have been boosted by just one asset.
Likewise, depending on when Bitcoin Cash was added, it may have sunk the overall value of the fund as BCH itself sunk during the hash wars. However, if it was added post-hash wars, then its value will have doubled since then.
Note: The firms, bundles and services mentioned in this article are not to be taken as endorsements or financial advice, and are merely used for comparative purposes.