There are so many kinds of cryptocurrencies on the market. It is hard to choose the right coin for investment, especially if one expects long-term results spread across cryptocoins. How to create a long-term cryptocurrency portfolio ?
9 December, AtoZMarkets – What is long-term investing? Everyone has a different opinion on the definition of ‘long-term’. But we can simply define long-term as anything that lasts for years.
In cryptospace, we define it as a long-term perspective on investment. We know that cryptocurrency market moves extremely quickly and so we can reduce the number down to a couple of months or years. Here, we will explore how to create a long-term cryptocurrency portfolio.
Before moving to build the portfolio, let’s try to understand some indicators, which we can apply to measure the potential of cryptocurrencies. Here are few indicators which we need to look out for.
Long-term Cryptocurrency Value Indicators
1. Market Share about Cryptocurrency
Typically, a large market share indicates dominance. For example, Bitcoin’s market share is currently 70% of the total market capitalization of the cryptocurrency space. We can apply this as an indicator in order to determine the viability of cryptocurrencies in our portfolio.
2. Value of Cryptocurrency in the Market
Will a cryptocurrency last? Is it useful? Does it have users on the market?
These are the questions you should keep in the mind when considering cryptocurrency. Let’s take the example of Ethereum – its utility value derives from its function of Decentralized Applications (DApps) on top of its blockchain.
We can say that as long as Ethereum’s DApp is there, there are possibilities to increase its utility value. Therefore, Ethereum would be a viable cryptocurrency to include in your portfolio currently.
3. Determination of Transaction Volume
This indicator will help you to determine the usage of the cryptocurrency. In the case of Bitcoin, its transaction volume per day is about 500,000 BTC. This is a number that is increasing and as long as this upward trend continues, we can include it in our portfolio.
4. Development of Technology
The technology in cryptocurrency is a vital factor. The cryptocurrency may fail in long-term if it does not fit the purpose. For example, Ethereum’s recent Byzantium hard fork development allowed for more transactions to be processed on the Ethereum blockchain. This development increases the adoption of Ethereum widely. So, it is a viable candidate for the long-term cryptocurrency portfolio.
5. Reading Market News
It is important to stay up-to-date with the cryptocurrency market news. Also, it will help you to make informed investment decisions.
With these in mind, we can now move on to building our portfolio, more specifically, what percentage of each cryptocurrency we should hold in our portfolio.
How to Create Long-term Cryptocurrency Portfolio
1. Major Cryptocurrencies: Core Assets
Here, I am going to briefly discuss major currencies.
Presently, Bitcoin (BTC) and Ethereum (ETH) are leading coins in the cryptocurrency market. We know Bitcoin is king of the top cryptocurrencies and has the first-mover advantage. Similarly, Ethereum includes the idea of “smart contracts,” by using blockchain technology. So, Ethereum has a great chance to gain in value, as well. These two currencies can hold the majority of place in your long-term investment portfolio.
2. “Zombie” Cryptocurrencies
I am specifically talking about those currencies which have the potential to come back from the dead. They may rise with the total market, but at some point, their value may fall due to lack of a unique value proposition.
For example, Bitcoin Cash, the hard fork of Bitcoin, is trying to be the currency for exchanges with faster transactions times over Bitcoin. Litecoin is expected to be “the silver to bitcoin’s gold” until they can prove themselves as a dominant coin or unique in value.
3. Platform Cryptocurrencies
Platform cryptocurrencies are those coins whose platforms are centralized and run under Blockchain technology. Ripple tries to tackle the international payment remittance market.
NEO creates smart contracts which allow users to automate storage and exchange of digital assets and NEM runs under Blockchain technology which manages and builds smart assets. The community of DASH is trying to solve digital payments in a novel way.
4. Anonymous Cryptocurrencies
Some cryptocurrencies are focused on providing more privacy in the transaction. Privacy is a big selling component of using cryptocurrency, I think one of the currencies, such as Monero or Zcash can be included in your portfolio.
5. Protocol Coins
We are still in the early stages of building our decentralized and Blockchain applications. Many of the early platforms are focused at the protocol layer. In the future, more coins will be displayed at the specific application layer. But since we need the Blockchain infrastructure.
Therefore, I suggest you include one of these currencies in the long-term investment portfolio.
6. Other Coins and Tokens for Your Long-term Cryptocurrency Portfolio
There are some cryptocurrencies which are speculative now but show promise. Many of these focus on applications that will be built on the protocols. We can hold off investing in these until they become mature. You can keep an eye out for these:
It is vital to have a strategy before investing in cryptocurrencies. Without having an investment plan, you can expect a heavy loss of funds. I hope the above-mentioned tips for long-term investment will help you to build a portfolio on long-term cryptocurrency investment.
Also, you can get more insights from my previous article about 11 promising coins to buy in December 2017.
Think we missed something? Would you like to add something to this long-term cryptocurrency portfolio? Share your opinion with us in the comments section below.