Expert finance explorer Sam Hoffman shares his insights into the main principles of successful management of your crypto portfolio.
The debate about cryptocurrencies being in a bubble has been raging with facts and opinionated arguments on both sides since the big boom in December 2017, when the bitcoin price peaked at almost USD 20,000. Since that day in December, there has been a countless number of speculations about the best altcoin in the crypto world or the next big break, which is always just around the corner.
The Forbes recently did a piece on the “Next Big Bitcoin Price Boost” motivated by the 20 percent increase in the market cap since countries started regulating cryptocurrencies from the beginning of the year. Even the U.S. Securities and Exchange Commission (SEC) is considering the approval of a bitcoin exchange-traded fund (ETF), and that fact alone can tell you more than any other — that cryptocurrencies will not lose value!
However, they might change the form they have now, which is why you should consider proper management of your crypto portfolio while you still have a chance.
At the day of the writing of this article, the Bitcoin price is set at $8,241, and the market cap is $141,496,420,579.
Tips for a Well-Rounded Crypto Portfolio
Analyse the price of the market cap in correlation with the circulation supply
One of the first issues you need to address before you buy or sell any cryptocurrency is to take a look at the market cap and how it’s interacting with the circulation supply. If the growth rate of the circulation supply is bigger than the one on the market cap, then the price of the coin would probably decrease due to the surplus. Think of it this way, the circulation supply should be at an optimal rate; if the market itself gets flooded with a new coin, then it would be much more difficult for the price to rise.
Another important indicator correlating with the ones above is the total supply of the number of coins that can ever be minted. The total supply is the meter for value, and the bitcoin is the perfect example of this because it can show you the potential for price growth and the future demand on the market.
A diversified portfolio is not a crypto tip; it’s an investment method! Investing in a variety of bonds and stocks is a prudent plan that has been tested and used since the first exchange, and that is precisely what you need to do when you are managing your crypto portfolio. Relying only on bitcoin is like giving volatility complete control over your investment, but when you invest in high-, medium- and low-market cap coins, you can exert more control over your assets.
Cryptocurrencies are very unpredictable and susceptible to external influences, which is why you should keep more than one in different values (low-, medium- and high-price coins) if you want to build a good portfolio. Also, another great tip is always to keep your crypto coins in a hardware wallet.
The bitcoin, the ether or the ripple don’t use the same technology. On the contrary, even though they are all built on the blockchain, they all have different mining hash algorithms. This means that they have various advantages and weak spots, and they develop differently, and they have a distinct value for different people.
The idea behind the purchase is elementary in that the technology is always going to have value. However, the market sets the trends, and sometimes one technology is more valuable than the others. That’s why you need to invest in more than one.
The Hold-On-For-Dear-Life Approach vs. The Sell-Out Approach
If, however, you believe that your crypto coins are going to lose value, the top tactics used by investors are the hold-on-for-dear-life approach vs. the sell-out approach. HODL (hold on for dear life) is when you are holding on to the crypto coins for a considerable period, even though the value of the digital assets fluctuates. This is a good strategy for the high-value crypto coins you have on your portfolio. A lot of investors might try HOLD because it has been proven so far, especially with the bitcoin, that this can be profitable.
The sell-out approach requires more delicacy and in-depth market knowledge because you need to predict the right moment when to sell the crypto coins on the exchange before the price starts crashing. This method is recommended only for experienced investors. However, if you want to be more vigilant, you can always keep an eye on the steps of traders you admire and ask them for advice. Reading the blog posts of professional crypto brokers and following the right Telegram channels can give you an edge on the exchange.
Sam Hoffman is a passionate finance explorer of the cryptocurrency world, who writes about creative aspects of the digital trade. Currently, he is part of the team behind Blockbid.io content.