Cryptocurrencies have become a topic of intense discussion, especially over the past few years. If you are looking to invest in crypto safely, and start only with around $1k, this should be helpful. We all heard stories of people becoming overnight millionaires, and stories of people who lost thousands hoping to become wealthy. Nevertheless, I think this is an excellent asset to have in your portfolio. Just like with any other investment asset, you have to be smart about it and follow a couple of general rules. The purpose of this guide is to educate beginner investors and reduce the risk associated with investing in crypto. The cryptocurrency market is extremely volatile, and all investors are subject to extreme price fluctuations. However, good habits will help mitigate the failure rate and maximize success probability. It should be a good starting point, but not as financial advice. 

General Rule: If you ever invested in something and traded stocks or commodities, you probably know what I’m about to say. The base rule is to never invest money you can’t afford to lose. It applies to; never invest using a credit card, even if a broker is allowing this method. Don’t borrow money from someone in hopes of investing and quickly paying-back from profits. Keep in mind that something can go not according to your plans. And you will end up losing not just borrowed money, but the interest rate on top of it.    

“Don’t put all the eggs in one basket.”

The potential to earn more is proportional to your initial amount, and the same goes for the loses. Our objective is to minimize the possibility of fails. Even though cryptocurrency has been around for a long time, it’s still in its infancy stage. If we look at the current market cap, we see a lot of growth potential. Most likely, any good coin with a use case will grow. However, what is the possibility that the market cap growth is going to be driven by one coin vs. being driven by many coins? A smart way to safely capture the overall growth of cryptocurrency is to diversify and reap the advantages of growth from multiple coins. For example, between January 2016 to January 2018, Corgicoin has increased by 60,000x. Verge has increased by 13,000x during the same period, and Bitcoin has risen by 34x. While you’d have gotten spectacular gains from Bitcoin, but diversifying into other coins could have landed significantly larger gains. The same strategy would work to prevent major loses. If you were to invest all your money in one coin, all your hopes would be crushed if that coin failed. However, splitting the investment into several coins would have you on float even if something happens to one or two coins. 

Put the majority of your money in stable & predictable projects/coins:

Due to the extremely speculative nature of the cryptocurrency market, a successful investor should always do research to make an educated and smart move. There are many resources on the web that tell which coin to buy and which is a “shit” coin. They can be right, but don’t invest your money based on someone’s opinion, do your own research. 

In the process of your research, you should look for several things that make a great company. Potentially successful coin should have a good team, amazing publicity, great vision, use case, and a track record for successful execution. If certain coins hit these criteria, put these into medium or long-term holds. When prices take a dip, you shouldn’t panic and sell your coins because you did research and you know they have a great product. BNB is a good example of a similar situation. At some point, it dipped 20% for some time and triggered sell-offs from fear-driven investors. However, a week later, it jumped up almost 3x because it has a use case in one of the largest cryptocurrency exchanges in the world. 

Diversification Strategy

Pick four stable coins from your research list and put 15 percent in each of these coins. Also, its good to have around 30 percent in BTC since its a major market cap driver and is a foundation for all cryptocurrencies. Most of the exchanges between coins occur with the participation of BTC.

For Example: 

  • BTC 30%
  • ETH 15%
  • XRP 15%
  • XLM 15%
  • DASH 15%

What to do with the rest 10%? You can have it ready for a new find or addition to an existing coin in your portfolio. If there is a price dip for the coins above, you can buy more on the decline to lower your average. 

That is a good example to set up your crypto portfolio. However, you should maintain it with additional spare every couple of weeks or months.   

Investing your spare money into crypto can have a significant effect. If you continue investing small amounts every couple of weeks, you would be surprised how big you can grow your portfolio. Insignificant amounts can add up to noticeable profits, especially if you add on dips. That is an excellent advantage crypto investors can benefit from. You don’t need hundreds of dollars to buy a stock share or a bond, but you can purchase several coins for just a few dollars. At the end of the day, it feels nice to invest spare money rather than spending on something unnecessary. 

How does your crypto portfolio look like?