If you’ve been paying any attention to Bitcoin and the general cryptocurrency markets; you’ll have observed that the market has suffered huge losses in the year-to-date period. The price of Bitcoin has declined about 53% and the market capitalization of the entire cryptocurrency market has been slashed by almost 60% in the same period. 2017 appeared to be the height of the last bull run in cryptocurrencies – all you had to do was to buy a decent coin, sit back, relax, and watch the value of your portfolio increase.
However, if you’ve been fixated on seeing similar returns this year, you’ll have expended huge time and efforts jumping in and out of the market. Some investors purchase Bitcoin at the first sign of a false rally and then rush to sell the coins to cut their losses a few days later because the rally wasn’t sustained. If you want peace of mind, investing in cryptocurrencies for the long-term might be smarter strategy than chasing new highs all the time.
This piece provides practical insights on building a potentially profitable crypto portfolio for the long term.
1. Winging it is not a strategy.
Anybody can make money from cryptocurrencies in a bull market, but it takes deliberate strategic proactiveness to keep your portfolio profitable when the market is flat or down. The bull market has ended, and nobody knows for sure when the next bull run will start and for how long it will last. Hence, buying cryptocurrencies now and hoping for the best will almost guarantee that you’ll lose your money. The key to formulating a strategy is to decide in the kind of exposure you want to have in the cryptocurrency markets based on your available capital, risk quotient, and financial goals.
2. Master your emotions.
All cryptocurrency traders and investors constantly have to grapple with the twin emotions of fear and greed – you won’t be an exception. Fear and greed will try to undo you at every turn in your cryptocurrency investment journey. The fear of missing out (FOMO) could cause you to buy a shitcoin just because everybody is buying it and greed could cause you to stay longer in trade than necessary because you want to book more profits. It’s in your best interest to create a trading strategy detailing the conditions that you you’ll enter, escape (when the trade is not going your way),or exit (when the trade is going your way).
3. Know what you are buying, look beyond the hype.
Many people buy cryptocurrency without really understanding what it is and how the underlying Blockchain technology work – don’t be like them. Beyond the top coins such as Bitcoin, Ethereum, and Ripple; there are more than 2000 other coins in the market and some of them are still young and small enough to potentially outperform Bitcoin in terms of growth. Nonetheless, buying up every ICO would be reckless – you should do some due diligence on ICO listings, see the problem they are trying to solve, and be sure that Blockchain and tokenization is the best solution to the problem.
4. There’s opportunity for diversification in crypto.
Wall Street investors know the importance of diversification, it spreads out your risk and keeps your portfolio afloat during bad market conditions. Cryptocurrency investors however often seem to lose sight of the opportunities for diversification in the market. You can diversify your portfolio across different kinds of coins, altcoins, and tokens based on their correlation to Bitcoin. The major kinds of tokens on the market include utility tokens, security tokens, stable coins, pure cryptocurrencies, and protocol coins. More importantly, you should never forget that cash is still king; hence, you should regularly take profits off the table when the market is high to buy more coins when the market is low to increase the size of your portfolio.
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