Diversifying Your Crypto Portfolio

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Includes: BTC-USD, COIN, GBTC, HVBTF
by: The Freedonia Cooperative
Summary

Diversification, even in this high-risk market, helps reduce risk and maximize safer earnings.

We recommend largely weighting on Ether, with some in Bitcoin.

Other coins like Litecoin and Ripple represent enormous opportunity and should represent part of your strategy.

Smaller "alt" coins have tremendous potential as well and should represent some of your portfolio. WTC, VTC, and VEN are good places to start.

One doesn’t need to recount the kind of returns cryptocurrency investors have seen in 2017. It’s been parabolic in some respects - and for those that got in earlier this year, it almost didn’t matter where you put your money. Everything is up.

But since mid-year, that’s not the case. Plenty of coins are up, but plenty have stagnated, seeing their price outgrow their value in an already questionable (dare I say, bubble-like) industry.

Bitcoin itself has gone from around $2500 to nearly $7500 in the last six months - a good return, and likely the least risky in the entire crypto industry. But if one had invested into other projects, returns would have outpaced the 300% rise of that timeline for Bitcoin.

The key, of course, is picking the right projects will balance your entire strategy to reduce those times when you make a mistake (like those, for instance, that invested in the enormous Tezos ICO).

Let’s start with the big players and then some smaller coins you can consider checking out. In general, we recommend balancing your portfolio with three coins in the top 10 market cap (making up 60% of your total) and then smaller coins - in projects you believe in - to round out the rest. This mirrors the more technical analysis done by this author on exploring a Markowtiz-style crypto optimization.

Anchor with Bitcoin? No. Anchor with Ether.

We’ve seen other articles dispensing diversification advice that calls on investors to anchor 40-50% of their portfolio in Bitcoin. And that’d be sage advice considering the run of BTC.

But really the best anchor for us is Ether - the coin associated with the Ethereum protocol. Ether saw a rise in the first part of this year - from $10 to $40 from January to April and then $40 to nearly $400 from April to June. It’s sort of gone sideways since then and sits around $300 now.

So why is it a good anchor? Well, it’s the #2 coin, but it’s far more than a currency (like Bitcoin). Because Ether, the investment, is the token of use for Ethereum, the protocol. And that protocol has shown extreme interest and far-reaching possibilities for enterprise operations and smart contracts.

In short, it has the brightest future - either as a cryptocurrency (a value to be exchanged) or the premier blockchain technology that utilizes its platform like a new internet system. A recent survey suggests that 33% of young Americans plan to invest in Ethereum.

Even if Bitcoin and crypto were to crash, there’s enough reason to keep Ethereum alive that its coin price will survive. It’s the best risk reduction strategy in crypto investing.

We’d recommend anchoring 20-30% of your portfolio in Ether.

Other Big Coins

Okay, so Ether is the safe bet. But you’ve heard that you can make a huge return in crypto, so where do you go?

Well, Bitcoin is the first place. We anticipate Bitcoin will continue to climb (particularly in the next two weeks before its big fork date). Speculators are calling for BTC prices to hit anywhere from $5,000 (down) to $10,000 and some are even suggesting $25,000 in the next few years. The interesting news is that Bitcoin futures trading was just announced - so that should provide some interesting insight into where that market is heading.

Bitcoin might have a market cap above $100 billion, but it’s still volatile enough to produce tremendous returns (or losses). Credit Suisse (NYSE:CS) recently said Bitcoin is 11x more volatile than the pound - even following volatility from Brexit.

Bitcoin is the leader of the pack here. Even enormous news like China’s ban on exchanges didn’t shake it. Money is still pouring in from all over. If Bitcoin crashes, it’s either A) unlikely crypto is still a valuable opportunity at all, or B) your gains will be in the rest of this portfolio.

Plus - and this is big - you’ll need BTC to buy some of these other coins, so it’s best to always have that at your disposal, and keep gaining BTC when your other trades pan out.

We recommend 15% of your portfolio be in BTC.

Next up is Ripple. Ripple is a token for blockchain enablement for money transfers. It is not a cryptocurrency, but rather an asset that’s still poised for up to 10x growth.

The main selling point here for Ripple is that’s been backed by major international banks in addition to receiving venture funding from major investors like Andreesen Horowitz. Ripple presents the best enterprise blockchain solution, so if adoption on the consumer side won’t take off, then there’s the opportunity for mass adoption within companies.

Ripple provides a blockchain-enabled competing system to SWIFT - for sending payments. SWIFT currently handles about $5 trillion daily. A slice of that with Ripple could send its price up 5x, swiftly. Pun intended.

Ripple has a tendency, though it has been questioned more recently, of an antagonistic correlation with Bitcoin. This is likely due to the differential in the Bitcoin currency and the Ripple asset - with crypto enthusiasts wavering between the exchangeable item and the investment.

We recommend 5-10% of your portfolio in Ripple.

Litecoin is next - as a kind of buffer to BTC but also one that can grow with it synchronously. As crypto looks for adoption, Litecoin could present a better front than Bitcoin (likely won’t replace it, but could compete). If this is the case, Litecoin has the opportunity to 5-10x. A seriously used coin would shoot to above a $10-billion market cap, where Litecoin now sits below $3b.

Litecoin, like Ethereum, has a correlative tendency to rise after a long Bitcoin run-up. Many seem to buy Bitcoin and at a resistance point buy into the cheaper alternative tech. These are two favorites for that.

We recommend 5-10% of your portfolio in Litecoin.

Small Coins

Depending on how you use our ranges, you’ll have anywhere from 35-55% of your investment left. The rest can go to smaller “alt” coins. These are no doubt riskier, but it’s here that you could hit one of those 8,000% increases you’ve likely heard about coming out of the crypto world.

We have a few recommendations here to get in on now. And we do suggest getting in soon. With the BTC hard fork coming in the next two weeks, money is flowing into BTC (each day this week has had an all-time high). After the fork, we expect money to flow back into coins like Litecoin, Ripple, and the ones listed here. So, it’s a good time to buy.

The first is Vertcoin. This coin has been around since 2014 and only recently had a climb (some 1,000% in the span of a few weeks). This came after news of its involvement in one of the first atomic swaps (an enablement that allows you trade altcoins for other altcoins). This put it in the same category as Litecoin and many realized it had much of the same technical specs, with some upgrades. It shot up into the top 50 coins, and we expect it to continue to climb. The link above has a graph comparing its specs to Bitcoin and Litecoin. Currently, Vertcoin has a market cap of $131 million, while it is compared often to Litecoin with a market cap 10.5x that.

Next is WaltonChain (WTC) - a coin that’s only been in existence for the last few months. Waltonchain combines blockchain tech with RFID chips and tracking technologies. This allows for more precise tracking, ledger-keeping, and security.

Since this combination can enable proper shipment tracking and anti-counterfeiting technology, the capability for industry disruption is in the trillions. WTC currently has a market cap of $113 million - a fraction of what it could be if it becomes part of large production operations.

The same goes for VeChain, another pick of ours. VeChain focuses on building a “trust” machine powered by the blockchain ledger. Vechain is a product of China’s largest blockchain company (backed in part by the Shanghai government). It focuses more on tracking chips which allow any user/owner to trace production back to proper source.

According to some, VeChain existing partnerships/accolades include:

  • Kuehne & Nagel (OTCPK:KHNGY), the largest transport and logistic company in the world with a $20 billion revenue.
  • Renault Group (OTCPK:RNLSY)
  • PwC has adopted VeChain for its incubation program.
  • Fashion label Baby Ghost
  • DIG, China's largest wine importer.

VeChain and Walton have an opportunity to disrupt the entire production line system by placing blockchain tracking at vital points. Vechain’s market cap currently sits around $53 million - highly undervalued.

As with all things, these coins require you to do your own research. We’re just giving a small section of their capabilities. It’s vital to look into teams, roadmaps, and current pricing (when you’re reading this).

There are thousands of other coins to look at - and we recommend doing your research.

Strategy

For a further view into this type of strategy, you can read this author's breakdown and comparison of an optimized vs. passive crypto portfolio.

With news coming of blockchain ETFs, one could engage in a more passive investment into these emerging technologies, but a balanced portfolio could optimize gains far past that. Even in a bubble-burst scenario for Bitcoin, technologies like Ripple and Litecoin could see widespread adoption that works with government regulation or outright bans. These each has a market cap under $5 billion, and that kind of adoption could easily skyrocket those to the size of large multinational companies (2x-10x).

Disclosure: I am/we are long BTC, ETH, LTC, XRP, VTC, VEN, WTC. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Editor's Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.