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Smarter Cryptocurrency Investing By Diversification

Firstly let me start this article with a responsible comment; Cryptocurrency is a highly volatile and dynamic ecosystem, prices are dri...


Firstly let me start this article with a responsible comment; Cryptocurrency is a highly volatile and dynamic ecosystem, prices are driven largely by sentiment.  The gains can be huge, but so can the losses.  Invest only what you are prepared to lose 100% of in the worst case scenario.

Secondly, in anticipation of the inevitable "buying cryptocurrency is not investing" comments from some readers - No, I am not of the opinion that Benjamin Graham's opinion of investing is the be-all and end-all of views on the definition.  I much prefer the general view supported by dictionary.com that investing is "to put (money) to use, by purchase or expenditure, in something offering potential profitable returns, as interest, income, or appreciation in value".  As speculative a market as it is, I am investing money in something offering potential appreciation in value.

With that out of the way; the intention of this article is NOT to provide investment advice but rather to show you how I personally invest in cryptocurrency.

Those of you looking to buy cryptocurrency from a trusted Australian online site - I can only recommend one that I use myself regularly : CoinSpot (https://www.coinspot.com.au)


Now onward to the main point of this post.

In simple terms, diversification of a portfolio is a rationale usually employed to mitigate risk when investing in the contemporary stock market.  In the realm of cryptocurrency diversification serves to increase the chances of turning a profit should only one or two of your chosen currencies make a gain.

The difference between diversification of cryptocurrency and diversification of contemporary stocks is that with contemporary stocks I have a plethora of tools available (history, company reports, the ability to calculate growth etc) to make more educated decisions on where to place good investments thereby reducing risk from exposure to loss.  In the crypto world however this is far more difficult, there are no reliable indicators, the market is highly speculative therefore this concept is better suited to diversifying your portfolio to increase the chance of a profit.

I'll highlight those differences again:

  • Diversification in a contemporary stock market reduces the risk of exposure to loss.
  • Diversification of cryptocurrency holdings increases the chance of holding a currency that may potentially appreciate in value.


Research. Google is your friend.

Anyone who successfully invests in startups will know the technique, research and pick a range of promising looking startups and invest your total allocated sum of money among them.  Always be prepared mentally for the majority of them to fail.  If you prepare this way and your research pays off for one or two (or more) of your picks then you have made your money.  Those that take the time to research will have a much better understanding of the pros and cons of the investments they are making.

Similarly for cryptocurrency by understanding what you are investing in you will increase your chances of choosing something that may be the next game changer or technology disrupter as opposed to another clone coin.  This advice is also no different for the contemporary stock market.

Not researching is akin to gambling.

If you don't have at least a rudimentary understanding of what you are buying into then it is purely a punt.  You may as well be spinning that roulette wheel with your money on black or red and crossing your fingers.  While this can sometimes pay out if you are very lucky, more often than not you will lose it all.

How do I do my research?

Just as a matter of interest I will check coin market capitalisations a few times a week to get an idea of basic indicators such as pricing, market caps, traded volume of currencies, historical graphs etc. This is done as an overview and will often turn up new cryptocurrency that might be worth further research.

Reddit is a good source of information and debate on crypto.  I will browse reddit groups for insights into existing and new currencies that I turn up.  Look for good and bad comments and try to understand the perspective  - don't justify a buy by reading only good press.

The official pages of each specific cryptocurrency is a good source of material to read their whitepapers and check their individual road maps (to see if they are different and have promising disruptive potential or if they are merely clone coins - which are prolific by the way).    Obviously the official page is not going to advertise its flaws so temper this in conjunction with a trusty Google search and dig a little deeper - How many developers does the currency have on its team? What is their marketing team like and how do they push their currency?  What is the community support like on the web? Are there any big companies supporting, helping to develop or looking to implement the technology?


Don't drink the Kool-Aid.

Try to steer clear of the copious amounts of biased hype you are bound to run into on the web, it is inevitable.  There are Google pages, Facebook groups and Twitter account feeds all devoted blindly to loyalty for their specific cryptocurrency fandom.  Avoid these like the plague if you are easily talked into things.  A lot of the discussion in these forums is blinkered with unwavering support for why their currency is the future.  The hype is not too hard to recognise however, the discussion is simplistic and involves a lot of future price prediction, the theories are usually wild and not supported by facts and the discussion is not tempered by objective moderating views.

To emphasise in particular; avoid the advice of anyone who tells you they can predict the price of cryptocurrency.  You'd need to have a time travelling DeLorean to do this (sadly as far as I know that hasn't been invented yet)

Beat the crowds.

I like to try and understand relatively new currencies early, before they get too popular on the exchanges.  Once they've hit mainstream and are hot topics then you have quite possibly missed the boat for stellar profits as the prices are already highly inflated from the fear of missing out.

If a new crypto investment is going to gain value it will likely be from a relatively mid to long hold unless you are lucky.

How I invest.

I personally am holding crypto for the mid to long term and set in some potential sell point notes at which I will make an effort review the standing of the currency again (roughly 200%, 400%, 600%)

I don't day trade.  The fees associated with day trading on crypto markets are high and the trends are wildly unpredictable.  I neither have the time nor inclination to be monitoring the markets minute by minute to do this successfully.  I will usually check the markets a few times a week.

If I like the potential of a crypto coin/token after research and it is reasonably priced (read, hasn't been inflated by too much media hype) I will put some money into it.  I like to try and find currency when it is relatively cheap, similar to small cap investments - anything from a few cents to a few dollars per token.  That being said, if I have faith in the future potential of a currency I will also spend a few hundred dollars per token, Ethereum being in this latter category.

Snapshot of my current portfolio.

Right now I am holding a reasonably diverse spread of what I consider to be promising crypto.  All but one of them was chosen for reasonably sound logical reasons, a summary of which is below.

Ethereum (ETH) - ETH is the platform on which a lot of other blockchain projects are built. The ability for smart contracts means it can be utilised in so many ways, lending to it being adopted by many projects in the future.  Ethereum already has many projects associated with its blockchain and it also has big name backing of members of  The Enterprise Ethereum Alliance. - Current Sentiment: Hold long term.

Monero (XMR) - Monero has a good development team setup and I like their road map.  More secure and more anonymous than Bitcoin.  Superior mining algorithm to counter the ASIC miner bias found in bitcoin.  Solid development and in the top 10 cryptocurrencies by market cap at the time of buying.  - Current Sentiment: Hold long term.

Ripple (XRP) - Widespread adoption cited by banks, top 10 market cap and useful utility with solid backing which is why I noticed this in the first place.  However I am planning to drop this currency from my portfolio as I don't see long term appreciation in value due to its circulation. - Current Sentiment: Sell.

IOTA (MIOTA) - Intended to service machine to machine transactions and connectivity on the Internet Of Things.  It is the first crypto without a blockchain and has virtually non existent transaction costs, the more usage it gets the more potentially scalable it is.  Potential for growth in value as long as it can be marketed.  I purchased after its adoption by major trading platform Bitfinex. - Current Sentiment: Hold and review every few months.

AntShares (ANS) - Often referred to as "China's Ethereum".  Recently re-badged as "NEO" but still more widely known as AntShares, it is a smart contract and decentralized application (dApp) platform which focuses on both smart contracts and digital asset registration.  The Chinese crypto market is massive, the potential for AntShares to be heavily utilised is therefore also massive.  Being relatively new and still reasonably unknown in western markets I decided to buy in before word gets around and it becomes sought out by the mainstream.  - Current Sentiment: Hold long term.

Golem (GNT) - The Golem project looks to create a decentralized internet, utilising the existing infrastructure.  The distributed internet idea of Golem provides a strengthened internet, less prone to attack as well as the ability to share computing power.  I like this purely on its potential.  The dev team approach to implementation looks to be thorough as well as driven, and being in its infancy it is currently not well known in the mainstream and therefore cheap.  - Current Sentiment: Hold and review every few months.

EOS (EOS) -  Intended as a blockchain operating system, it is designed to scale aApp development for large enterprises which are not catered for by existing blockchain projects.  Distribution of EOS tokens is via the Ethereum blockchain, the value of the tokens is affordable enough to buy a decent volume - which is currently one of the main selling points for me, the other is the potential in the enterprise demographic they are aiming at.  The EOS team is headed by very experienced blockchain veterans.  - Current Sentiment: Hold and review every few months.

Quark (QRK) - This currency is the odd one out in my portfolio.  My holding in Quark was initially a 2015 impulse buy after reading about Quark's superiority in many areas vs Bitcoin, including security, confirmation times, block generation. Bought on the cheap I continued to hold even when the community push surrounding it seemed to dissolve, just because it interested me.  Quark has since seen a resurgence with a new development team assigned and renewed interst, especially on Chinese exchanges, but now being traded on some western exchanges.  However in relation to the advice in this article this would be considered a 'punt' - nothing more nothing less.  If I had to choose a coin with similar attributes that I would rather buy it would have to be Monero, but since I hold several thousand Quark I will continue to do so until I see a decent sell point.  - Current Sentiment: Hold and review every few months with a view to sell.

Again, please note that none of the information in this article is intended to be investment advice.

Take the time to learn about your own potential investments before you commit to them.  Do your own research, don't invest more than you are willing to lose.

**If you are looking to buy some cryptocurrency from a trusted Australian online site - one that I use myself regularly is CoinSpot (https://www.coinspot.com.au).  They have easy instant payments by Poli if your bank supports it.

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