by Wayne Walker
For even the casual observer, the past few months have been a wild ride in cryptocurrencies. It appears for now, as I predicted, some of the hype would subside and we can get on with real crypto trading and investing. Actually a lot of what I wrote (less hype, more regulations) has come true, the link is here to reread.
It is not with an “I told you so” attitude that I write the hype is taking a vacation, I write because the hype needed a vacation for the long-term good of cryptocurrencies. I am well aware many people have been burned and their accounts have taken a few knock-out blows. To be honest some have given up on cryptos all together. The majority of the departing crypto traders are those who refused or neglected to get some training or qualified advice before diving in. I have stressed in previous articles the importance of diversification. An important concept with all asset classes but with cryptos it goes from good to have to must have. This concept is nothing magical or some deep secret. Just having knowledge of basic trading principles along with technical analysis would have helped many with their strategy and especially their mind-set.
The fact is that the volatility we have seen with Bitcoin has actually been more severe in the past. Cryptos, like other markets, can actually go down: this point seemed like a new idea to some. When we were having the run-up with Bitcoin from $10,000 to over $19,000 faster than even the biggest fan could have imagined, the downside was forgotten. The reduction in hype helped to mature the market and it has also forced traders to have a more strategic look at the sector. Another plus, the Bitcoin sell-off has had the benefit of allowing several altcoins to step into the limelight, for example Stellar.
What I would consider including in a Q2-Q3 2018 portfolio:
Bitcoin, Ethereum, Ripple, Cardano, Stellar, NEO, Litecoin, EOS, Nem. They are selected from my principle that investors or traders should have a diverse portfolio of cryptos and only trade those with good liquidity (by crypto standards). All the selected are in the top 15 in terms of market capitalization.
Both the new and more experienced crypto enthusiast should be aware of the unique features of the individual coin. Each crypto asset has its distinct features in terms of market behavior. We have also seen that altcoins have their own price movement stories. It is not so simple to say, as was said in the past, that whatever Ethereum or Bitcoin does in the market the other coins will react with similar price patterns. For example, the decline in Bitcoin did not lead to an equivalent drop of many altcoins. To the contrary, several have increased in value.
Outside of my list of suggested coins there can also be room for a speculative ICO or two. This is considered with the knowledge that many, but not all, are scams. A few of the questions that must be answered by any ICO: What is the point of the coin? What problem does it solve? Is it really a problem? You will also need to verify that the problem they plan to solve wasn’t solved already by another coin. Yes, when you read through some whitepapers you will quickly realize that you are dealing with a clone of another coin.
Once you have selected your cryptos, the next step to further diversify the portfolio is to ensure that you have the appropriate sector mix. The majority of investors miss this critical detail when assembling a portfolio, something for another article. Happy Trading!