The land of cryptocurrencies is full of speculation, and speculating is not what a true investor does. A true investor chooses an investment for the long run or until the investment thesis changes. Actual investors don’t try to time the market, sell to a bigger fool or follow the crowd. Catch up on the CryptoCurrency 101 series here (101, 102).
Every day, looking at the crypto space can give you FOMO (fear of missing out) because everyone seems to be winning. They are picking the coins that are making the big money runs, or so it seems. Remember, JOMO (Joy of Missing Out) wins every time.
Everyone’s a winner until the crash happens, then everyone seems to be quiet. That is why we build our portfolio to withstand crashes. Our overall portfolio should consist of real estate, business, crypto, and stock investments.
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Inside our portfolio, crypto should account for no more than 5-10% of our total assets (closer to 5%). As much as we love to invest in cryptos, there just isn’t enough long-term data for us to increase this allowance yet.
Now looking into our crypto portfolio, we can allocate certain types of coins to diversify our portfolio. These are the names that I, Josh, call them. This naming convention is how I best understand them and can convey the information to you. I am sure an intelligent crypto person will have more technical terms for them.
I list the types of coins: Bitcoin, ecosystem coins, launchpool coins, improvement coins, stable coins, and speculation coins. By having these categories, I can visualize my investment thesis for purchasing coins. Let’s look at an infographic that will help you in the long run.
Bitcoin. Bitcoin is the first and biggest coin out there. I think everyone should own a little bitcoin because it will always be a player in the space. Where bitcoin goes, cryptocurrencies go. Bitcoin can be highly volatile, and this volatility will also affect other cryptocurrencies at the same time.
Crypto Showdown: Bitcoin vs. Ethereum
Ecosystem coins. As you can see from this fantastic infographic, cryptocurrency is full of separate and distinct ecosystems. Currently, Ethereum and Binance are the most prominent players. To create smart contracts and applications on these ecosystems, you have to use the ecosystem coins. So to make an application on Ethereum, you will need to pay in Ether (ETH).
This is the proper use of these coins, and from the outside, speculators and investors can purchase these coins to hold or sell. By purchasing coins like Ether and DOT (Polkadot), we are helping make these platforms or ecosystems stronger. I like to think of ecosystems like computer operating systems like Windows, Mac OS, and Chrome OS.
Launchpool coins. The infographic also gives us an insight into launchpool coins. A launchpool helps new coins come to fruition. Buying a coin at launch is a great way to jump into the investment arena for the coins. Remember, from my article “Becoming a Bonafide Investor: Investing Insider vs. Outsider,” buying at IPO or ICO will make you an investing outsider. You are not going to get out-sized gains by buying at the start.
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This warning doesn’t mean we can’t invest as new coins come on board; we just need to manage expectations. To get involved with new coins being launched, you will have to transact in these particular launchpad tokens. For example, PancakeSwap, on the Binance Smart Chian, has CAKE coin.
Improvement coins. These coins are here to help the cryptocurrency space become better through interoperability, speed, and efficiency. For example, Chainlink (LINK) helps smart contracts gather the necessary data to adjudicate the contracts. There are many improvement coins, and reading about their purposes will help you ascertain if they have any merit or not.
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I initiate most of my crypto reading on CoinGecko, and from there, I can go down various rabbit holes. Since CoinGecko is an aggregate site, it leads to other smaller crypto sites with great information. For example, here is a deep dive on the Cosmos coin (ATOM) that I read recently.
Stable coins. Stable coins are the cash or bonds of cryptocurrencies. When you are in-between investments or when a crash is imminent, you probably want to have some money in a stable coin. Most stable coins attempt to mimic the USD or other fiat currency.
I currently have some cash in USDC, which also pays me 9% interest. It is not a bad place to park some money, and you can redeploy if a buying opportunity arrives. Stable coins are also a good place for beginners to start because of interest rates and stability.
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Speculation coins. Finally, speculation coins serve no real purpose. They can also be called MEME coins. Be careful here because some of these coins have been known to be scams. Anyone can create a coin, so some people start them with bad intentions. That is why we want to research the purpose or reason each coin exists. Not only will this help us form an investment thesis, but it will also help us avoid speculation coins. The major speculation coin over the last year has been Dogecoin.
Putting it all together. Having a mix of coins and a purpose for each is an excellent way to diversify your long-term crypto assets. However, when the inevitable crash happens, they will usually all crash together. How they grow back may be different based on their purpose. As long as you understand each coin, you have a better chance in the long run.
Remember, as a crypto investor, our investment thesis is paramount. There will be more and more coins coming online, and we need to be careful that we are doing our due diligence and screening for the best future-facing coins possible. Good Luck!
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Disclosure: I am not a financial advisor or money manager, and any knowledge is given as guidance and not direct actionable investment advice. I am an Amazon Affiliate. Please research any investment vehicles that are being considered. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
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