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Best cryptocurrencies to invest in and how to build your portfolio

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Avatar for mst1923
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3 months ago

Despite what some people might say, 2021 is still a good year to start investing in cryptocurrencies. In this article, I will describe how to build your crypto portfolio, then I will go through some of the best cryptocurrencies to invest in for the long term.

Usual word of advice: try to not rush in without a plan and don't invest all your life savings. Also, keeping in mind the basic principles of crypto investing should offer you a good start (do your own research, never invest more than you can afford to lose, always secure your private keys).

When starting out with crypto investing, one of the first things you should do before actually buying anything is to make a list.

This list should contain which cryptocurrencies will go into your portfolio and in what percentage.

This is the most important phase of long-term crypto investing. Based on this initial research, you can distribute your investment capital in a balanced and manageable way.

How to build your crypto portfolio

Let’s say you have X amount of capital you want to invest in crypto by next year. Because you’ve learned something about investing, you know that it is wiser to use a dollar-cost averaging strategy instead of going all-in.

In case you don’t know yet how dollar-cost averaging strategies can be used in crypto, check out my previous guide on this topic.

As mentioned, the next step is to do the actual research. Take some time to learn about as many crypto projects as you can. See what they do and in what stage of development they are. Check how you could benefit from investing in a certain project and where would the returns come from.

Are these expected returns from staking rewards, increase in price, both? Write all that down.

Also, very important to find out how secure is the project, if it passed an audit or not, and what is the general reputation of that coin/token.

More important, what is your gut feeling about it. You can actually get a good hint about a project based on the first impression you have when checking out their website.

Also, remember to check the tokenomics on Coinmarketcap – what is the circulating and total supply of the coin.

Once you have gathered all that information, put every cryptocurrency you find appealing into a spreadsheet. Then filter through them until you are left with a low enough number - I would go with a max 10.

Again, take your time to make each selection. These will be the cryptos that will make up your investment portfolio for the next few years.

The next step is determining which percentage or weight each coin in your spreadsheet should have in your crypto portfolio. In another column, right to each coin, write down a percentage of how much that coin should represent from your entire portfolio.

For example, you want your portfolio to contain at least 30% worth of BTC, 25% ETH, and so on. In the end, make sure the percentages amount to a total of 100.

So far so good.

Next, you want to determine how much of your total capital will go into each coin, based on the percentages you set. You should end up with something like this:

Finally, now that you have your portfolio template, it is time time to start looking at the prices.

Is there a significant dip in price for certain coin in you list now? If so, consider adding some to your balance. If the price is not at the lowest, consider dollar-cost averaging. Maybe buy at the end of each month, or maybe set some price alerts for when there is a big dip in price. It’s totally up to you to customize your entry strategy.

After each new purchase, remember to log it into a cryptocurrency tracker, like Cointracking.info. This way, your crypto investments will be much easier to track over time and you will also get easy to manage tax reports.

My selection of 10 best cryptocurrencies for 2021

If I were to start from scratch this year with crypto investing, these would be the projects I would consider selecting for my portfolio:

BTC - 20%

Bitcoin is still the king. As long as that does not change, I would want to have at least 20% in BTC at all times. Simply hold it in a cold storage wallet like Ledger, not staking it, not held on an exchange for rewards, not locked in any crypto loans app. Expected returns are from rising in price, in a minimum 10-year window.

ETH - 20%

Ethereum deserves the same portfolio weight as Bitcoin, especially with the upgrade to 2.0 and the opportunities that it could bring. Ethereum has even more growth potential than Bitcoin (at least this is how I see it). Also, since staking is available, with min. 5% returns per year, the initial investment can be compounded over time.

ALGO - 15%

Agorand is one of my favorite crypto projects. I see them as one of the best blockchain projects in terms of progress, tokenomics, opportunities, security, and innovation. They also have 7% yearly returns for staking, which is nice.

COMP – 10%

Compound has excellent tokenomics, with only 10 million tokens in total, was one of the first tokens available for staking, and is currently the most used dapp. Very solid project.

ATOM – 10%

Cosmos is a big competitor for ETH, focused on scalability and blockchain interoperability. They currently have staking returns of 9.7% per year, one of the best rates on the list. In the long term, they have a lot of room to grow, and I see them rising up to the expectations.

XMR – 5%

Monero is the reference coin when it comes to privacy. I see it as the faster, more private version of BTC. It is a strong bet that XMR will be around in 10-20 years, at a much higher price than today.

BNB – 5%

Binance token has to be on the list, simply because they have good return rates. Also, the total supply will be lower over time due to token burns, and I believe they will be around for a long time.

EGLD – 5%

Elrond has one of the coolest wallets I’ve seen so far (Maiar), excellent tokenomics, with around 22 million coins in circulation out of a total of 31 million and one of the best staking returns, currently set at around 15-19%. Huge potential for growth as well.

ADA – 5%

Cardano is another great potential investment, focused on scalability and security. They are still in progress with the project, but once complete, they could be a real challenger for Ethereum. Tokenomics are not that great in my view, but with 5% APY for staking, they are still worth the risks.

ICX – 5%

Icon is a fast and reliable interoperability blockchain. The current price, project longevity and the fact that they offer 10% on staking yearly returns make ICX a must-own.

My crypto portfolio selection for 2021

Conclusion

As a final word, no matter what you add to your cryptocurrency investment portfolio, do your best to secure your holdings. Following a few basic rules should be a good start. Use cold storage wallets if possible (otherwise, make sure you use wallets downloaded from official websites), hold your private keys offline or on an encrypted drive, never share your private keys with anyone, make frequent wallet backups.

Cryptocurrency investments are still in an incipient phase. Looking into the future, the risk/reward ratio for investing is, for me at least, greater than the risk/regret ratio.

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Comments

Helpful and interesting advice. I am fairly new to crypto, and the one frustration I have had with it is "how do you place a true intrinsic value on it?" I mean, I am a stock market guy. Been in the markets for more than 30 years, and I know my way around it very well, and employ any number of strategies to get the most out of any investment I make.

In the stock market it's all about knowing how to do it, and knowing what your investment is worth, and knowing how to determine that.

Of course, we're talking about crypto here, which is a currency. It has nothing to really back up its value like a stock does. Or so I have found so far.

A stock is about a business that makes and produces things, invents and innovates things. It produces revenues and has buildings and equipment. It has revenues and cash flow.

That all said, the more I dig into crypto, and the more I follow some of the people who are in it who actually have at least a basic knowledge of investing (and those people are few and far between), the more I see there are similarities. If not in the way of HOW they hold or gain value. But in the fundamentals of investing in them.

I like what you presented here, but it SOUNDS more like what I am used to hearing in my circle of investors. So, I will be dropping by to know more, and thanks for presenting what you have presented here today.

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3 months ago

Thank you for your feedback, really appreciate it:)

Crypto, in my view, does not compare or compete against stock market or commodities. It is simply a separate asset class.

Regarding your question about where does cryptocurrency derives its intrinsic value from, I can only give you a subjective answer. I believe that established cryptocurrencies, like Bitcoin or Ethereum, get (most of) their value from offering people complete control over their own assets. Or in other words, it offers access to a lifeboat if the big ship starts to sink. Unlike centralized third parties, such as governments and banks, who have the option of "turning off" people's access to their own assets in certain circumstances, crypto gives people full control. With the associated responsibilities attached, off course.

One other valuation argument for crypto would be the technological innovation it brings. Ethereum, for example, is not only a currency, it is a platform upon which hundreds, if not thousands of other projects are built, ranging from apps for lending and borrowing, staking, decentralized marketplaces, tokenization of ownership (NFTs), insurance, real estate, to even sports and gaming. Basically, investing in Ethereum is somewhat like investing in a basket of startups.

Deflationary nature and scarcity are, for me, other valuation arguments for cryptocurrency. Most of worthy cryptos have a fixed supply, which cannot be altered. This aspect, combined with Metcalfe's law - stating that the value of a network is proportional to the square of the number of its users - gives cryptocurrency it's growth potential. Especially considering the fact that each day, more and more people are starting to get involved with one or more crypto projects. I would highly recommend watching this RealVision video in which Raoul Pal explains way better than me the point that I was trying to make: https://www.youtube.com/watch?v=0tJrla31t8I

I do think that risks in investing in crypto are greater than the risks for investing in gold, for example. For me, the potential rewards and opportunities are worth taking such risks. I do invest in other asset, such as REITs, but I choose to focus mostly on crypto, especially in the coming years.

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3 months ago

Very well explained, and this is exactly the kind of analysis and explanation I look for. Too many in this space just say, "Trust me, it's going to the moon and beyond," and when you ask them why or how, they just repeat the "Trust me" part and add, "because it's crypto." lol

I will check out the video. The more I know, the more I grow, and the more confident in my investments I become.

I know stocks like the back of my hand, and I would like to know crypto similarly.

I especially like your explanation of ethereum, because when you put in these terms it makes sense to me. I have always seen crypto as only a currency. And as I see currency, currency only has value based on what it can buy. Therefore, businesses ALWAYS have more value than currencies because without them, currency is essentially worthless.

I still continue to believe that the stock market has far more opportunities to grow wealth than crypto long term. But what do I know? I am a stock market guy, like I said, and crypto is too new for me to speak with any level of authority.

So, again...thank you.

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3 months ago