One post we've been meaning to write for some time, is a post where we detail a blueprint for growing your crypto portfolio from scratch.
With the recent launch of our mastermind, a few members asked us about this strategy, so we finally got around to writing it.
The information provided here is for informational purposes only and should not be seen as investing advice. Our opinions on this site are only that, if you are considering an investment into cryptocurrency or anything we speak about on this site, please advise a trusted financial professional first, before doing so.
Many people who have been in crypto for some time have a pretty large portfolio consisting of various different bags. From what we've seen, it actually escalates pretty quickly. One minute you have your first Bitcoin or Ethereum purchase, and in no time at all, you're stuck with a bunch of shitcoins.
There's absolutely nothing wrong with holding a large amount of altcoins though. Generally speaking, alts are where the biggest gains are had.
Unless you're a bitcoin maximalist and think all altcoins are pretty much worthless, or at best, pointless, then sooner or later you're going to end up branching out from BTC and ETH, and picking up some alts. This could be via an ICO, or just by heading to somewhere like Binance and picking up an alt that you like the sound of.
Now, the whole point of today's article is this:
There's a right way to go about growing your portfolio, and there's a wrong way.
In fact, there are multiple right ways, and even more wrong ways (hint: FOMO'ing into a coin because everyone is raving about it on Facebook is a wrong way).
We're going to share with you one or two solid methods for growing your portfolio, in a way that should lead you to getting a lot more gains than if you were to just pick up some Bitcoin.
This is the same method we used to gain 14x on our portfolio (Turning $45,000 into $630,000 before the recent bear market kicked in) in the final six months of 2017, and the same method we continue to use in 2018.
If you follow it, you aren't guaranteed to achieve the same results, but you'll be sure to level up your cryptocurrency knowledge, and will be an exponentially more sophisticated investor.
The most important thing to remember here is that we're going to be talking about a lot of hypothetical situations. Coins don't always perform the same way, so it's useful to consider a few different options, so that you can make better decisions in any given situation.
With that being said, we WILL be referencing some of our own experiences here, to better help you gain insights.
Setting Up Your "Buckets"
Most investors have different levels of comfort when it comes to risk:reward, so you will have to figure out where you stand.
In our case, we are a lot heavier in alt coins than we are in Ethereum and Bitcoin. Those guys are more secure (well, kind of...), but it often feels like such a waste holding a bag of BTC when other coins go up 10x in a few months.
Still, it's useful to hold at least some Bitcoin to hedge against those times when BTC goes on a bullrun and altcoins bleed as everyone FOMO's into bitcoin. It's also useful to hold Bitcoin to stop yourself from feeling the same.
Here's a great bucket allocation for a beginner:
If you feel more comfortable with risk, then you could reduce the Bitcoin/Ethereum bucket and assign more to the other two buckets.
It's up to you how you split the coins within those buckets, but here's how we tend to break it down:
1.) Bitcoin and Ethereum 50/50 split.
2.) For safe alts, we are referring to wave 2 alts, and some wave 3 alts. These are coins like Litecoin, Dash, Neo, Monero, and a few others. You can use the Top 20 coins on Coinmarketcap to get ideas, but don't assume every coin at the top is "safe". Things like Cardano are still too new and too underdeveloped to really be classed as safe.
They are very strong candidates for making the safe alt bucket in the near future though.
We don't really have a strong criteria for determining when something is safe. Many people reading this might consider Cardano far safer than Neo, and others may prefer Tron.
Hey, we're all free to make mistakes where we please.
But with that said, here's what we look for in a "Safe Alt Bucket" coin:
Safe Alts have usually already made most of their large gains, but are also still likely to have more upside than the BTC/ETH bucket.
This bucket is basically a mix between upside, and safety.
3.) Now, for the speculative bucket, the criteria is a lot more about the potential of the project. In fact, the vast majority of coins in this bucket will come from Pre-sales, ICOs, or coins that have completed their ICO, but are not trading much above the price.
In our case, Loopring, Neo (back when it was Antshares), and Vechain were great Bucket 3 alts we picked up, which have since gone anywhere from 3.5x to 10x and Icon, Wanchain, 0x, and Chainlink were some of our best ICOs, all of which gave us bigger than 10x gains.
Of course, some coins in this bucket won't do much at all. We have a few which are still trading below ICO price, and some which we picked up expecting big things, only for them to sit around doing nothing for some time.
Most beginners make the mistake of filling their portfolios with bucket 3 coins.
If you are too new to crypto and don't know how to judge projects correctly, you're ultimately going to end up FOMO'ing into a ton of coins that are pumping, and then be stuck holding a bunch of bags at a loss when they inevitably dump.
This is why we recommend that if you're just starting out, you should only allocate 33% of your portfolio to these projects, and you can increase that percentage as you gain profits, and skill.
Now, let's consider a hypothetical situation where you do just that.
Let's walk you through the stages you might go through when growing out your portfolio.
Note: There's going to be a decent amount of hypothetical examples here, just for the sake of understanding how it all works. To balance it out, we'll reference some of the real moves we made as we grew our portfolio.
Step 1: Buy some Bitcoin and Ethereum.
Let's keep it simple and say you have $1,000 to invest into crypto. This model will actually work no matter how much you have, but we like $1,000 as a good example.
The first thing we're going to do is head to Coinbase, and buy some Bitcoin and Ethereum.
33% of $1,000 is $333 (thanks for keeping up). So you're going to want to buy $166.5 Eth and $166.5 BTC.
That's your first bucket sorted. Get yourself a Ledger Nano S and stick those coins on there and forget about them for a year or so.
Step 2: Buy some more Bitcoin or Ethereum to use to buy alts with.
You'll probably need a bit of both, because not every altcoin has an ETH and BTC pairing, but most of the safe ones will. If you want to keep it simple, just buy another $333 worth of Bitcoin.
Sign up at an exchange that sells your altcoin of choice, and send your $333 Bitcoin there. In this example, we're going to buy 3 coins. Neo, Monero, and Stellar (why those 3? Well, that's a topic for another time. The fact is that they're all what we consider safe alts, and we want to keep this example simple).
So, you put $111 into each, and you've now got your Bucket 2 alts sorted. You can also keep these on Ledger Nano S (most of them at least), but you may want to get a software wallet if the alts you pickup don't have hardware support. Let's just keep it simple and say you have them stored away somewhere safe, and you're ready for bucket 3.
So, $333 left to invest, how are you going to split this up?
Well, there are just SO MANY speculative alts out there, and new ICOs almost every day, that it's pretty difficult to spread your funds around as much as you want. You don't want to become so diversified that you dilute any potential gains, but you also want to make sure you're not relying too heavily on any single coin.
In our case, we split this bucket again. 50% was for ICOs, and 50% was for undervalued alts.
So if you're doing this, that gives you $166.5 for ICOs and $166.5 for alts.
Now, this is the bucket which is going to see the highest returns the fastest, so with a bit of patience, you can grow it pretty quickly, and soon it will amount for way more than 33% of your overall portfolio. And that's fine, it's earned its place as your biggest bucket by that point.
So, how do you play it from here?
- 1Pick 2-3 undervalued alts that you want to invest in. Ideally these are ones that still have a lot of upside. A good place to look is for a junior version of an already successful coin. For example, look for privacy coins that can do what Monero can, but ones that haven't yet skyrocketed in price. If something you like has only 1 tenth of the marketcap of a senior version, then that is a good sign of the potential that coin
- 2Invest an equal amount into each. This stops you from getting hurt too bad if you put a large amount into a coin that underperforms, while it also ensures you still get upside if you put too little into one coin that moons.
Now when it comes to ICOs, you basically want to do the same thing. $166.5 doesn't give you a lot to play with, but let's say you have $1,666.5 or even $16,665; you'll still want to play it roughly the same.
Invest an equal position size into each ICO. So if you have 5 ETH to invest, put 1-2 into 3-5 ICOs. If you only have 1 ETH, then put 0.2-0.3 into 3-5 ICOs (assuming they allow a minimum that low. If they don't, then maybe you should consider investing a larger amount into one ICO instead).
Here's where the fun part begins. How do you actually grow your portfolio without putting more money into it?
Well first of all, it's still fine to put more money into your portfolio if you want to. Some people put $100 or $1,000 into crypto every month, depending on what they can afford. If you want to do this, then you absolutely can. In fact, it will make the strategy below work even faster.
But let's keep it simple for now and say you're not planning on putting more FIAT into your portfolio just yet. Can you grow it faster, without just waiting for everything to moon?
Yes you can, especially if you're picking good ICOs and altcoins.
Let's focus on ICOs first:
- So, let's say your ICO bucket starts with about 3 ETH. We were talking about $166.5 earlier, which is more like 0.3 ETH, but the example will be easier to follow if we avoid decimals for now.
- We put 1 ETH into 3 different ICOs.
- One of those ICOs hits 4x right out of the gate, as soon as it lists. A lot of people say this doesn't happen anymore, but we literally had it happen to us today with Nexo. So there.
- The next ICO hits 2x when it lists, but then settles down over the next few days and stays around 2x.
- The third ICO rises steadily over the next few weeks.
It actually doesn't really matter what kind of timeframe they hit their gains (assuming they do still hit them), as long as they hit them at some point.
Oh by the way, to keep it even more simple, we're measuring our gains in ETH not USD.
The easiest thing for you to do is to create a rule for yourself to follow. Something like this:
- When a coin hits 2x, sell back your initial (so you keep half)
- When it hits 3x or 4x, sell another half, so you've sold 75% at this point.
- Depending on the project, either let the rest ride, or hold it for the long term.
Now, as you get better at this, you'll find yourself changing the rules slightly. Some projects you may sell 100% of them as soon as they list, while others you may not sell anything because you want to get as much upside as possible later.
The problem is that when you're a beginner, it's really hard to know how to play these, so it's best if you at least try to get your initial money back.
The next thing you have to do is decide what to do with those profits. This is how we played it in our case:
- Put the initial back into your ICO pool.
- Put 50% of the profits into your ICO pool, and 50% into your safe alts pool. This means you can go and pick up some more Neo/Monero/Stellar etc for free.
So in the example above, here's how it played out:
1.) You sold 50% of ICO 1 at 4x (it moved so fast you didn't even need to sell at 2x). This gives you 4 ETH, and you get to let the other 50% of the ICO tokens ride. You can sell them later, or just let them ride forever. They're basically free coins.
From that 4 ETH, you put the initial 1 back into your ICO pool, along with 50% of the 3 ETH profits. So your ICO pool now has 2.5 ETH in it to invest into more ICOs... for free basically.
You also have 1.5 ETH to put into your safe alts or speculative alts pool as well, depending on what opportunities you see out there (We picked up VeChain doing this exact thing, using profits from an ICO. Later, Vechain went 3x and we sold 50% of that and rolled those profits back into other projects. It really does snowball once you start getting profits).
2.) ICO number 2 only hit 2x initially, so you sold 50% of that to get your initial 1 ETH back. You'll monitor the rest and maybe sell more if it rises later, or if you think the project is losing steam.
So another 1 ETH goes into your ICO pool, which is now 3.5 ETH.
3.) ICO number 3 rises steadily, and you basically sell 50% at 2x, and another 50% of that at 3x, and the rest at 4x. This basically gives you a total of 3.75 ETH and you put your initial 1 ETH back into your ICO pool, along with 50% of the 2.75 ETH profit (1.375) and the other 1.375 goes into your safe/speculative alts buckets. You completely exited this coin, because maybe you felt it wasn't going to perform well anymore, or some other reason.
So, let's look at what you've ended up with:
You now hold 50% of your ICO 1 and ICO 2 coins. These are basically free coins now and whatever happens is fine.
You also have turned your 3 ETH ICO pool into 5.875, which you can roll into even more ICOs to rinse and repeat this process with.
And as a bonus, you've got 2.875 ETH to put into some other alts.
That's not bad for an initial 3 ETH.
You can also do this same method with your alts. Pick them up, then take some profits at 2 or 3x and roll those profits into other projects, while letting the rest ride.
It absolutely does not always work out as cleanly as the model above though. Some coins never reach 2x, others reach 2x but it takes so long that you would have been better off just selling them for break even, or a loss, and rolling them into something else.
But...other coins will 10x in no time at all.
So you'll have to adjust your strategy based on how things are performing, but if you hold this model in mind and try to stick to it closely, pretty soon you'll be growing your portfolio exponentially, and you'll be playing with house money. At some point you could even take your initial "Real money" back and know that whatever happens, you've lost nothing.
While some projects will never amount to much, there will be others that give you huge gains. This is why it's so important to take your initial funds and some profit early on.
Yes, you do limit your potential upside by selling 50% of the tokens as soon as you hit 2x, but this keeps you liquid and able to invest in more projects. The more you are in, the more chances of hitting a huge one like ICON or Wanchain. Plus, as you grow, you can change your rules to only sell 50% when it hits 3x, for example.
Either way, the worst thing you want to do is hold out for 10x before you sell anything, and then be stuck with no liquidity and a bunch of bags.
As you become more sophisticated and the decisions above become more automatic, you can vary from this. You may find some projects you want to put more than your usual position into, and other projects you may sell 100% as soon as they hit exchanges.
This is absolutely fine, but we really do recommend that in the beginning, you stick to the model above, so that you have fewer emotions in your trading, and you can just focus on "IF X then Y" style trading.