Investing in crypto has changed a lot after the entry of corporate firms like Goldman Sachs, BlackRock, VanEck, and many others. Today, as the markets mature further, crypto investing is getting closer to stocks, bonds, and other alternative investment markets.
In this article, we will try to decode the new method of crypto investing that top corporations recommend to their clients. We will also take a look at how to secure your investments.
Rise of Non-Custodial Wallets in Web3: Empowering Users with Enhanced Security and Control.
Understanding Your Needs
The first step in building crypto wealth is to clearly understand your needs. If you jump in buying with just emotions or to avoid the fear of missing out, you might buy risky tokens that eventually go to zero (examples being the memecoin and AI mania).
Further, buying or investing without an aim would prompt you to cash in your gains as soon as the market rallies, say around 10% to 15%.
Therefore, it is critical that you buy crypto with a clearly defined goal in mind. We have listed a few common goals that may align with yours.
Wealth Building
Long-term wealth building is perhaps the most common goal. However, many confuse this with speculation and the desire to be rich very quickly.
For long-term accumulation, investors should focus on projects with long-term viability and avoid those with short-term trends. A few examples of such cryptos are Bitcoin, Ethereum, XRP, Solana, and Tron.
These cryptocurrencies have seen multiple bull-bear cycles and have survived despite a clear attempt by various governments to ban them. Therefore, they are more likely to survive any bear phase without bankrupting your portfolio.
Here is a brief lesson on diversification that helps you reduce investment risks.
Retirement
Most people in the working age need a retirement where money isn’t a roadblock to their desires. Further, the desire to be able to fulfil your basic needs is a big driver for retirement planning.
Previously, retirement planning was done with fixed-income assets like bonds or savings schemes. Slowly, the role of stocks grew in retirement planning. Finally, with the advent of crypto, many retirement funds now have a considerable amount of crypto in them.
An example of such funds is the Fidelity IRA, where a certain portion of your retirement funds is invested in crypto.
You can also create a fund on your own with a little care, with self-custody solutions.
The established amount of crypto in a retirement fund varies anywhere between 5% to 100% depending on your risk profile.
To make the right crypto allocation:
- Allocate a major amount (say 50%) of funds to Bitcoin; this will protect the portfolio from market shocks.
- Add the next major amount (say 20%) to large projects with good fundamentals (like user numbers, TVL) such as Solana, Ethereum, and Tron.
- Next, to enjoy the ability to invest in future opportunities, allocate around 20% to 25% in stablecoins.
- The rest (around 5% to 10% can be allocated to high-risk projects with high potential like Algorand, Toncoin, Sui, and others.
Oftentimes, it might get tempting to buy cryptocurrencies that are in trend, like memecoins and NFTs. However, the allocation should not exceed more than 5% of the total portfolio. This is because in bear markets, projects without utility barely survive, and we saw this happening in both memecoins and NFT projects. Most of them never recovered.
Beating Inflation
Michael Saylor has been a top Bitcoin advocate because of its ability to beat inflation every year. Regardless of the country you live in, Bitcoin has beaten inflation for all the years of its existence since 2009.
Below is an interesting statistic on how just 3% inflation erases around 60% of buying power within a generation.
Saving for Kids
With just 21 million Bitcoins that are ever going to be mined, there is way less than 1 per person in the world. This statement is used to put focus on Bitcoin’s scarcity, which is also the prime driver of its growth. As more people buy Bitcoins, the scarcity will lead to a rise in prices.
Therefore, a Bitcoin portfolio for your kids would have much more value even if you buy some and do nothing till they grow up.
Experts have been predicting multi-million dollar prices for Bitcoin in the next 25 years. Here is an interesting view from VanEck.
Creating Redundancy
Investing is not the end of building your portfolio; rather, a lot of effort also goes into making it redundant. This is where portfolio diversification steps in.
Diversifying your portfolio as per your risk profile, goals, and your current financial standing is very important. Therefore, each person needs their own diversified portfolio.
Understand how portfolio management is done in the crypto markets.
Below are a few examples of how diversification works, and it might help you create your own in no time.
- For the most risk-averse, Bitcoin should have the highest portfolio allocation, say around 75% followed by 25% of top altcoins like Ethereum, Solana, Tron, XRP, Chainlink, and others.
- Those who wish to take a little more risk and are hopeful of a better altcoin future can tone down their Bitcoin allocation to 50%, increase their top altcoin allocation to 35% and keep the rest for emerging altcoins.
- Altcoin maximalists can reduce their Bitcoin holdings to 25% and increase their major altcoin holdings to 50% while keeping the rest for emerging altcoins that have high potential.
It is necessary to mention that every portfolio must have some stablecoins that you might need for unforeseen circumstances or to buy crypto when the opportunity arises.
With technical analysis, you can further improve your profit potential.
Custody
Without proper custody, you might lose your entire portfolio, just like the Mt Gox and the FTX case. Or your government might seize your crypto for arbitrary reasons.
In any case, it is important to understand the concept of custody.
There are four major options that you can use to take custody of your wealth. You can choose between them depending on your suitability.
- Centralized Exchange-based custody, where an exchange like Binance holds your crypto and allows you to forget about security. You can also access your crypto even if you forget your password. However, these exchanges are prone to failure.
- The second option is with self-custody, where you take your crypto offline (the private keys, crypto stays in its blockchain) and take 100% control of your funds. The only drawback here is that if you forget your passkeys or your wallet gets compromised, there is little to no chance of getting your funds back.
- The third and most recently popular solution is crypto custodians, which are companies that hold your crypto for a small fee. They have high security, but they must follow government rules to seize or freeze your account if the government mandates.
- The last solution, although a bit difficult, is to run a node and store your crypto in the node wallet. Nodes can be run on Ethereum, which supports most cryptocurrencies (wrapped versions). However, a drawback is the need for constant supervision.
