Decrypting cryptocurrency for a balanced digital asset portfolio

Technology | John DeCleene 12 Feb 2018

John DeCleene

in the light of the impressive cryptocurrency rally in the past 11 months, investors that have discovered bitcoin now also want to diversify into others.

In this article, you will learn how to structure a balanced portfolio of cryptocurrencies.

Core holdings are bitcoin and ether

The two largest cryptocurrencies by market capitalization, bitcoin and ether, should make up the largest proportion. Not only are they less volatile and more mature than some of their lesser-known counterparts but they have also generated impressive returns since the beginning of the year.

Bitcoin and ether should make up around 60 percent of a diversified portfolio with a split of 40 percent bitcoin and 20 percent ether.

Top 20 altcoins

For the second basket, investors should be looking the largest and most promising altcoins out of the remaining top 20 largest cryptocurrencies by market capitalization. Bitcoin Cash, Litecoin, Ripple, Dash, IOTA and Monero would be top candidates.

Bitcoin Cash is a fork of bitcoin that allows for cheaper and faster transactions than its predecessor.

Litecoin also provides faster and cheaper transactions than bitcoin and has risen in popularity. Ripple is used in the RippleNet interbank payments system, which is increasingly being adopted by major financial institutions. Dash provides high-speed transactions that can be conducted in privacy.

IOTA, which allows for zero-fee payments, is aimed at becoming a payments layer for the Internet of Things and Monero is the leading privacy-centric cryptocurrency, which allows for completely anonymous digital payments.

This basket of altcoins should make up around 30 percent of a well-balanced crypto asset portfolio.

ICO tokens and small-cap coins

For the remaining 10 percent of your portfolio, investors can include high-risk ICO tokens and small-cap cryptocurrencies. These could include the likes of the anonymity-focused coins PIVX and Komodo, digital currency debit card provider TenX's PAY token, decentralized cloud storage provider's Stroj token.

ICO tokens and the majority of smaller coins carry the high risk of becoming near worthless if the project doesn't succeed. Many of them are run by a small group of developers, which means it can go either way. A study by Deloitte showed only eight percent of blockchain projects that have been launched are still active, illustrating the risk of investing in cryptocurrency backed by a small community.

Due to the inherent riskiness of small-cap coins, only around 10 percent of one's overall portfolio should be in these type of cryptocurrencies.

How much to invest?

What percentage mix depends on your personal risk preference. The more risk-averse you are, the higher your proportion of bitcoin and ether should be.

How much of your overall investment portfolio should be in cryptocurrencies? Fred Wilson, CEO of Union Square Ventures, believes that investors who want to generate a high returns should allocate five percent of their overall net worth into bitcoin.

Aggressive risk-takers could hold up to ten percent of their net worth in bitcoin but anyone with a more conservative investment approach should not hold more than three percent. Those close to retirement should avoid digital assets altogether.

Mark Painter, a portfolio manager at Everguide Financial Group, considers bitcoin to "about as speculative as you can get with an investment," and recommends his clients invest five percent of their total investable capital into the digital currency provided they have understood all the risks involved.

John DeCleene co-manages OC Horizon Fintech Fund, one of Asia's first hedge funds specializing in blockchain-related investments. This article first appeared in

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