Building a Diversified Portfolio of Crypto Currancies
By Om Stal'la
Note I'm note giving investment advice just giving my opinion on the crypto currency market.
This short article will cover many different concepts which one may require looking into more deep to fully understand.
First I need to explain some back ground on how a portfolio managers of stocks and bond will build a traditional investment portfolio based on their desired risk level. The most important word to understand when building a portfolio is diversification. I asked a friend of mine on how many different stock of companies should one hold in their portfolio based on the answers text books will give? He said about 6-7. The correct answer would be a minimum of 20-30 companies. A professional fund manger will hold 50-100 different stocks from companies in a portfolio. The two main reason are for 1. to reduce risk as much as possible and 2. which is more or less the same as point 1 a term called catastrophic loss. Putting to much capital in one company and having it crash on you.
The way in which a fund manger will diversify is by weight. So the portfolio will be either equally weighted, meaning all companies will have the same amount of capital invested, or cap weighted mean market cap. So the larger the company in market cap the more capital will be invested into it. Cap weight is the most common form. Next the percentage of capital invested into each company would be 5% max and go down from there. For example the ETF ( exchange trade fund) SPY which tracks the S& P index is weighted as such. Apple at 3.86%, Microsoft at 2.58%, Facebook at 1.73% of capital.
Finally lets move on to crytpos now. Building a portfolio of crytpos is not as easy since most of them kinda of suck. I personal will put most of my capital into what I call the cash out crytpos. Meaning Bitcoin or Ethereum or any other crytpo that are bought and sold on major exchanges because these are the ones that people will need to cash in or out of other smaller market cap crptos. So in other words Fiat currency to BTC to smaller cryptos and then reverse effect again. LIke it or not Bitcoin has more or less become the market reserve currency. which the crypto market really needs, one that will last the test of time. To sum it up most of my capital will be in the cash out crypto and less into the more speculative cryptos. Less diversification will be done in my own portfolio of cryptos because the test of time has not yet bet tested for the vast majority of them.
When it comes to building your crypto portfolio on how much percentage of capital you allocate to each currency is up to you. Just keep in mind how fund mangers do it, they know what they are doing. There has been a lot of studies done on this topic dating back to the early 1900's.
Some websites to look into which will allow you to hold many different cryptos wallets like a portfolio and track the overall performance of them. Holy Transaction, Cryptonator, CoinWallet, and Coinomi. You will need to do your own research into each and find out if any will work for your needs.
Good luck