When the value of most cryptocurrencies falls, there is always a feeling that investors are suffering losses all around. For example, Autonomous Research reports that most funds that constituted cryptocurrency portfolios lost an average of 50 percent this year. Firstly, this is not so bad, as on average, the drop in the cost of crypto coins since the beginning of the year to the current moment was 65 percent. Secondly, the very study of profitability from investing in assets at such a time distance looks wrong and this is not only the opinion of the hodlers, but simply a fact that is confirmed by statistics. Pantera Capital's portfolio of cryptocurrency loans yielded 10,136 percent over five years.
What is the ideal strategy for investing in cryptocurrencies in order to achieve such an ROI (return on investment)? First of all, it is the commitment to planning for at least one year and even better if it is a few years. The success of Pantera Capital is obvious, and although the fund does not disclose the details of the investment, the head of the organization Dan Morehead shared his strategy of forming an investment portfolio: buy a currency when its price rises above the average for the last 230 days, keeping it in the portfolio for one year, and then selling it and fixing profit.
Bitcoin Must Be Present in an Investment Portfolio
All this means that it is necessary to bet on "proven horses,” for example, from the top 10 cryptocurrencies of 2014, by now, only Bitcoin and Ether have remained at the top, and the rest have sunk into oblivion. It is normal that there is a standard risk for investors of any assets, however, it must be taken into account. When Pantera Capital decided to "dilute" the portfolio with "fresh" cryptos, it was faced with the fact that in the short term horizon of planning of less than a year, BitShares, OmiseGo, and Dash pulled the yield of investments in cryptocurrencies downward. But this is a short-term vision, and if there is confidence in newcomers, then, of course, it is worth investing in them.
Therefore, it is not surprising that Bitcoin continues to occupy a large share in many portfolios of investors in cryptocurrencies. As Michael Arrington, head of the Arrington XRP Capital Foundation, admitted, although the name of the organization has the name of the XRP cryptocurrency, it invests more funds not in Ripple, but in Bitcoins.
But the question arises about the proportions: how much to invest in which cryptos. Rivemont Crypto Fund’s portfolio is as follows: Bitcoin 19.4 percent, Ether 8.4 percent, and the rest, 72.2 percent, is fiat. The Crescent Crypto Asset Management Fund invested about $50 million, mainly in Bitcoin (44.7 percent). Ether was at 19.3 percent of the fund's assets, XRP 8.7 percent, Bitcoin Cash 6.4 percent, EOS 3.4 percent, Litecoin attracted 2.4 percent of the fund, Lumen 1.9 percent, and TRON and NEO 1.3 percent respectively. Another 11 percent of the fund's money was invested in other cryptos, with one percent for each type of altcoin. The love for Bitcoin, as well as for fiat, is obvious.
Give Preference Not to Gold, but to Cryptocurrencies
It is known that a number of analysts point to gold as an asset that, along with Bitcoin, can compete with fiat, in particular, the U.S. dollar. This is written by one of the oldest and most famous libertarians of the United States, Ron Paul. The legendary creator of the well-known file-sharing resource Kim Dotcom also agrees with the statement. Robert Kiyosaki also speaks about this. It is not necessary to include gold in a portfolio along with cryptocurrencies, however, as hedging with it is not guaranteed. Gold looks like a loser against the backdrop of the long-term dynamics of Bitcoin prices, which, since 2012, have shown steady growth. Unsurprisingly, Lou Kerner, partner of the venture fund CryptoOracle.io, believes that Bitcoin is "much better in its parameters" than gold. And the fact that Bitcoin does not correlate in its dynamics with gold, as eToro analyst Matisyahu Greenspan complains, is a plus, not a minus of this cryptocurrency.
Moreover, researchers from York University (Toronto, Canada) came to the conclusion that replacing gold with Bitcoins in portfolios of even classical investors leads to greater profitability. It is easy to illustrate by the following fact: in the period from 2012 to the current year, the dollar valuation of this precious metal declined by 24 percent, while, for example, the stock index of the S&P 500 showed an increase of 157 percent.
Is it time to buy shares? It would be wrong to do it automatically, so we will listen to what billionaire investor Bill Miller has to say. After analyzing the situation over the last four years, he came to the conclusion that Bitcoin gave him the main income as an investor. Indeed, of his $2 billion fortune, more than half consists of investments in Bitcoin.
The Secret of McAfee's Portfolio Uncovered
But Bitcoin is not the main asset in portfolios for many investors. In his correspondence with his Twitter readers, John McAfee mentioned the names of the cryptos he keeps in his portfolio, and they include Safex, EOS, Sether, Bezop, and Docademic. All of these cryptocurrencies show minuses if we look at them from the point of view of short-term investment in a quarter or in half a year. In general, however, it should be remembered that the largest and most recent projects yielded more than 136,000 percent in 2017. If you consider all the new cryptos, then, according to the results of a study of experts at Carroll School of Management at Boston College, the average return on investment in them is 82 percent.
McAfee did not mention Bitcoin, but he probably not only invests in it, but also uses this cryptocurrency as a means of payment along with other cryptocurrencies, since the crypto enthusiast completely refuses to pay for goods and services with fiat. According to McAfee’s statement, which he voiced recently in an interview with Newsweek magazine, Bitcoin, by 2020, will rise in price to one million dollars.
The Secrets of an Ideal Investment
How much should be invested in cryptocurrencies from the total amount of investments in various assets? Experts from Yale recommend at least six percent. This roughly corresponds to the realities, as according to AICPA, American citizens, on average, invest five percent of their portfolio in investments in cryptocurrencies. Sometimes more, sometimes less. Billionaire investor Marc Lasry invests just one percent of his investment portfolio, given his fortune, which is almost $17 million.
The formation of a portfolio is not a static process, but a dynamic one. It is important to avoid traditional mistakes. Bobby Lee, a member of the board of the Bitcoin Foundation and co-founder of the BTCC crypto exchange, speaking at the BlockShow Americas 2018 conference on August 20, said that traders should avoid four things: indecisiveness, underinvestment, cache exit after a slight increase, and sales of cryptocurrencies after lowering their price caused by panic. Tom Lee, who worked for JPMorgan as a stock strategist, translates his experience to the world of cryptocurrencies by warning: "Don't sell stocks at record highs, because no one ever calls a top." Crypto analyst Joseph Young speaks about the common mistakes in investment strategies: "Buy Bitcoins, then get tokens for these Bitcoins, get an increase of 10 percent, invest even more in tokens, lose 10 percent, try to minimize losses, losing even more Bitcoins, and end up in a situation with a smaller amount of cryptocurrency number one. The main conclusion is that you should not succumb to emotions and excitement, you should always be reasonable when investing in cryptocurrencies,” says Spencer Bogart, a partner at the Blockchain Capital venture fund, who connects a large amplitude of price fluctuations to the mood change in most conventional traders who are "a little more emotional than institutional investors.”
Apply Best Practices
At the same time, one cannot always be sure that price correlations with some phenomena will help to predict the dynamics of the market, even if these phenomena are predictable in themselves. Such "unpredictability" is, in fact, a very useful thing for the investor, especially for the professional, and this is stated by Professors Lawrence Trautman and Taft Dorman of the Western Carolina University. At the same time, the researchers do not mention any "buts,” like those that sounded on the part of the owner of the ICE New York Exchange. When talk started around the launching of the Bakkt crypto exchange platform, the representative of the ICE said that the site would help "inspire confidence" in the crypto market. The actions of many investors in cryptocurrencies prove that trust in this asset class already exists. On average, they generate earnings higher than gold, more than investments in key stock indexes, more than any other of the existing asset classes. The main thing is to use the experience of the best managers of cryptocurrency investments.