How to Build a Crypto Portfolio in 5 Simple Steps
How to build a crypto portfolio? It’s easier than you think. All you need to do is follow these five simple steps and you’ll have your very own crypto portfolio set up in no time.
Quick start: How to build a crypto portfolio in 5 simple steps…
- Identify what type of crypto investor you are.
- Select a crypto investment strategy that matches your type.
- Identify the coins that fit your investment strategy.
- Create a crypto portfolio tracker.
- Learn from a successful crypto case study.
1. Who are you? Identify the type of crypto investor you are
How long have you been investing in crypto? What are your financial goals? It’s clear that there are many different types of crypto investors. It’s important to identify the type of crypto investor that you are, so you can then select the crypto investment strategy that is right for you.
The eleven types of cryptocurrency investors:
- The Beginner - Excited about crypto but not sure where to start
- The Bitcoin Maximalist - Stacks sats and hodl’s them.
- The HODLer - Here to get rich, not get rich quick.
- The Trader - Buys the dips and sells the rips.
- The FOMOer - They let their emotions get the best of them.
- The Hunter - Identifies coins early and is ahead of the crowd.
- The Traditional Investor - Treats crypto as a new asset class.
- The Ecosystem Expert - Focused on a specific ecosystem within crypto.
- The Crypto Native - Experienced multiple market cycles.
- The Early Adopter - They’re in it for the tech… and the gains.
- The Whale - They can move markets in seconds.
CHECK YOUR TYPE
2. How to invest? Popular investment strategies for each investor type
Most investors simply focus on which coins they want to buy, but it’s just as important to select the right investment strategy. For example, a FOMOer that bought bitcoin in 2010 and sold it in 2011 when the price dipped, could have been far more successful with the HODL strategy. Let’s take a look at the most popular crypto investment strategies so you can see which one is right for you.
2.1 - Dollar-cost averaging (DCA)
The DCA strategy involves making small but consistent investments into crypto. Instead of making one large purchase, they make smaller purchases every day, week, or month.
The dollar-cost averaging strategy is a popular strategy for:
- The Beginner - It’s a trusted investment strategy for everyone, from beginners to experts.
- The Bitcoin Maximalist - It’s a way to stack sats with a portion of every paycheck.
- The FOMOer - The structured investment strategy removes emotions from their decisions.
- The Traditional Investor - DCA is a tried and tested investment strategy and traditional investors can easily use it when investing in crypto.
- Everyone - While DCA is especially suited for the above investor types, it’s such a successful investment strategy that all eleven investor types use it.
2.2 - Micro-investing
Micro-investing is a popular strategy for:
- The Beginner - Even if they’re starting with a small amount of money, they can start building a crypto portfolio and growing their wealth.
- The Bitcoin Maximalist - You don’t have to buy a whole bitcoin to start investing. Every bitcoin has 100 million satoshis in it, so micro-investing is a great way to start stacking sats.
2.3 - Value investing
Value investing is a method that looks at the future revenue a crypto project is likely to generate and uses that figure to determine a fair value for a project. Value investors look for projects that are currently undervalued.
Value investing is a popular strategy for:
- The Traditional Investor - Value investing gives traditional investors a way to value cryptocurrency.
- The Hunter - The hunter can use their research skills to uncover undervalued projects already generating strong returns.
- The Ecosystem Expert - With an in-depth understanding of a specific ecosystem, they can identify the dApps that offer investors the most value.
- The Crypto Native - While crypto can be complex for beginners, the crypto native can identify undervalued projects.
- The Whale - Value investing is seen by some as a safer strategy for larger investments, as the fees generated can support a fair valuation.
2.4 - Growth investing
Growth investors focus on the future potential of crypto projects. Even if a project isn’t generating much revenue currently, a growth investor can identify that they have the opportunity to generate significant value in the future.
Growth investing is a popular strategy for:
- The Trader - Momentum traders often successfully identify a crypto project that’s growing quickly.
- The Hunter - The hunter focuses on emerging technologies and looks for the next big success in crypto.
- The Ecosystem Expert - Understanding a specific ecosystem can help them identify which digital currency is primed to take advantage of an ecosystem’s network effects.
- The Crypto Native - Crypto natives have an intuitive sense of the emerging trends and an understanding of the technologies driving them.
- The Early Adopter - They love to experiment with new technologies and often come across projects worth investing in.
2.5 - Technical analysis
Technical analysts look at the charts and take advantage of favourable conditions. While they may not get every trade correct, in-depth technical analysis combined with careful risk management can help them grow their portfolio over time.
Technical analysis is a popular strategy for:
- The Trader - The trader uses technical analysis to identify money-making opportunities, whether the market is oversold, set for a correction, or gaining momentum.
- The Hunter - The hunter uses technical analysis on a wide array of different coins, searching for an opportunity to take advantage of.
- The Crypto Native - The experience of a crypto native can help them predict how the market will react to certain events and technical analysis can help them identify when the market over or under reacts.
2.6 - HODL
HODLing is when an investor buys a coin and holds it for the long term. Whether the price rises or falls in the short term, they’ll keep ‘hodling’ their coin. While it is one of the most simple strategies, it has been one of the most successful for investors that ‘hodled’ the right coins.
HODLing is a popular strategy for:
- The HODLer - This crypto investment strategy was made for their HODLer. They can buy and hold. It’s easy.
- The Whale - HODLing is a popular strategy for whales that invest in small-cap cryptocurrencies, simply because frequent trading would move the market price.
3. Which crypto to buy? Selecting the right coins to match your investment strategy
Once you know your investor type and the strategy (or strategies) most suitable for you, it’s time to select the right cryptocurrencies for your portfolio. Let’s take a look at some of the most popular investment themes and see the investment strategies they’re most suited for.
Bitcoin is designed to be a self-sovereign store of value that can be quickly transferred anywhere in the world with unparalleled security. As a permissionless network, anyone can join the network and make it stronger. Currently, it is considered to be ‘digital gold’, while it is increasingly being used as peer-to-peer cash through the Lightning Network.
Bitcoin is especially popular among the following crypto investment strategies:
- Dollar-cost averaging (DCA) - Many people, including professional athletes, convert part of every paycheck into bitcoin.
- Micro-investing - As bitcoin emerges as a store of wealth, many investors use it to grow their wealth over time.
- HODL - Hodling has created many bitcoin success stories.
3.2 - Ethereum
Ethereum was the first smart contract platform and is more well known than any of the others. It is also arguably the most decentralised and has the highest Total Valued Locked (TVL) of any network. Despite the success so far, many still consider it early days for the Ethereum network.
Ethereum is especially popular among the following crypto investment strategies:
- Dollar-cost averaging (DCA) - As one of the most decentralised cryptocurrencies, many investors believe Ethereum is worth dollar-cost averaging into every week.
- Micro-investing - Ethereum’s future potential means even small investments can grow significantly over time.
- Value investing - Value investors can use the fees generated by Ethereum and its inflation rate to generate a fair value.
- HODL - Many investors believe Ethereum’s long-term prospects make it worth hodling.
3.3 - Smart contract platforms
Smart contract platforms, sometimes referred to as the layer 1 blockchains, are the foundation of the crypto economy. Decentralised apps build on top of these platforms, providing security and interoperability. Popular projects like Cardano, Solana, Avalanche, Near, Algorand, Elrond, Fantom, and Polkadot have experienced incredible growth over the past few years.
Smart contract platforms are especially popular among the following crypto investment strategies:
- Dollar-cost averaging (DCA) - While smart contract platforms can be very volatile, dollar-cost averaging helps smooth out the returns for investors.
- Micro-investing - As we saw with Solana, Avalanche, and Near in the past year, even small investments in smart contract platforms can lead to huge returns.
- Growth investing - There is still lots of room for smart contract platforms to grow, although as the space gets more competitive, some will dramatically outperform others.
- HODL - Layer 1 blockchains are still in their early days of development and their true value won’t be realised for many years to come.
3.3 - DeFi
Decentralised finance (DeFi) provides all the same services of traditional finance, such as swapping assets and making loans. However, as a decentralised system, DeFi doesn’t require any middlemen or intermediaries. Some of the most successful DeFi projects include Aave, Compound, Synthetix, Uniswap, and Mirror Protocol.
DeFi projects are especially popular among the following crypto investment strategies:
- Value investing - The fees generated by DeFi platforms make them one of the easiest sectors in the crypto industry for investors to evaluate.
- Growth investing - DeFi has product market fit in crypto and is set to grow as consumer-focused dApps improve the user experience.
3.4 - Stablecoins
Stablecoins are especially popular among the following crypto investment strategies:
- Technical analysis - Stablecoins are used by traders as a ‘risk off’ asset. When the market looks shaky or they don’t have an active position to trade, they often sit in stablecoins until a trading opportunity presents itself.
3.5 - Metaverse and crypto gaming
The metaverse and NFT gaming has been one of the hottest trends in crypto. Unlike traditional gaming, you can own in-game items and trade them in third-party marketplaces. Already, there have been projects that have surged in price dramatically, including Axie Infinity, Illuvium, Decentraland, and Sandbox.
Metaverse and crypto gaming coins are especially popular among the following crypto investment strategies:
- Growth investing - As metaverse protocols can create ecosystems of creators and users, the winning metaverse could attract hundreds of millions or billions of users.
- Technical analysis - As there is a lot of hype around the metaverse, technical traders can take advantage when the market gets over-excited.
- HODL - It’s still early days for the metaverse and the true value of today’s popular coins won’t be known for a long time.
3.6 - Web3 protocols
Web3 is where crypto meets the internet. It creates a decentralised internet where internet-native currencies can be seamlessly incorporated into web applications. As it is permissionless and decentralised, no central authority can control the information shared on web3. Key infrastructure projects like Filecoin will help build web3.
Web3 protocols are popular especially among the following crypto investment strategies:
- Growth investing - Network effects are important in web3 and early success can drive more success, making them an attractive option for growth investors.
- Dollar-cost averaging (DCA) - As these coins are quite volatile and have huge growth potential, DCA is a suitable strategy for investors.
- HODL - As the infrastructure of web3 is still being created, many web3 protocols won’t realise their potential for many years to come, making them popular long-term investments.
DO YOUR OWN RESEARCH
4. How to manage your crypto portfolio? Create a crypto portfolio tracker to monitor the success of your crypto strategy
When you choose to trade with Cointree, you’ll automatically receive a free portfolio tracker with all of your coins. It’s easy to track the value of your entire portfolio over time, as well as the performance of specific cryptocurrencies. You’ll see it in your personalised dashboard whenever you sign in.
More advantages of trading with Cointree include:
- Auto trades so you never miss a money making moment.
- Price alerts so you can keep up with the crypto markets.
- Pay bills with your crypto.
- A free multi-coin wallet to store your coins.
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5. Case study - A crypto native dollar cost averaging into bitcoin
Adam Traidman is the CEO and co-founder of a popular cryptocurrency wallet called BRD that has over seven million users. Clearly, he’s a crypto native and has intimate knowledge of the crypto market.
So what’s his chosen investment strategy? Traidman believes that, “Dollar-cost averaging ends up making sense in the long term.” He continues, “If you contribute a little bit every time, in the long term you end up with a pretty darn good return if you can weather all the ups and downs.” That’s why he invests a portion of every paycheck into bitcoin, making an investment every few days.
Given that Traidman has been dollar-cost averaging into bitcoin for multiple years, he’s undoubtedly grown his wealth considerably. It shows that even for the most sophisticated investors, sometimes the simplest strategy is the most effective.
Here’s a quick summary of Adam Traidman’s crypto investing case study:
- Investor type: Crypto native
- Investment strategy: Dollar-cost averaging
- Selected cryptocurrency: Bitcoin
- Portfolio management: BRD wallet
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Conclusion - Growing your knowledge, your portfolio, and your wealth
At Cointree, we’ve helped tens of thousands of Australians enter the exciting world of crypto and we’re here to help you too. For many Aussie investors, their best investments started with education. That’s why we’ve created an extensive learning hub that explores the exciting worlds of NFTs, web3, DeFi and more. We’re here to help you grow.