Q2 2022 is upon us and the market is all but dead. As Bitcoin strives toward higher highs, investors are worried whether their portfolios are good enough for a potential bull run revival. Have you bought the right coins yet?
A portfolio is never perfect, and even the most risk-averse investors have at least one bad egg lying in their basket. In this article, I’m showing you how to enhance your crypto portfolio and prepare for new profits.
Assets to Remove & Add
It all starts by taking a good look at your portfolio and asking yourself the following questions:
Which assets do you own and how many?
Do you own a ticking time bomb?
Has any project deteriorated in quality?
Are you diversified enough?
Every good portfolio needs quality projects. You’re investing, not trading, so choose healthy projects that have long-term value. But the long-term quality of a project is not something you can assess right away. Investors tend to cast poor judgment onto tokens. A token can seem perfect for a moment, but a few months later you might discover that it has a poor volume, rare updates, or god forbid, an inactive team.
When deciding which assets to remove, consider whether they have held up to your expectations. If the asset has moved far away from its roadmap or the passion just isn’t there anymore, know that you should move on and find a better cryptocurrency.
Deciding which crypto to add is harder than removing an asset that’s obviously performing poorly. You need to perform fundamental analysis (FA) all over again and find a promising asset. Finding the next Bitcoin is not the easiest task, however, you don’t have to be a perfectionist. Picking an asset with the least red flags is sometimes enough.
If you think that owning five crypto assets makes your portfolio diverse – out of which, three are named after Elon Musk’s dog – think again. I’ve seen people invest in tokens from CMC’s top 5 leaderboard thinking they’re all set. I’d laugh knowing they would miss on all the gains from medium and low-market cap projects.
You can’t claim diversification without a diverse portfolio. Let’s say you invested in the following tokens:
Great, you’ve invested in the big names. But you’re missing out on all the fun of investing in crypto by avoiding projects which you shouldn’t even look at. Sometimes the funniest or most abstract projects give the best returns.
Check out this portfolio from Alameda Research. With 41 assets in total, Sam Bankman Fried’s trading firm secured its position by investing not only in the top dogs but some pretty weird projects as well. You might laugh seeing Pickle Finance on this list, but guess what, PICKLE is up 46% from its lows. Not bad for a pickle-named yield farming aggregator.
Alameda’s portfolio is everywhere, they’re not just entrenched in one niche. They’re in smart contracts, lending, exchange tokens, DEX tokens, governance tokens, and synthetic asset protocols. If you want to retire by only buying Bitcoin and a few Ethereum killers, think again. Pulling the trigger and buying a weirdly named crypto project might be difficult, but hey, I don’t make the rules.
Despite advocating that you should remove assets that failed to meet your expectations, I have to add that you shouldn’t swing into another extreme. Knowing when and why to kick out assets helps you avoid missing out on gains while not suffering losses.
Removing an asset that’s performing poorly while its entire niche suffers is a typical example of removing assets the wrong way. Imagine selling AAVE back in 2020 when DeFi faced its first hiccups. The whole market segment might have performed badly for a moment, but you would have sold a highly-promising asset that was just about to recover.
A good example of kicking out a loser is selling assets whose narratives fell apart. Remember privacy protocols like mixers? Tornado Cash launched as a promising mixer for Ethereum and doubled in value within days. However, when investors realized the demand wasn’t there, they began selling. After a year, TORN is still 88% below its all-time highs.
Or remember rebasing protocols such as OHM Protocol? The project had a cult-like following. But when Bitcoin fell apart in November and investors went risk-off, the narrative for earning crazy high APYs from community-led treasuries fell apart.
How to Improve Your Portfolio
It’s time to clean up your portfolio. Access your exchange, view your assets, and consider what you should keep and remove based on my advice so far. Removing losers is by far the easiest task, so start by selling assets you no longer need.
Above is an example of a Web3 portfolio by Messari. The first thing I did was rank the assets based on their 30-day performance. Bitcoin has been losing steam lately, so if these altcoins aren’t being bought while they’re cheap, they’re not going to face a huge influx of volume when Bitcoin recovers either. What should you do? Remove any asset that’s down more than 20% in the last month and lacks a compelling narrative.
After selling everything, you should have at least a few thousand dollars to play around with. Do your own research (DYOR) and investigate the market for potential winners by applying fundamental analysis. Once you’re done, spread your capital equally to all your new picks.
Another neat thing you can do is rebalance your portfolio. Modify the allocation of each asset to optimize your potential profit. If an asset has performed well so far, it might be time to take profits and move them into assets that have yet to move.
After removing assets, buying assets, and modifying the allocation of each token, you’ve enhanced your crypto portfolio. All you need to do now is spend more time assessing each asset in your portfolio. You don’t want to hold a ticking time bomb that’s about to explode – or as the crypto community would say, “rug.”
Improving your portfolio is a difficulttask because it requires not only a lot of research but repeating tasks as well. You’ll need to buy and sell each asset individually. And if your portfolio is spread across multiple accounts, your time will be even more hellish. But if you want to exchange assets in only a few clicks, I recommend connecting your accounts with Shrimpy. With Shrimpy, you can connect all your accounts and manage every asset you own through one interface.
If you want to learn more about crypto diversification, I recommend reading the following articles:
Marko is a crypto enthusiast who has been involved in the blockchain industry since 2018. When not charting, tweeting on CT, or researching Solana NFTs, he likes to read about psychology, InfoSec, and geopolitics.