Long-term investing is as basic as its name implies: investing for the long term. Everyone defines the phrase “long-term” differently. Long-term in the stock market often refers to something that lasts years.
Exposure to a specific cryptocurrency is mostly determined by your risk tolerance. This can simply be stated as your willingness to take chances.
Using global markets as an example, assuming your risk tolerance is neutral, a typical investing portfolio for a young person might consist of 50% shares and 50% bonds.
Because of the risk-reward tradeoff, equities are believed to be riskier than bonds but also promise bigger rewards. Bonds, on the other hand, are a safer investment than stocks but provide a lesser return over time. When both are combined, they form a well-balanced portfolio for the average Joe.
We can draw some parallels between traditional markets and cryptocurrency markets if we apply these measures to the cryptocurrency world.
All You Should Know About Risk Allocation For Your Long Term Portfolio
Investing in Bitcoin would appear to be less risky than investing in mid-cap altcoins. We can then adapt our amount of exposure to our risk tolerance.
A very risky portfolio would consist of 80% mid or small-cap cryptocurrencies and 20% Bitcoin. And vice versa – a portfolio with 90% in Bitcoin and 10% in mid-large cap altcoins would be regarded a safer long-term investment.
When both are combined, they form a well-balanced portfolio for the average Joe.
We can draw some parallels between traditional markets and cryptocurrency markets if we apply these measures to the cryptocurrency realm.
Investing in Bitcoin would appear to be less risky than investing in mid-cap altcoins. We can then adapt our amount of exposure to our risk tolerance.
Afterwards, think about where you fall on the risk-reward scale.
Before we proceed, it is important to note that the cryptocurrency industry will grow over time, which is our primary assumption in this post. As a result, a cryptocurrency portfolio should be measured in Bitcoin rather than USD.
In addition to all that has been said, and bearing in mind the crypto market’s market cycles, it’s always a good idea to sell Bitcoin and cryptocurrencies at a profit when the price is high.
Aside from Bitcoin, the past several years have shown us that the majority of cryptocurrencies are still well below their all-time highs. Most cryptocurrencies lose value in comparison to Bitcoin over time. Following the 2017 bubble burst, only a few altcoins reached all-time highs. Our sample portfolio includes two of them.
Finally, when constructing the portfolio, we want to diversify. However, we want to maintain control over the cryptocurrency we own. It’s best not to add too many coins and instead focus on a few.
Is this the ideal crypto portfolio allocation for the long term?
Our portfolio will differ from yours due to differences in characteristics such as risk tolerance.
Our portfolio has been closely modeled using the scheme below, by popular trader Crypto Cobain. You can use it too when constructing your long-term cryptocurrency portfolio.
We provide two portfolio constructions here, both of which are made up of the same cryptocurrencies. What differentiates them is the degree of risk.
Suggested Crypto Portfolio A: Low-Risk Tolerance
Bitcoin 80%
Ethereum 7%
Cardano 6%
Polkadot 4%
Chainlink 3%
Suggested Crypto Portfolio B: High-Risk Tolerance
Bitcoin 50%
Ethereum 20%
Cardano 15%
Polkadot 10%
Chainlink 5%
As previously stated and demonstrated, history reveals that, with the exception of a few altcoins, Bitcoin’s ROI in USD outperforms the performance of the majority of altcoins. That is why we proposed Allocation A, in which Bitcoin accounts for 80% of the allocation.
5 Best Coins For Your Long-Term Portfolio
1. Bitcoin
When we talk about cryptocurrencies, we’re talking about Bitcoin. Bitcoin is the king of cryptocurrencies and the base asset for all other alternative currencies.
Satoshi Nakamoto created the first decentralized cryptocurrency, Bitcoin, in 2008. Bitcoin is intended to work similarly to actual cash in terms of value transfer, and its use and popularity are expanding over time.
Bitcoin is the entry point into the cryptocurrency realm. Many new retail investors will purchase Bitcoin before any other cryptocurrency.
2. Ethereum
Ethereum, the second-largest cryptocurrency by market cap, differs from Bitcoin in that its only aim is not to be utilized as a medium of exchange. Instead, Ethereum enables developers to create dApps by utilizing smart contracts.
Ether, tokenized by ETH, is the Ethereum project’s tradeable currency. During the 2017 crypto bubble, Ethereum smart contracts were used to fund new ventures, a practice known as an Initial Coin Offering, or ICO.
3. Cardano (ADA)
Cardano is another long-term cryptocurrency to consider investing in. While it has not done very well in recent months, the platform has one significant advantage over Ethereum: a proof-of-stake system. Whereas Ethereum currently uses an outdated proof-of-work methodology for transaction verification and network integrity, Cardano’s proof-of-stake protocol performs a similar purpose but is faster, cheaper, and more energy-efficient.
Although Ethereum’s update may level the playing field, Cardano’s appeal among decentralized application developers may maintain the ADA token in high demand. According to CoinMarketCap, over 100 smart contracts were implemented on the Cardano network in the 24 hours following the recent “hard fork,” or protocol update.
Cardano led the pack during a recent rise, earning up to 40%, according to CoinDesk. The rally came after a major cryptocurrency sell-off that lowered total market capitalisation by 30%.
4. Polkadot (DOT)
Since its introduction in 2020, Polkadot has grown into one of the best long-term cryptocurrencies to invest in, with a market worth more than $10 billion. It is both a cryptocurrency and a blockchain network on which developers can create novel, decentralized solutions.
Polkadot is designed to unite many independent blockchains into a cohesive network, as well as to construct new chains. The connection gives users access to the network’s proof-of-stake security and transaction validation, as well as making it easier to transfer digital assets such as apps and tokens across blockchains. A recent version improves communication and asset transfers between Polkadot parachains, allowing the network to be used in new ways.
Polkadot must compete with Ethereum and Cardano, but its early entry into smart contracts offers it an advantage that some analysts believe it will keep.
5. Chainlink (LINK)
Chainlink is the fifth-best long-term cryptocurrency to invest in. The Ethereum-based network, which was launched in 2014, sends real-time data from off-blockchain to on-blockchain smart contracts via nodes and oracles. According to Securities.io, their objective is to build the world’s first blockchain oracle network.
Oracles are the driving force behind some of the most essential blockchain technology and are critical to the growth of blockchain.
According to Benzinga, the Chainlink 2.0 upgrade, described in a 2021 whitepaper, will establish off-chain networks on top of oracles to alleviate computational burden on the Ethereum mainnet.
Chainlink’s token, LINK, supports network transactions.
Conclusion
Investing in the cryptocurrency market is exciting, but it is also critical to ensure the security of your bitcoin assets. There have been far too many reports of cryptocurrency funds being taken due to a lack of protection.
It is an exciting time to invest in cryptocurrencies, and it is not too late. It is a new asset class that is now outperforming traditional markets in terms of returns (as of writing these lines).
However, having a strategy is equally essential. The absence of a pre-planned investment strategy can result in big losses for you. A long-term investment strategy is simply one of several options available to you. You can even tailor the long-term investment strategy to your trading style. The most important thing is to have a plan in place for every possible scenario.
