The purpose of this series is to introduce the vast world of cryptocurrency and like digital assets to the newcomer or novice. Each section presents digestible content that develops the reader’s understanding of the crypto market and underlying technology.
Start with less Risk
This article is the third part of our series, find part two [here]. Hopefully you are now up to speed and ready to learn about the mutiple ways of adding crypto into your portfolio. An investor who has a developed stock portfolio and a 401k/403 etc. usually has some extra money to put into higher risk to reward assets. The type of investor who has a solid stock portfolio, and a growing retirement fund is less inclined to add excessive amounts of risk all at once. The newer investor who has either no portfolio or is just starting, has a much greater upside by starting with a larger percentage of crypto exposure.
Since the market has corrected so harshly, entering a variety of assets now provides a great discount on the long-term time frame. The first, and most likely option for any potential investor is Bitcoin. Bitcoin has proven itself as the leader of the space, and for the first time in history, this previous upward market has introduced financial firms and institutions. With recent and rapidly growing adoption, Bitcoin has been integrated into global banks, used for collateral for real-estate loans, used to send money worldwide through the lightning network, and more.
Bitcoin is revered as the store of value asset for the entire crypto market. Bitcoin is projected to rival the market size of gold over time, this is about a 20-25x growth from here. This will of course take time(years), but the technology and network that Bitcoin presents is one of a kind. Using Bitcoin as the starting point, the more developed investor might start with 5-10% exposure. Those who are more confident in their thesis could go as far as 25%. Newer investors could possibly benefit from stating their investment life with Bitcoin.
Crypto has become much easier for the average person to get a hold of. Many easy-to-use exchanges exist that allow users to simply link their bank account and invest weekly. Since Bitcoin has outperformed the stock market for many years in a row, starting with Bitcoin is a logical place, especially at these discounted ranges. In the near future, stocks and crypto will be able to be purchased in the same location for ease of use. Robinhood has some options, but those tokens are not normally able to be withdrawn, this means the purchaser does not own the tokens.
At Coinbusters we are not financial advisors, we seek to educate on and research/analyze digital assets for the masses. Most financial advisors will either keep their clients completely away from the crypto market or only buy stocks that are supposed to trend with Bitcoin. The reason for this is that their institutions generally do not allow crypto investments. This is because financial advisor firms aim to perform quarterly, many assets have their greatest growth outside of a single quarter. Bitcoin is a great example, during 2020 those who had the conviction to dollar-cost-average into the asset were rewarded with over 500% growth leading into the Spring of 2021. Keep in mind that many stocks have corrected far worse than Bitcoin this year as well, so who is are the institutions protecting?
For those looking to add a bit more risk, but substantially more upside Ethereum is the next logical choice. Ethereum is the leader in Web3 which is the new internet owned by the people, for the people. Ethereum is the safest smart contract network, with the most decentralization, and widespread developer interest. This allocated Bitcoin weight can easily be split to add Ethereum for those who find interest in the Network. Ethereum was my starting point back when I got into crypto, and it provided me an astonishing 1500% gain in under a year.
The newer investor looking to really get a jumpstart on the long-term growth might benefit from skipping stocks initially. For new investors simply looking to watch assets grow in a safe manner I usually would point them to mutual funds, specifically Vanguard mutual funds since they are so widespread and have the lowest management fees. The tried-and-true strategy from there would be to add select Layer-1 popular networks that have proven to be successful. Solana, Avalanche, Polkadot (not layer-1 but fundamentally strong) and potentially Cardano.
If you have done your research and are interested in having the safety net of mutual funds but also focusing on crypto as well, below is a theoretical starting point.
Please remember that these ideas are theories and not financial advice. We believe these are two safer options for prospective investors. The massive discount we are seeing in all markets is a great starting point for the younger, concerned about the future investor. Please stay safe out there and we hope you enjoyed the series.