I want to invest in 5-10 Cryptocurrencies. What are the best options?
This is one of the most frequently asked question on which crypto coins to invest in 2021. Investors want to diversify and there is nothing wrong with diversification.
In traditional investment, we are taught to not put all the eggs in one basket. This is true in case of any other asset class. However cryptocurrency has its own way of behaving.
Cryptocurrency generally do not follow traditional way and from my experience diversification does not help. Many new investors who are investing in cryptocurrency for the first time or if it is their first cycle, they only have seen one way movement, i.e. upwards. Hence, even with diversification, the portfolio is up.
But when the market corrects, if you are over diversified, the portfolio will take very less time to go back to the initial position. All the profits will get drained faster than you could possibly think.
Hence, it is important to stay limited to a very few crypto coins. For me, I would only stay in not more than 4 coins. Mentioned below are the cryptoassets I would hold in the following percentage.
- Bitcoin (70 percent)
- Ethereum (15 percent)
- Chainlink (10 percent)
- Binance (5 percent)
There is no fixed rule, though. You can invest in more number of coins and still make a good profit. If you are a beginner, do not over diversify or try to be in all coins that go up. Remember, in a bull market, most of the coins go up. However, on a red day, these coins go down heavily.
DCA is a MUST: What is DCA?
DCA is Dollar Cost Average. So when a coin falls, you should have funds to buy them at a lower price. For example, if you are buying Bitcoin at 55000 USD today, and the price drops to 35000 USD after one month, have funds to back your investment. If you are buying 10000 INR worth of BTC at 55000 USD, and again for 10000 INR at 35000 USD, you will now have BTC for an average of 45000 USD.
Now again if it drop of 15000 USD, you will now have BTC at an average buy of 35000 USD.
BTC is volatile in nature. So are other crypto currencies. In the last run, we had seen coins that were hyped like anything dropping more than 90 percent in value.
For example, AION was insanely hyped. It was a very good project. However, the coin dumped drastically from more than 10 USD to less than 0.25 USD. That’s 99.75 percent drop.
Hence, DCA for altcoins that are new is not recommended. You may keep buying and the price can still keep falling, and your portfolio will be in DEEP RED.
I can give numerous such examples.
Benefits of DCA (Dollar Cost Average)
When you use DCA for investing in Bitcoin and other crypto coins, there are some good advantages:
- The fear of buying the top reduces, as you can drastically reduce your average buy price.
- You also do not need one time big investment. You can always invest in parts.
- You can use your time to understand Bitcoin’s behaviour.
- You can control your FOMO and fear of losing money.
Does that mean you should not buy any other altcoin?
Ofcourse you should. However, I would advice you to gain some experience first. If you are buying any altcoin, do it in very less quantity. Like 0.1-0.2 percent of your portfolio to begin with. Buy, make profit, sell in sats. Acquire more sats. Also, have strict STOP LOSS in place. Things can go rough in very short time.
What do Bharatafinance members suggest about which coins to invest in 2021?
BITCOIN vs ALTCOINS: Behaviour Analogy
Bitcoin goes up quickly, Altcoins in terms of SATS go down.
Bitcoin drops quickly, Altcoins lose more in terms of SATS.
Bitcoin goes sideway and stay almost stable, ALTCOINS go up => ALTSEASON
BITCOIN go UP, and ALTCOINS go UP more in terms of SATS => MEGA BULLRUN (Rare).
I will post an image stating the correlation of Bitcoin and altcoin’s price.
Increasing SATS should be the END GOAL.
That’s all for the day. Do share your thoughts with us in the comment section.