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Bitcoin and cryptocurrencies: how to build a balanced portfolio

10 February 2023

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The crypto-currency market, or crypto-assets, abounds with opportunities to generate higher returns than those provided by traditional financial markets.
But this ecosystem has its peculiarities: high volatility, numerous and not always serious projects, and fundamentals that are complex to grasp.
We therefore feel it’s important to explain how you can build up a coherent, balanced and diversified portfolio to get off to a good start in cryptocurrency investing.

 

What is a cryptocurrency wallet?

 

Create a crypto wallet is the first step in buying, selling and managing cryptocurrencies.
This wallet can be physical or online.
It’s an environment in which the user stores all his cryptos in the form of private keys.
This means they are the only ones who can access them to store them or carry out transactions.
Security is paramount when it comes to virtual currencies, as these are data that are vulnerable to hacking.

There are many different types of wallet, also known as crypto wallet.
While security is the main criterion, the choice then depends on the preferences and needs of each user.
In this issue, we won’t be talking about the
ideal crypto wallet to store keys, but of the strategy to adopt when choosing cryptocurrencies.
In 2023, there will already be almost 12,000 virtual currencies on the market, including the best-known ones such as Bitcoin and Ethereum.
Knowing which ones to choose can be complicated.
Whether it’s crypto or stock market assets, trading is all about strategy.
Building your crypto investment portfolio properly, however, is essential to getting the best returns, without putting yourself at risk.
Many crypto investment strategies are possible.
How you manage your assets depends first and foremost on your investor profile, your expectations and the risk you’re willing to take.
Read on to find out how to choose the right strategy.
breakdown of a crypto portfolio.

 

 

 

Selection criteria for the ideal crypto wallet

 

The best-known crypto strategies

 

There are as many strategies as there are investors, but several general trends can be identified.

  • The good father’s strategy: the investor bets first on security.
    This profile will choose cryptos considered safe, with lower volatility.
    Nor will this profile follow prices at every moment.
    They choose their investments with a long-term view, even if it means earning less money.
    This is a
    cryptocurrency strategy ideal for people with little knowledge of cryptos who don’t want to spend a lot of time on it.

 

  • The intermediate strategy: the investor is interested in cryptos, even if he doesn’t devote all his time to them.
    He’s looking for security, reading the opinions of the specialist press, but he’s prepared to take a few risks if a crypto seems promising.
    He will first invest in crypto-currencies he is sure of, the large-cap ones.
    This represents a large majority of the virtual currencies in his portfolio.
    A small percentage, on the other hand, will be used for riskier investments, which may offer occasional more interesting gains.

 

  • The aggressive strategy: not recommended for beginners, or for those who don’t want to invest fully in cryptocurrencies.
    Here, it’s no longer a question of security, but of taking all the risks necessary to achieve maximum gains.
    This investor profile keeps informed and follows prices as closely as possible.
    They have enough composure to psychologically detach themselves from their portfolio.
    They remain calm when prices change, so as to make the best decision.

 

It’s essential to ask yourself the right questions

 

To choose the best crypto strategyThere’s no need to rush.
In addition to must-haves like Bitcoin, the choice of cryptocurrencies available on the market is vast.
For investors ready to diversify further, there are currently around 20 000 cryptocurrencies.
But then the choice is trickier.
First of all, you have to distinguish between serious projects and scams.

 

While the number of cryptos is growing rapidly, not all of them are attractive in terms of investment.
The projects behind them may lack seriousness, correspond to a more specific target, encounter various problems that can rapidly slow down their adoption.
Before investing in a crypto, it’s important to be well-informed, and not to be charmed by every attractive-looking project. For this, a good understanding of market fundamentals and active monitoring are essential.
Several questions need to be addressed before including a project in an investment portfolio:

  1. Is the team behind the project serious?
  2. Is development real?
  3. Does the project meet a need and attract users?
  4. Is it supported by a community ready to promote it?
  5. Is it economically viable?

We have a dedicated market research team that provides this type of analysis. this type of analysis to save you precious time in building up your portfolio.
To minimize risk, consider only projects in the top 100 of the crypto market or with a capitalization of at least $500 million, to rule out any liquidity problems.

 

How do you differentiate your cryptocurrency investment?

 

There isn’t just one type of cryptocurrency, but several within the ecosystem.
Each has different characteristics.
They allow you to diversify your investments.
This is essential for creating an effective crypto portfolio.
Diversification helps limit overall losses when an asset suddenly loses value.
It also allows you to take advantage of the crypto bull market.

 

Every day, new projects are emerging to meet ever more diverse needs.
Some have already emerged as leaders in their respective sectors.
Here is a non-exhaustive overview of the major project families in today’s ecosystem:

  • Decentralized finance (DeFi) DeFi projects are developing the building blocks of an alternative financial system.
    Thanks to blockchain technology and the innovations of
    smart-contractsWe’re seeing the emergence of new services that operate transparently and decentralized, without intermediaries, enabling people to manage their savings, borrow or earn returns by lending their assets.
    This sector has become a must-have and should represent a share of a properly constituted crypto portfolio.
    Its leaders are projects such as Aave(buy AAVE),
    Yearn(Yearn Finance course), Uniswap, Terra Luna or Uniswap.

 

  • Infrastructure blockchains competing with Ethereum Ethereum remains the leader in its field, but many projects have been developing since 2018, with the ambition of offering a better, if not different, infrastructure than Ethereum for developing smart-contracts.
    In 2021, we see an acceleration of the “blockchain wars”, with each project announcing that it is faster, more secure, or offering broader possibilities.
    Beyond the announcement effects, some players are really solid, with active development teams and fund-raising under their belts.
    Examples include Cardano, Avalanche and Solana.
    Keeping a few percent of your portfolio in these projects will enable you to diversify away from Ethereum.

 

  • NFTs and gaming and non-fungible tokens (NFT) TOKENS were booming in 2021 and continue to create a buzz in 2022.
    Là encore, la technologie blockchain permet de créer des objets numériques aux caractéristiques uniques.
    Ces jetons virtuels peuvent servir de certificat d’authenticité à presque tout.
    Ils se répandent rapidement dans le monde de l’art et dans les jeux vidéo, où le chiffrement de la blockchain rend possible l’échange d’objets ayant de la valeur pour les joueurs.
    Et le secteur du luxe s’y intéresse de près pour la lutte contre les contrefaçons.
    Le secteur des NFTs est donc prometteur mais encore jeune.
    Le choix des projets doit donc être minutieux.
    Des actifs comme Enjin ou Flow sont déjà bien implantés dans cet univers.
    With the success of NFTs, other projects are developing that may be interesting to invest in.
    Examples include Lucky Block, CryptoMines Reborn, and Yubo, a French social networking project.

 

  • Utility tokens Tokens: As their name suggests, they have a purpose, usually within a given project or platform.
    Tokens can be used to pay for access to a given service, to reduce commissions on a platform, or to obtain intermediate exchange value for transactions.
    Tokens can also be used to diversify a portfolio, in that they reflect the value of a specific project.
    Their value can therefore evolve independently of other sectors.
    XRP is an example of a utility token.

The cryptocurrency ecosystem is now vast. To facilitate this task of strategic portfolio balancing, we offer turnkey products, including these “balanced” or “offensive” asset portfolios which are aimed at investors seeking higher performance on high-potential projects, but willing to accept a greater risk of volatility.

 

Concentrated or diversified cryptocurrency portfolios

 

Should you diversify your portfolio or not?
Diversification, like concentration, has its advantages and disadvantages.

 

Benefits of diversification :

  • The risks and volatility of each crypto are levelled out.
    If an asset falls, investors don’t lose their entire wealth.
  • A broader vision of markets, investments in a multitude of projects and countries.

 

Disadvantages of diversification :

  • Lower yields in some cases.
  • Different markets to follow, which requires a lot of time.
  • Increased transaction costs.

 

Advantages of a concentrated portfolio :

  • Yields are potentially higher.
  • Simplified monitoring of prices and markets.
  • Better control of transaction costs

 

Disadvantages of a concentrated portfolio :

  • If the share price falls, the impact on the portfolio is greater.
    This means greater risk-taking.

 

Bitcoin and Ethereumthe two must-have cryptocurrencies

 

In 2023, the market remains highly concentrated around Bitcoin and Ethereum.
They
alone account for a large a large part of its capitalization, even if other cryptos are gradually gaining ground.
Si les cryptomonnaies sont connues pour être des actifs volatils, Bitcoin et Ethereum le sont moins que les projets peu capitalisés.
Ainsi, ils restent les deux projets les moins risqués à détenir en portefeuille, comparativement à l’ensemble du marché.

 

Investment professionals position themselves first on Bitcoin and/or Ethereum

 

Since 2020, institutional investors such as banks and investment funds have been positioning themselves in cryptocurrencies, mostly using specific financial instruments such as derivatives (e.g. Grayscale) or futures.
The majority of investments by these players are concentrated on Bitcoin and Ethereum, as these are the securities whose technology is recognized and which offer sufficient liquidity.

 

These players bring volume to the market and have a growing impact on price trends.
Bitcoin should be treated with caution, however: since the end of 2021, its price has experienced several significant declines.
While it remains a popular, even must-have crypto, as well as a safe-haven asset, it sometimes experiences spectacular declines.
Those wishing to invest in Bitcoin need to have strong nerves.

 

We help you build the portfolio that’s right for you

 

Reserving at least 50% of your crypto portfolio in Bitcoin and Ethereum can therefore be considered reasonable.
The more risk-averse who wish to limit excessive volatility can even increase this share to 75% of the portfolio.

We offer three asset portfolios to our customers.
Among them, a “Core” wallet composed exclusively of Bitcoin and Ethereum will meet the expectations of investors wishing to take their first steps in this ecosystem.

 

The special case of stablecoins

 

Cryptos can be very profitable, but they are also highly volatile.
To secure investments, incorporating a share of stablecoins into your portfolio is an interesting solution.
Stablecoins are crypto-assets whose value is backed by a fiat currency such as the dollar or the euro. The most popular is Tether (USDT.)

 

Stablecoins have several advantages, including:

  • They are a safe haven that protects portfolios from volatility;
  • It’s a source of liquidity that can be mobilized when needed.

They should be considered as part of a dynamic portfolio management approach.
At times when you feel that the market could be heading for a downward trend, incorporating a greater or lesser proportion of stablecoins into your crypto portfolio will enable you to preserve all or part of your capital gains.
To this end, we offer a “defensive” portfolio to minimize the impact of falling prices.

 

Why use a stablecoin rather than reselling your crypto-assets for euros?
Quite simply because returning in euros requires you to pay taxes on your capital gains, which is not the case if you use EURL.

Investing in cryptos presents risks.
To best manage your investments, it’s essential to implement an effective cryptocurrency strategy.
Building a balanced cryptocurrency portfolio is an exercise that requires knowledge and time.
Diversification is essential, both to mitigate the risk on your portfolio, but also to go for better performance than can be achieved with a 100% Bitcoin portfolio.
Diversification must be meticulous, to avoid one-off projects whose value plummets once the hype wears off.
As a first step, a novice investor may prefer to divide his portfolio between the must-have cryptos, such as Bitcoin and Ethereum, while occasionally incorporating a share of stablecoins, in order to benefit from the tremendous potential of cryptocurrencies while sparing himself the greatest risks of volatility.

With Coinhouse’s Premium account, crypto will no longer hold any secrets for you.
Tailor-made support, to bring you all the knowledge and advice of our experts so you know everything there is to know about crypto and master your investments.

The Coinhouse premium account includes exclusive weekly content, regular training and webinars, live initial training to master all the crypto basics, and frequent appointments with your account manager to manage your portfolio.

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Investing in crypto-assets carries risks of liquidity, volatility, and partial or total capital loss. Crypto-assets held are not covered by deposit and securities guarantee mechanisms.

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