Cryptocurrency Portfolio Management: Basics
Although there are ways to make money in crypto no matter the portfolio size, your risk management strategies should evolve as the portfolio grows. This guide is written to help you reallocate funds as you move up in the crypto world from a shrimp to a whale.
Surviving is thriving
It is important to note that this guide assumes you have no other liquid financial assets such as stocks, bonds, etc. If you have significant investments outside of crypto, it’s probably fine to take on more risk than this guide suggests. Losing less than 1% of a portfolio to lousy timing or an overly emotional day is not financial ruin.
Before we start, let’s go over the different types of crypto investments you can make. In general, there are four main buckets in every crypto portfolio (ignoring NFTs). These buckets are based on their risk profile: the further out on the risk spectrum you go, the greater your expected rewards, but the closer to 0 it's likely to trend.
DISCLAIMER: NONE OF THIS IS FINANCIAL ADVICE. I AM NOT A FINANCIAL ADVISOR. THIS IS SOLELY FOR EDUCATIONAL PURPOSES ONLY.
Crypto Investment Risk Levels
Level 1: Stablecoins
Stablecoins are an important part of a portfolio for two reasons:
1) they can be used as “dry powder” in market crashes to buy dips, and
2) you can earn amazing returns on stablecoins relatively risk-free.
For more info on yield farming you can read my other article on making money
Unstable coins are more fun and potentially more profitable, but just like insurance, no one likes unproductive assets until they pay off.
Level 2: Bitcoin & Ether
For the purposes of portfolio management, I feel these assets serve the same purpose, despite their different risk levels and expected future returns. Gold and Bitcoin are fantastic places to store wealth, and both Ether and Oil are needed in large quantities to power the physical and digital economies, respectively. They're both solid and non-inflationary stores of value with institutional backing and thorough regulatory clarity.
Level 3: The Majors
Generally referred to as the "Majors," these altcoins are in the top 10 by
market cap. They have established investor bases and represent "ownership"
in the most widely used blockchains in the space. These are as "bluechip" as
altcoins get, and they're likely to be around for the foreseeable future.
There will be new layer-one blockchains that establish themselves as Majors in
the future, so diversification is important and adapting is necessary.
Level 4: Mid-Low Caps
Investments in tokens with market caps under 1 billion dollars require a lot
more research as these projects are often over looked and dramatically
mispriced. I would put any coin with a market cap < $1B in this category.
Some will go to zero, but the ones that don’t should more than make up for
your loses. Buy right and sit tight.
$1,000 - $10,000
At this size of portfolio, it's all about building capital quickly and allocating to high conviction altcoin plays no more than what you can afford to lose. Personally, I would avoid diversification and instead focus on 1-3 bets you genuinely believe in and ride them out to the end of your thesis: big money or bust.
At this size, there’s no need for stablecoins, bitcoin, or Ether in your portfolio – you want to stick with coins that can quickly multiply by 5-10x. Be warned: these are closer to bets than investments. This approach with money you can't afford to lose can be devastating on a streak of bad signal.
• BTC / ETH: 0%
• Majors: (Top 10 L1’s) 50%
• Mid and Low caps: 50%
• Stablecoins: 0%
$10,000 – $100,000
You've now built up a decent amount of capital – congrats! This range is a place where a 2x or 3x on your portfolio is a significant return. This is when you should be especially careful not to lose everything, so there's no need to take unnecessary risks. It's crucial for portfolios of this size to hold time-tested stores of values such as Bitcoin and Ether. The bulk of your capital should be in these two coins, while mid and low-cap coins should be reserved for smaller bets.
• BTC / ETH: 50%
• Majors: 30%
• Mid and Low caps: 10%
• Stablecoins: 10%
$100,000 – $1,000,000
This is where your focus should turn to yield farming. And it’s probably okay to start playing around with trading at the margins on an isolated account. You can afford to lose 1% on a trade without destroying your portfolio. You also have enough collateral to borrow decent sums of money against. You can use a money market like Aave, BenQi, Mai, Solend, or Geist to borrow stablecoins against your core BTC and ETH holdings and yield farm.
Just like tokens, dApps fall on different parts of the risk spectrum. They can be hacked, exploited, and broken, so dApp diversification can give a more stable average yield while mitigating platform risk.
• BTC / ETH: 60%
• Majors: 10%
• Mid and Low caps: 5%
• Stablecoins: 25%
At this point, you've essentially made it. Your portfolio is likely generating more yield than you'd spend in an average week. Capital preservation is now the number one priority. Avoid unnecessary risk. You now have enough BTC and ETH to borrow significant sums against at a negligible liquidation risk.
Take advantage of the capital you have to earn passive income and subsidize your lifestyle. On a portfolio of this size, you should be able to safely generate $50,000+ a year farming. You can now safely gamble on small caps, follow our VC allocations 1-for-1, and/or learn to trade, with and without leverage. Losing less than 1% of your portfolio is pretty minimal downside with the potential for meaningful upside.
• BTC / ETH: 40%
• Majors: 9%
• Mid and Low caps: 1%
• Stablecoins: 50%
Patience is key. Even small caps can have a vision that takes years to realize, so buy right and sit tight! $1 million may seem far away, but technology grows exponentially, and well-allocated capital follows. That's why strategy is critical. You need to know which of your investments are long-term and which you're happy to sell at a profit.
Holding on to the wrong tokens for too long or the right projects for not long enough is money either lost or not made at all. Plans don't have to be complex, and "exit strategy" doesn't have to mean all out. Set a price target for short-term holds, experiments, and gambles and start selling once the target is hit. If you like, keep a moon bag, but in an environment where >90% of projects fail, don't make the moon a round trip. For long-term holds, you may never want to sell bitcoin, and instead, keep it as collateral to fund the rest of your life.
I hope you found this framework helpful in thinking about your crypto portfolio and how you can best manage it.