How to diversify a Long-term Crypto Portfolio

Last Friday it was my pleasure to give an Executive Talk at the Frankfurt School of Finance & Management. While the focus of my presentation was Digital Transformation, plenty of the questions raised by the audience were about the cryptocurrencies use case – and how to build a crypto portfolio. After I received some more emails from the participants asking for some guidance, I decided that is might be worth to publish this blog post.

The cryptocurrency market has returned over 1200% since the beginning of 2017. It is very hard to find this kind of return on investment (ROI) in the stock market or anywhere else. If you had made an investment of $500 in January, you would have made $6000 in less than a year! This guide is aiming to show you how to implement a cryptocurrency portfolio for a long-term investment.

In general, I recommend balancing your portfolio with up to five coins in the Top 10 market cap, making up 90-95% of your total cryptocurrency investment. And then add smaller coins (a.k.a. altcoins) – in projects you believe in – to fill up the remaining 5-10%. This mirrors the more technical analysis done by Timothy Chong on exploring a Markowtiz-style crypto optimization.

Bitcoin (30%)

Bitcoin (BTC) is the father of all blockchains, and is considered to be gold of cryptosphere. It is expected to grow step-by-step, without dramatic events. It is a safe long-term investment choice for many.

Price (as of time of writing): $16,708
Gain Over Past Year: 2,170%
Market Cap: $278 B (#1)
Circulating Supply: 16,734,237 BTC

Ethereum (30%)

Ethereum (ETH) is different to Bitcoin in that its sole purpose is not to be used as a medium of value exchange. Instead, Ethereum allows developers to build dApps using smart contracts. The tradeable currency of the Ethereum project is known as Ether.

Price (as of time of writing): $470
Gain Over Past Year: 5740%
Market Cap: $45 B (#2)
Circulating Supply: 96,272,074 ETH

Bitcoin Cash (10%)

Bitcoin Cash (BTC) is similar to Bitcoin in that it too is supposed to be a currency that is dedicated to serving as a medium for the purchase of various goods and services. The key difference between Bitcoin Cash and Bitcoin is that the former has an 8MB block size, whereas Bitcoin has a 1MB block size. A bigger block size allows Bitcoin Cash to process transactions faster than Bitcoin, and at a lower fee.

Price (as of time of writing): $1385
Gain Over Past 4 Month: 502%
Market Cap: $24 B (#3)
Circulating Supply: 16,849,738 BCH

Litecoin (10%)

Litecoin (LTC) is often marketed as being the silver to Bitcoin’s gold status. Being a hard fork of Bitcoin, Litecoin shares many similarities to the original coin. Litecoin can also be used as a value exchange coin. However, Litecoin’s block generation time of 2.5 minutes, compared to Bitcoin’s 10 minutes, and a different hashing algorithm (Scrypt), are features designed to produce a more innovative cryptocurrency.

Price (as of time of writing): $170
Gain Over Past Year: 4690%
Market Cap: $10 B (#5)
Circulating Supply: 54,255,483 LTC

Monero (10%)

Monero (XMR) is similar to Bitcoin in that it allows value exchange. However, Monero differs from Bitcoin in that it is focused on providing greater privacy to those that utilize their blockchain, using their stealth address mechanism. Anonymity is likely to become more and more important in a world where Bitcoin addresses can be traced. As more regulation starts entering the cryptocurrency space, an increasing number of individuals will gravitate towards privacy-focused coins such as Monero that can mask their transactions.

Price (as of time of writing): $264
Gain Over Past Year: 3370%
Market Cap: $4 B (#9)
Circulating Supply: 15,449,232 XMR

Electroneum (5%)

Electroneum (ETN) is a brand new cryptocurrency launching on September 14th – and is one of the projects were I see tremendous potential. Electroneum is developed to be used in the mobile gaming and online gambling markets, its goal is to be the most user-friendly cryptocurrency with wallet management and coin mining all possible on a mobile app.

Price (as of time of writing): $0.12
Gain Over Past 1 Month: 30%
Market Cap: $257 M (#44)
Circulating Supply: n/a (launched recently)

Zclassic (5%)

Zclassic (ZCL) is a great initiative as it is the first major fork of Zcash. Zclassic improves Zcash by removing the “founders fee”, which means that 100% of the coins mined go to the miners instead of 20% going to the founders. Like Zcash, Zclassic features zk-SNARKs, a new form of zero-knowledge cryptography. The privacy guarantee of Zcash and Zclassic is derived from the fact that shielded transactions can be fully encrypted on the blockchain. Furthermore, an upcoming fork of Zclassic is currently under discussion, which could dramatically boost the price of Zclassic.

Price (as of time of writing): $1.67
Gain Over Past Year: 328%
Market Cap: $3 M (#435)
Circulating Supply: 1,809,800 ZCL

Other altcoins have high potential as well. WTC, VTC, and VEN are also good worth to be considered. What is your cryptocurrency investment strategy? I’m happy to discuss more ideas in the comments!

This blog post is an opinion and is for information purposes only.  It is not intended to be investment advice. I am an investor and I contribute to the Zclassic fork project, and it is to my benefit that the project succeeds.

[Update 12 Dec 2017] Frequently asked questions after blog post release:

Q: Isn’t it too late to start buying Bitcoins now?
A: No. I’m very confident that Bitcoin will hit the 100,000 EUR/BTC mark by the end of 2018.

Q: Where can I buy bitcoins, ether and other coins?
A: Coinbase is a US-based cryptocurrency exchange where you can buy and sell Bitcoin, Ethereum, and Litecoin. bitcoin.de is the first Germany-based exchange where you can buy and sell Bitcoin, Ethereum, and Bitcoin Cash.

Q: Where can I buy alternative coins, such as Monero or Zclassic?
A: I prefer Cryptopia for most altcoin transactions (XMR, ETN, ZCL). If a coin is not available on this exchange, eg. IOTA, I’ll trade them on Binance.

Q: How can I store my cryptocurrencies in a secure way?
A: Either you can generate and print a paper wallet, or you can get a hardware wallet, such as the Ledger Nano S.

[Update 14 Dec 2017] Join the poll to find a name for our upcoming Zclassic fork:

  • Thomas Schmidt

    Thanks a lot for this incredible inspiration! What service would you recommend to buy Bitcoin and Ethereum in Germany?

  • The easiest way to get some Bitcoins and ETH is probably https://www.bitcoin.de/de/r/v8zph3.