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Why It's Still So Hard to Build Balanced Crypto Portfolio

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Friday, 30 November 2018 11:58 AM Current | Bio | Archive

You know how to balance an investment portfolio.

You hold some bonds and sit on some stocks. You buy some safe, old-school industrial shares and you sprinkle on some new hi-tech companies. You check the graphs and the returns, read about the markets and do your best to balance your risks.

The stock market might move together but the forces that bring Apple down aren’t the same as the forces that can drag down the price of Coca Cola. If one falls, the other might not fall so much.

The cryptocurrency market is much more connected. It’s dominated by one giant equity. Bitcoin has a market cap of around $100 billion, more than five times the value of XRP, its closest rival. We know that we can trust bonds and stocks. The overwhelming question in the cryptocurrency market is whether the entire asset class is trustworthy. There’s no point in holding if the blockchain technology underpinning the market turns out, in five years’ time, to be a dud.

That’s unlikely but as long as there’s doubt, the market will continue to move as one. When Bitcoin fell below $6,000 in mid-November, wiping out a year of gains, the reason was mostly a dispute among the developers of Bitcoin Cash. But the dispute raised questions about the governance of digital currencies as a whole and brought the entire market down. Almost every major coin dropped double-figure percentage points in a day.

Clearly, there’s a benefit to not putting all your crypto funds into one digital currency. But when the market is so integrated, building a balanced portfolio means more than just stocking up on the five biggest coins and hoping for the best. It means looking more closely at what lies behind those coins. While Bitcoin was falling 11 percent and Bitcoin Cash nearly 12 percent, a currency called Nasdacoin

was up nearly 334 percent. Altogether five of the top 100 cryptocurrencies beat the market that day, putting on value while every other coin dropped into the red. They were able to rise because they had ideas behind them that impressed investors even as they worried about the market.

An investor building a balanced stock portfolio will recognize many of the names on the exchange. They’ll know what Coca Cola does and what Microsoft does. They’ll have their own ideas about the quality of the products and the competence of the company’s management. But the names on the cryptocurrency markets are new. Investors need to read the white papers of the companies that launched them. They need to figure out for themselves which of these companies has a chance of succeeding. They’ll need to buy a good selection of them to increase the odds that they’ll be holding at least one that’s going to make it big.

And they’ll need to accept that their cryptocurrency portfolio is likely to continue move as one, to be the riskiest part of their investment portfolio, and to balance it with traditional investments.

Joel Comm is New York Times best-selling author, blockchain enthusiast, professional keynote speaker, social media marketing strategist, live video expert, technologist, brand influencer, futurist and eternal 12-year old. His latest project is as co-host of The Bad Crypto Podcast, a top cryptocurrency show making the future of digital payments easy to understand.

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Why It’s Still So Hard to Build Balanced Crypto Portfolio
balanced, crypto, portfolio, bitcoin
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2018-58-30
Friday, 30 November 2018 11:58 AM
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