In this article, we will help investors to create a crypto portfolio that is both well rounded and balanced. The hints and tips in this article will give insights into coins that will help you to assess whether it is a good candidate to be included in your portfolio. These tips are designed as a starting point for your approach and not an exhaustive list that digs down into every detail. We always recommend that you ‘do your own research’ as part of your own risk management. Let’s review some metrics we use when creating a crypto portfolio.
1. Market cap, circulating supply and total supply
When creating a crypto portfolio, one of the first areas we examine is the market cap. Is the market cap reasonable? Where could the market cap be in a year or two?
With this rough estimate, we get a general idea of the future value of the coin. Keeping in mind how the circulation supply may change, we can start to generate some estimates of the size of the opportunity.
Finding out a market cap of a crypto project is easily done at coinmarketcap.com.
There are several key elements to evaluate when reviewing the circulation supply. How fast will the circulation supply expand? The faster new coins are brought into circulation, the more difficult it will be for the gain in price.
Compare the total supply against the circulation supply. As circulation supply begins to meet the total supply, fewer coins will be brought into circulation and could force a price increase.
In comparison, if the circulation supply is only a small percentage of the total supply, this indicates the price will be affected by future dilution.
The total supply of a cryptocurrency project is how many coins in total can ever be minted. The total supply can help us understand the long term potential value of a coin and whether it will support creating a crypto portfolio destined for successful returns.
If the total supply is significantly large, this could indicate that as the circulation supply increases the price may remain relatively stable as new coins being introduced into circulation offset a price rise.
Factoring in the total supply can help address if it’s practical for the coin to increase in value over the long term. The greater the total supply, the more impact a small change in coin price will have on the market cap in the future.
2. Creating a crypto portfolio and the target market
There is a range of markets that cryptocurrencies and blockchain projects are attempting to disrupt: interoperability, data storage, digital asset exchanges, financial services, data actioning, artificial intelligence – the list goes on. Not all markets will survive!
It is always a wise move to safeguard a portfolio from crashing when one of these markets shrinks. It’s preferable to diversify your investments across different industries.
While it is important to diversify, current trends are showing real strength in certain areas. In particular, interoperability of blockchains and the actioning of data on the blockchain are proving to huge growth areas and may warrant an extra focus on quality projects within these areas.
Evaluating a team is one area which can, on one hand, be easy and another difficult. The quality, transparency and trustworthiness of a team can make or break a project. It should be central to your evaluation of the coin as an investment vehicle when creating a crypto portfolio.
One of the best places to make this evaluation is in the project’s Telegram group (usually accessible from the project’s homepage). Are the team active? Do they deal with critical feedback well? Are they sincere and transparent?
Telegram is a great starting point. From here you can often identify where the team also work. Maybe they conduct Ask Me Anythings (AMAs) on YouTube or are active in other groups.
In addition to speaking with the team, carry out a deep-dive on Google. If the team is solid, then they will have an easy to identify and evaluate digital footprint.
When assessing the team, your biggest friend is time. Taking time to draw sound conclusions is a sure-fire way to increase the likelihood that this coin will be a good addition to your crypto portfolio.
4. Investors & funding
An important indicator of the potential of a team to deliver the project is funding. Without sufficient funding, the road is difficult. Do they have solid investors that they can draw on for support to grow the platform?
Determine the project’s burn rate and establish early how the potential of the gains, or indeed losses, the future may hold. It’s important to remember once funds are used up, development stops!
If the investors backing the project have deep pockets, then this is a strong case for inclusion in a successful crypto portfolio.
A strong community is a great way to evaluate a project. Often, these folk have been at the coal face longest. They are often well versed in the working of the company and are not afraid to criticize the project team in an open forum.
The dynamic between community praise, community criticism and the team’s response to these is critical when understanding the strength of the project.
In the absence of a strong community supporting the coin, success is unlikely.
The natural growth of community happens when a community gathers in support of the coin. They become active in the development, marketing and the use of the coin. In the large part, they do these development activities for free.
Spending time in the communities’ Telegram group is an easy way to pick up the community vibe.
7. Marketing & hype
As a contender to add to a crypto portfolio, it’s a core requirement that the team is capable of marketing the product.
Beyond marketing, producing meaningful, strategic partnerships, sponsors and supporters are some aspects just as important as the product.
A balance between marketing and product is essential. A product without proper marketing will likely drop in favour over time as funding dries up.
In comparison, an over-marketed coin can result in hype front running the product causing the market cap to far exceed the value of the product. A subsequent crash often materializes.
Depending on your timeline this may not be a bad scenario if you ride a short term wave and use the profit to build a position in either another short term play or a long term hold.
The timeline is an important indicator of how well a project is keeping its course and hitting objectives. A trustworthy team will keep the community in the loop as far as their timeline goes.
A good team will hit their goals or at the very least provide ample evidence supporting their reasons why they are not hitting deadlines.
It’s good practice to not confuse hitting deadlines with unreasonable expectations. In crypto, the move towards AMAs and CEOs/teams being instantly available leads to expectations that all should be known at any one time. The ‘soon’ phrase, used tongue in cheek, is often used by the community when they are pushing for products and services to be delivered.
This 24/7 AMA is unique to crypto. The best advice is to get a feel for the balance of deadlines, the team’s responses to deadlines and the general community vibe. It’s quite easy to spot what is a positive position and what simply isn’t a good indication.
We hope that article on the best tips for creating a crypto portfolio has given you a good starting point for the initial evaluation of new coins for a crypto portfolio. While this article is not exhaustive, these are some strategies we use to pick both short and long term plays. If you’d like to drop your own, hints and tips in the comments below we’d love to hear them.
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