To say that investing in cryptocurrencies can be intimidating would be an understatement.
There are tons of scams out there, and even the best suggestion from your favorite celebrity or influencer can be a disastrous mistake. That’s why you should always seek advice from a certified financial advisor. However, if you are in the process of conducting due diligence and educating yourself on the best opportunities currently available, this article will give you a great start.
So, what exactly is a good crypto wallet for a beginner and how can you identify suitable cryptocurrencies to invest in, especially after the massive market crash of 2022 and early 2023?
The first step to building a portfolio in the cryptocurrency market is to understand that the cryptocurrency market is always volatile. There simply isn’t a silver bullet that can save your wallet. That’s why the best move is to diversify your holdings among several promising projects.
Here is a step-by-step guide on how to build your portfolio as a beginner.
Set goals and determine your risk tolerance
As mentioned, investing in crypto is anything but a walk in the park, given the volatility of the market.
When building a crypto portfolio, determining your investment goals and risk tolerance is a critical first step. Understanding your investment goals will help you decide what type of cryptocurrencies to invest in and how much to allocate to each project or coin. Simply put, determining your risk tolerance will help you decide how much risk you’re willing to take for the potential reward.
Therefore, you need to set investment goals considering your financial situation, time horizon and overall investment objectives.
Ask yourself questions like: What is the purpose of my investment? How long do I plan to hold this cryptocurrency? Am I investing for short-term gains or long-term growth?
Simply put, establishing a clear understanding of your investment goals will help you choose the right cryptocurrencies for your portfolio.
Choose the right proportion to invest
Once you’ve set your goal and are ready to make a move, make sure you allocate no more than 5% of your total investment portfolio. This will help you minimize the potential risk of losing all your investment in one fell swoop.
Established crypto investors use various scenarios and techniques when choosing the coins they want to keep in their portfolio. However, as a beginner, Bitcoin, Ethereum and high-level alternative coins (altcoins) will make up a good wallet.
Three popular scenarios you can consider include:
- 100% BTC
- 60% BTC, 40% ETH
- 50% BTC, 40% ETH 10% ALT
Each of these scenarios has its own unique benefits and risks, and choosing the right one for you will depend on your investment goals, risk tolerance, and portfolio complexity preferences.
Easy Street: a 100% BTC wallet
The 100% BTC scenario is the simplest and probably safest wallet to build. If you’re just getting your feet wet in the crypto space, Bitcoin is the best option, as it’s a proven cryptocurrency that paved the way for the entire crypto and blockchain revolution. When the cryptocurrency market moves, Bitcoin tends to lead the way.
This scenario is recommended for beginners who want to get started with cryptocurrency investing but are not yet ready to venture into altcoins or even Ethereum. This portfolio is considered the least risky, but offers potential for steady long-term growth. However, this scenario is also the most limited, with all investments focused solely on Bitcoin.
The new 60-40: 60% BTC and 40% ETH
After conducting a due diligence on Ethereum and researching the fundamentals that make Ethereum a good investment, you can now examine this portfolio with an allocation of 40% to Ether and 60% to BTC.
This scenario is a slightly more complex portfolio. It’s a good move for beginner investors who are willing to take on a little more risk in exchange for potentially higher returns.
Since its launch, Ethereum has grown to become a critical blockchain for developers looking to build decentralized applications, tokens, and NFTs. Some time ago, demand for the Ethereum blockchain skyrocketed so much that the network’s transaction fees skyrocketed.
By including Ethereum in the portfolio, investors can benefit from the growth potential of both Bitcoin and Ethereum. However, the addition of Ethereum also adds complexity to the wallet as Ether is more volatile than Bitcoin.
Diversification: 50% BTC 40% ETH and 10% ALT
This scenario is the most complex portfolio of the three scenarios, and for good reason. Adding a 10% allocation to altcoins is a risky move since most altcoins are more volatile than Bitcoin and Ethereum. As a beginner, the best move is to choose altcoins in the top 10 coin categories based on market capitalization and trading volume.
You can choose from established altcoins like Cardano, which has been building its blockchain platform since 2017. At first, Cardano was priced at around $0.02 per ADA and quickly experienced a price rally to a price of $1.33 in January 2018.
If you had invested $100 in
Cardano at the time of its launch in September 2017, you would have been able to purchase around 4,166 ADA at a price of $0.024 per ADA. And if you had sold your ADA at its maximum price of $1.33 in January 2018, your $100 investment would have been worth around $5,541, making a gain of more than 5,400%.
Other altcoins you can look into include Polkadot, XRP, Solana, and Litecoin. However, be sure to do thorough research before investing in any of these altcoins.
To conclude, investing in cryptocurrencies can be an exciting and potentially profitable business, but it is not without risk. To become a successful cryptocurrency investor, be sure to do your research, stay on top of market developments, and develop a solid investment strategy that aligns with your investment goals and risk tolerance.
Some of the main points include diversifying your portfolio based on risk tolerance, setting goals and plans for your investment, staying up to date, and conducting research on the projects you’re investing in.
You can also use proven investment techniques such as averaging the dollar cost rather than investing large sums of money. This can help you manage risk while growing your portfolio over the long term.