How to collect a profitable trading portfolio?

2020 brought many surprises to traders and investors. Due to the pandemic and quarantines around the world, many traditional market assets have become less promising for capital investments.

On the other hand, cryptocurrencies showed excellent growth and attracted increased attention. The top crypto coin, Bitcoin, has risen by 50% since January. Ethereum has risen almost three times, and cryptocurrencies DeFi (decentralized financial sector) soared in value even more. Experts predict this is not the end of the rapid growth.

The growing popularity of cryptocurrencies among investors raises the natural question of whether it is possible to form an investment trading portfolio from digital coins.

Let’s consider tokens that should show stable growth with a low risk of a serious fall in the medium term. 

You can collect a trading portfolio of native tokens of those blockchains, based on which there is the possibility of creating new DeFi projects:

• ETH – 20% (Ethereum blockchain token)
• BNB – 20% (Binance Smart Chain blockchain token, a project of one of the largest centralized exchanges Binance)
• DOT – 15% (Polkadot blockchain token)
• TRX – 15% (TRON blockchain token)
• ADA – 10% (Cardano blockchain token)
• LINK – 10% (Chainlink blockchain token)
• VET – 5% (VeChain blockchain token)
• NEO – 5% (NEO blockchain token)

In more conservative strategies, for a tighter attachment to market trends, especially if this is the only trading portfolio, you can reduce the shares by 1-2% to allocate an additional 10-15% for bitcoin (BTC).

Reasons for strengthening the crypto market

The global economic crisis. There is probably no country left in the world that has not been affected by isolation and the related crisis. And to deal with it, governments have turned on the printing press; the currency is getting bigger, but its value is decreasing.

A striking example is the US dollar index, which fell by almost 8% in six months. In contrast to fiat money, cryptocurrency is not subject to emission, so inflation does not threaten it; this means that investors can use them as defensive assets.

Popularization of DeFi. The decentralized finance sector is gaining momentum. A new trend was born in 2019 and, according to Forbes magazine, is already becoming a new market reality.

DeFi is blockchain-based services and applications. Their main function is to replace the traditional financial system and banks, to give people more opportunities for lending, investment, and passive income from cryptocurrencies. At the same time, DeFi users save on fees for payment transfers, deposits, and loans.

Technical factors. The technical analysis of the cryptocurrency market indicates that the price rally is not over yet. Experts talk about a strong bullish trend and even compare Bitcoin to gold.

What cryptocurrency assets to choose for the trading portfolio?

Bitcoin. By far, the most famous cryptocurrency will remain in the lead in 2021. And according to market analysts, about a third of the cryptocurrency trading portfolio can be traded for Bitcoins.

Bitcoin is like the face of the crypto market, and even those who previously avoided investing in digital currencies can invest in BTC next year.

Ethereum. The development team plans to implement the first stage of the Ethereum 2.0 upgrade within a year. This could be a powerful impetus for the explosive growth of Ethereum’s popularity. Besides, the Ethereum network is used in the DeFi sector, which is actively conquering the market.

Chainlink. Cryptocurrency, the name of which is not yet on everyone’s lips. This cryptocurrency has good investment potential. This token is one of the most sustainable in the DeFi industry, and its value jumped seven times in 2019. And for cryptocurrency whales, the volume of this currency increased by 5% over the year.

Crypto dollars and crypto euros. Stablecoins (digital money pegged to traditional fiat currencies) can be an interesting investment asset. Quarantine and lockdown have increased the share of online payments, and in this regard, the role of digital dollars or euros may increase.

Binance Coin. BNB cryptocurrency was created based on Ethereum as a token of the Binance crypto exchange. According to some forecasts, its value next year may rise to $50 per coin. This altcoin has more and more opportunities for use, so its popularity is expected to grow.

Litecoin. Cryptocurrency LTC is unfairly underestimated; this opinion exists among crypto experts. The Litecoin network is growing, the coin is still profitable for mining, and if Litecoin manages to reach the $100 mark, this will become a new incentive for miners and a starting point for a new price rally.

Among the promising currencies, one can also note those in the TOP-50 in capitalization. These are coins such as EOS, Tron, Cosmos, Ripple.

Trading portfolio formation principles

Before you start building your trading portfolio, you need to decide on a goal. If you want to expand your overall list of assets, it is better to include about 3-7 digital coins in your crypto portfolio.

• The bulk of the portfolio is large cryptocurrencies. Bitcoin and Ethereum are the largest and most capitalized cryptocurrencies; they must be included in your trading portfolio as main assets.

Bitcoin is the main cryptocurrency with the largest capitalization and dominant market share. Therefore, as an investment, bitcoin can be considered the most reliable.

Ethereum is the second most popular after Bitcoin. The smart contract technology that lies at its foundation has tremendous promise in changing the digital world in the future. Moreover, most of the new cryptocurrencies are created based on the Ethereum protocol.

• Cryptocurrencies of blockchain platforms. A group of cryptocurrencies was created based on a platform that solves specific problems using blockchain technology. Such coins include Ripple (XRP), which is associated with innovative technologies in international money transfers.

The NEO cryptocurrency is tied to a platform that is expanding smart contracts.

The creators of the DASH cryptocurrency also work in the digital payments niche, and NEM solves the problem of forming and managing smart assets.

• Anonymous cryptocurrencies. In a separate group, it is worth highlighting cryptocurrencies, the purpose of which is to solve the problem of user anonymity. Their creators are working to ensure that the transactions of the participants are kept secret. These include Monero coins, Zcash, and several others. They all have their uniqueness.
• Cryptocurrencies are based on protocols. Now the trend of decentralization and applications based on blockchain technology is emerging on the market. In this regard, many platforms emphasize the formation of protocols. Over time, more digital coins will be tied to applications when the blockchain infrastructure is built on the market.

Protocol cryptocurrencies such as BAT, EOS, and IOTA still have prospects and room for development, which gives them the right to a place in your trading portfolio.

An example of a trading portfolio for cryptocurrencies

Having considered the groups of cryptocurrencies and their prospects, you can collect an indicative trading portfolio of them. Here’s one possible example:

• Bitcoin is a vital crypto-asset; take it in a 35% share of the investment amount.
• Ethereum is needed as the backbone of a portfolio. Its share can reach 35%.
• Include Ripple in your portfolio for diversification as a cryptocurrency for payment technologies. 10% is enough.
• Zcash is an anonymous cryptocurrency, approximately 5% of the portfolio value.
• Distribute the remaining 15% between the two protocol cryptocurrencies, EOS and IOTA.

When creating a cryptocurrency trading portfolio, remember that it should contain different assets, both reliable coins with low profitability and those that can show explosive growth in the short term but have a high degree of risk.

Review the composition of your portfolio over time. The structure of the cryptocurrency market is very dynamic; the accents and perspectives of coins can change.