I recently started investing in Cryptocurrency. I use the word “investing” lightly as I feel like cryptocurrency investment is a very high-risk venture tantamount to high-stakes gambling in Las Vegas. To me, Cryptocurrencies are still the unknown, the wild west of investing if you will. With that said though, I believe there is huge opportunity if you have the stomach for it. The Crypto Revolution is just beginning. It’s like the internet 30 years ago, and who doesn’t wish they could have picked up some Amazon or Google stock for pennies then?
One thing is for certain though, fortunes have been made & lost investing in Crypto over the last few of years. Large corporations have also started to invest huge money in the Crypto market, along with investment hedge funds starting to take an interest, so I’ve finally decided I want in on the action after holding out for many years thinking it was just a “fad”.
I first made a decision to invest a (relatively) small amount of capital into a few different Cryptocurrencies in order to obtain some level of diversification in this sector instead of just piling everything into Bitcoin. Recently with the pullback which started on May 19th 2021 though, I’ve decided to put a little more skin in the game and make my Cryptocurrency Portfolio a little more substantial. This will be my “risk-on” portfolio added to my overall investment strategy.
I started with Polkadot (DOT) and Cardano (ADA) at first, then next added Dogecoin (DOGE). Then when the market pulled back on May 19th, 2021, I had orders in for various assets as I expected some type of a pullback. It certainly wasn’t quite expecting that though. I ended up buying Ethereum (ETH), Bitcoin Cash (BCH), Cosmos (ATOM), Ripple (XRP) & KAVA. My reasons for investing initially in each investment vehicle are outlined below.
I believe there will be another pullback and test of the bottoms shortly, and I intend to add more if that happens.
The “realistic” investment strategy here is to hope for a reasonable return on investment over time, although I do expect huge volatility.
My 1,000,000 to 1 “long shot” is that one or more of the Cryptocurrency assets I’m invested in really takes off one day so I can buy that Superyacht! Seriously though, the upside potential is unlimited, so is the potential for complete loss of capital, so I’m under no illusion.
I also “Stake” some of my assets which pay very decent returns every week. If you’ve never heard of Staking, basically you can get paid (up to 20% per annum) for “lending” your assets to the network in order to nominate & delegate “validators” who run nodes to validate blockchain transaction (Proof of Stake). You can read more about asset staking here.
Cryptocurrency Portfolio Return Charts
(Click on chart images for interactive)
Staking Rewards to Date
“Why not just put everything into Bitcoin” you may ask? Well, call me crazy, but I think I missed the boat with Bitcoin as far as potential for thousands of percent increases in the Crypto market. The opportunity to buy it at $20 or $30 with the hope it will go to $1m has long since passed. Yes I can still buy it at current prices with the hope it will go to $1m, but I feel like the huge 2000% gains for Bitcoin have passed. Still an investment with good potential no doubt, but I’m not 100% convinced Bitcoin is offers the most potential for gain at this moment.
What I’m looking for is the 2,000% – 10,000% increases. It’s like the lottery, a very, very long shot, but if you don’t play, you’ll never win.
Cryptocurrency is still a very untested, volatile market (in my opinion) with potential for huge gains, and huge losses. You can see what happened if you look at any Cryptocurrency chart from May 19th to May 23rd, 2021. Also remember back in 2017 when Bitcoin was at $15k? Then a few months later in 2018 it was down at $3k? That right there is a volatile market, so anything we put in we better be prepared to lose or at least hold through massive drawdowns.
On the other hand, back in 2010 Bitcoin was valued at $00.0008c per coin. Now it’s over $50k? Who doesn’t wish they had a $100 investment in that now? (for anyone doing the math, that would be $6.25 billion with Bitcoin at $50k).
The extreme volatility also presents opportunities for investors who are ready to buy into huge drawdowns. As Warren Buffet said: “when there’s blood in the streets, BUY!” (and I’ll add to that “even if the blood is your own”). That last phrase is sometimes easier to say than do when “your” blood is flowing. If you’re down 50% or 60% of your account already, it can be very hard to pull the trigger to buy more.
My Reasons for Not Investing Everything into Bitcoin
Bitcoin (BTC), although the first ever cryptocurrency and obvious mammoth, is limited in numbers and runs on a very secure blockchain architecture. Obviously a good thing for the price, but this also makes it very slow & expensive to trade generally, and it really “does” nothing accept serve as a vehicle for speculation.
It’s a Proof of Work blockchain system which makes it slow and expensive to process transactions. Bitcoin is often referred to as “digital gold” but comparing it to gold is not really fair as gold can be made in to trinkets, rings, ornaments etc. It also has uses in certain electronics and has been a store-of-value for thousands of years.
One of the big potential problem Bitcoin faces is that it takes a lot of energy to mine. Mining is a process of validating transactions and the bigger bitcoin gets, the more power it takes to mine it. When the world is so green-focused at the moment, that could be Bitcoins’ Achilles heel. It also has a lot of other flaws, that may or may not matter in the long run.
The Bitcoin blockchain Proof of Work platform is not easy (if at all possible) to change into a Proof of Stake system, which I believe will eventually be it’s downfall.
My “Vegas bet” albeit probably 1,000,000:1 odds or more is this; What if, just what if, in a billion to one shot, current Bitcoin investors saw how “clunky” & energy inefficient Bitcoin was, and decided to pull money out of Bitcoin and put it in to some other digital asset instead? Something that was actually useful like Ethereum, DOT or Cardano? What would that do to the price if just “some” of the $1+ trillion currently invested in Bitcoin Cryptocurrency moved to other Cryptocurrencies?
Something like this is where it might start perhaps? Dubai cryptocurrency fund says to dump $750m worth of ‘pretty useless’ Bitcoin & Buy Cardano & Polkadot Instead. And more recently Elon Musk trashes power-hungry Bitcoin & prefers Dogecoin. There are lots more examples if you Google it.
Reasons for Buying Other Individual Cryptocurrency Assets (Altcoins)
Ethereum (ETH) is the most popular (and most traded) Cryptocurrency after Bitcoin. The Ethereum team are currently working on a 2.0 version of the network changing it from a Poof of Work system to a Poof of Stake system, which will also add many features making ETH faster to trade, and easier for developers to work with. In my mind, it has real potential to outshine Bitcoin in the long run. So I decided to buy ETH coins as a hedge of sorts, plus ETH can be staked (unlike Bitcoin) for around 5%-7% rewards. You can read more about Ethereum here. I like the Ethereum blockchain because it actually “does” something, it has value more than just “digital gold” like Bitcoin, it’s actually useful to organizations. ETH is the second largest cryptocurrency by market cap. This was a very good writeup of the ETH value that I found interesting and definitely worth a read.
Cardano (ADA) is a competitor in many ways to Ethereum. It uses a Proof of Stake blockchain system to process transactions quickly and efficiently which makes it technically superior to Bitcoin. The Cardano platform is another that actually “does” something and has potential to be more than just a speculative asset. This link gives a good overview of Cardano. Cardano is the 4th largest cryptocurrency by market cap as of this writing.
Polkadot (DOT) is another competitor to ETH. Developed by Gavin Wood (co-founder of Ethereum) it is a “multi-chain network” that aims to connect different specialized blockchains into a single unified network. It has huge potential to become something other than just a cryptocurrency. This link gives a good overview of Polkadot. Polkadot is currently the 7th largest cryptocurrency.
Dogecoin (DOGE) this one is pure speculation, but Dogecoin has been around for about 8 years and done absolutely nothing before. All of a sudden Dogecoin took off & started getting all sorts of global attention when eToro added to their platform, and also a bunch of personalities (including Elon Musk) started talking about it; so I looked into Dogecoin and did some reading. It could be another one of those assets that gets some Bitcoin money if investors start pulling out of that, and it could quite easily be made “useful” for other types of transaction. Basically Dogecoin was developed as kind of a joke meme Cryptocurrency. Actually making fun (in a way) of Bitcoin. You can read more about Dogecoin here.
Cosmos (ATOM) is another “proof-of-stake” blockchain which is gaining popularity & has uses other than a vehicle for speculation. Importantly (for me) is that it also pays decent staking rewards. This means that I get paid in more ATOM tokens just for staking the ones I own. You can read more about ATOM here.
KAVA is considered to be a DeFi software protocol that uses multiple cryptocurrencies to allow its users to borrow and lend assets without the need for a traditional financial intermediary. It’s built on the Cosmos platform (so related to ATOM) but doesn’t have as near as big market cap. The reason I decided to pick up some KAVA is that it definitely has potential for growth, and it currently pays around 20% staking rewards. This link gives a better description of KAVA.
Bitcoin Cash (BCH) is actually a thorn in Bitcoins side. It was developed as an alternative to Bitcoin as it trades faster and there are more of the coins. The price is still nowhere near the original Bitcoin (although not pennies) but again, like Ethereum, it has the potential to challenge the archaic behemoth Bitcoin in the long run. So I decided to buy just 5 of these coins, again as kind of a hedge. You can read more about Bitcoin Cash here.
Ripple (XRP) is another blockchain that has been specifically developed to enable multinational financial transactions. It’s difficult to explain in a short paragraph so I’ll refer you to this link: What is Ripple?
Because of the lack of history in the Crypto market, it’s impossible to backtest Cryptocurrency historically. So all I have to go on is the chart patterns, volume and what I read about it.
I do know one thing, there is a LOT of capital moving into the Crypto market from both retail investors and now large funds are starting to jump on the Crypto market wagon.
The are lots of risks to the Crypto market including government intervention and “influencer” speculation (think what happens when Elon Musk tweets about Bitcoin, or more recently when the rumor of the Chinese government banning Cryptocurrency trading crashed the market on May 19th, 2021). It’s a largely untested market, but it sure seems to be gaining momentum.
The way I look at it is this; if the worst happened for whatever reason and I lost my whole Crypto market investment, it would hurt like heck, but it’s not going to change my life. On the other hand, if I were to hit that 1,000,000 to 1 Crypto investment that turned into another Bitcoin, the rewards could be unlimited. So risk/reward is worth it on this investment.
That’s my whole “Crypto Market Strategy” right now in a nutshell. I have noticed that Crypto market chart & graph patterns are very clear and seem to trade the same as stock chart patterns do. After all, the patterns are just showing human emotions, doesn’t matter about the asset. I have made most of my buying decisions in the Crypto market so far on chart patterns.
I’m sure there are some of you reading this who are more confident in the Crypto market that could school me in this sector, but for now, I’ll just leave this investment portfolio here and enjoy watching what happens.
I started using Kraken for buying Crypto and I LOVE IT! Deposits from my bank in the UK show up there in seconds, and no hassle whatsoever. VERY low commissions, & placing orders from my phone or the web is dead easy, so I definitely suggest taking a look at them if you didn’t already. Before I had used Coinbase a bit, just to test, but their interface just felt kind of old & clunky, plus their commissions are quite high now it seems.
Visit Kraken here and take a look if you ever decide to trade Cryptocurrencies. They enable easy purchase of Polkadot, Cardano, Dogecoin and over 300 others.
You can also see the data points from the Google Sheet where I calculate everything.
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