How to start with crypto as part of your investment portfolio
February 13, 2024
This article introduces cryptocurrency investments and a comprehensive guide to bring you the knowledge and tools necessary to understand this exciting investment landscape. Whether you are a beginner or have some crypto investment experience and would like to recap your knowledge, this is the right place and valuable resource on your investment journey. The previous article brought insights into the background of such a boom in the crypto and decentralized world. If you still need to read it, here is the link.
As digital assets, cryptocurrencies offer a unique blend of technology and finance, providing a new avenue for wealth generation and diversification of investment portfolios.
Important note: It is vital to consult with a financial advisor or conduct thorough research before making investment decisions.
Introduction to Crypto Assets for Beginners
For a better overview of investment opportunities, this section describes a high-level list of assets you can use during your crypto investment journey. It is important to differentiate each of them and understand their utilities, especially for coins and tokens. Both of these terms are described as well.
A crypto asset is a digital representation of assets or ownership stored on a public ledger on the internet to show proof of ownership. These assets can be used as a medium of exchange or proof of ownership (Investments, payments, funding of crypto projects). See below an essential list of crypto assets:
Investors use digital currencies to purchase goods and services (transactions, payments). Some of these assets are privacy coins (Monero or Dash) or payment currencies (for example, Ether or Bitcoin).
This is the type of cryptocurrency designed for price stability. Stablecoin prices are linked to fiat currencies, commodities, or other crypto assets. Stablecoins can be used for payments in foreign exchange. This form of transfer is mainly popular in cross-border payments and transfers.
Non-fungible tokens (NFTs)
A Non-Fungible Token (NFT) is a unique digital identification with its record on a blockchain and is used to certify ownership of digital assets. Token usage lands in various fields such as sports, Proof of Attendance at events, Supply Chain tracking systems, Real Estate, or support for art creators.
These assets are subject to security regulations. The representation the tokens give is related to real-world assets. They can be applicable for dividends, interest payments, etc. This process enables investors to gain exposure to the asset's value without holding the physical asset.
Considerations for Choosing a Crypto Project
After understanding crypto assets, the necessary step is to know the key areas of the project that will reflect the prospect and reality of the project/team or even the future of your investment. In this section, each paragraph describes different components from team to technology. Understanding this complex perspective gives insights into areas that can be used as a checklist for any investment opportunities.
Evaluation of the technology and infrastructure of the project might seem too advanced for the beginner, but still, this must be part of your project assessment checklist. The learning curve in this area is slow but beneficial for any future project you come around as the IT projects ar those who thrive on the progress of humankind on many levels. This includes the project's consensus mechanism, scalability, speed, and security. It's also important to review the project's technology and security measures.
The team's experience, expertise, and dedication are crucial. An experienced team with proven evidence of previous experience in Dev, Sales, or project-relevant areas is one of the key indicators of a successful team. Such a team should share a solid vision and mission of the product. It is always beneficial to have a point of contact in a community space where you can have answers to your questions and build trust in the project.
Community support is a significant factor in the success of a crypto project. A vibrant and engaged community can indicate strong support for the project. You can gauge community support by scrutinizing social media channels and discussions about cryptocurrency. The most used communication channels are Discord, X, or Linked In. Many projects are great, only thanks to the community. The crypto community is also working around the Decentralized Autonomous Organizations built on governance tokens and community inputs (those with a stake in project success).
Market Demand and Competition
It is essential to understand the size, scope, and trend of the project's target market and the opportunities, challenges, and risks it faces. It is critical to do the research and understand the potential of the projects.
Compliance with regulatory standards is another crucial factor to consider. This includes understanding how the project handles data privacy, security, and regulatory requirements. Several regulations around the globe keep digital assets to provide a secure and efficient environment. MiCA in EMEA, The Monetary Authority of Singapore (MAS) has introduced the Payment Services Act in Singapore, the Financial Services Commission (FSC) in South Korea, and others.
Partnerships and Reputation
Even the newly created project has partnerships to look at. Partnerships with well-known brands can be a good sign of progressive projects as the knowledge leaders industry influences provide their name or brand at stake for the project. Are projects in partnership with VC funds? Do they invest their time in discussions, venues, or presentations sharing their experience? Do your research to understand the goodwill of the project or the team.
Understanding the token distribution, supply, and utility is essential. These metrics offer investors crucial insights into the project's overall health and long-term viability. For the proper financial analysis, it is good to find a good source of this information, such as coinmarketcap.com, Messari, or Nansen, which are good sources of the overall market information.
Project's Goals and Potential Uses
Consideration whether the project’s goals and potential use align with your investment goals is an assessment of your own portfolio frame. Do you want to invest in decentralized application development or Centralized Exchange projects? Is the project contradicting your live visions? The utility of the token or coin or the project's end goal must have meaning for you. Regular checks on the projects are correlated with your interest in the project.
Mainstream Adoption of Crypto
The mainstream adoption of crypto has several factors. Frankly, 2024 is massively helping the adoption due to BTC ETF (approved by the US Securities and Exchange Commission) and in the European Union, MiCA. As a secondary benefit to the proper form and new interesting opportunities for investors, it increased the legitimacy and relevancy of crypto assets in the investment world. These two events will support the approval of quality crypto projects and won’t give much space to fraud projects and education. See below the demographics depicting the crypto adoption from the last year. Current global adoption shows a minor % of adoption worldwide. The adoption is exciting among male and female populations, where males are almost double in crypto ownership and academic education. We hope to bring this investment asset to broader consumers and start with education in the mainstream audience. The highest number of crypto holders are in the UAE (27, 67%), Vietnam (26%), and the USA (13, 22%). As per the EMEA region, it is Ukraine (10, 3%).
Crypto Ownership Rate
Male Crypto Owners
Female Crypto Owners
Crypto Owners with Bachelor's Degrees and Higher
Crypto Owners Aged Under 34
Examples of Crypto Assets for Beginners
When it comes to cryptocurrencies suitable for beginners, the following are often recommended due to their established presence, accessibility, and growth potential. Each proposed coin or token has strong community support with great board members (with proven industry records). Each of them is different and, simultaneously, “stable” to invest in as the usage is broad from the trading, platform development, or individual coin utility perspective.
As the first and most valuable cryptocurrency, Bitcoin is often the first choice for beginners. It offers cost-efficient transactions, privacy, decentralization, and growth potential.
Ethereum is a decentralized blockchain for money and scalable Decentralized Applications. It allows developers to write code that controls money and build applications accessible anywhere in the world.
Solana is a high-performance blockchain that supports decentralized apps and crypto projects. It's known for its speed and scalability.
Security, due diligence, and portfolio ratio
In understanding terms, various aspects of crypto projects are important but not relevant if there is not a safety net for the decision-making and regular check-ins with your portfolio or the tools you use to protect your investments. Crypto assets are significantly volatile assets in portfolios and high sensitivity for the security is relevant. Keep this chapter as the checklist you can use after each successful investment and regular portfolio reviews.
Cryptocurrency security is crucial to protect your investments. As in every usage of virtual platforms, even more fraud-prone actions are critical to keep your crypto safe. Below are the basics of ways you can protect your crypto.
Use Two-Factor Authentication (2FA) and Wallets
This gives an extra layer of security to your accounts. Store offline when possible (when not using the crypto for De-Fi or other crypto investment products and services). Consider using a cold wallet, which is not connected to the internet, for storing your cryptocurrencies. There are four types of wallets: custodial, noncustodial, HW (Hardware), and SW (Software). Custodial wallets are hosted by a third party that stores your keys, while noncustodial wallets allow you to control your keys. HW wallets are more secure and look like USB storage. SW is an app you can download from the relevant app store.
Secure Your Wallet
Please write down the seed words for your wallet on paper and store them safely. Encrypt your keystroke file and use a cold wallet if possible. Store the pin and seed phase (A seed phrase lists 12 or 24 common words in a particular order. The seed phrase works like a sort of master password to your wallet). in separate and multiple places. Never share your seed with anyone or online. Preferably avoid apps for securing your passwords. Passwords change regularly.
Before investing in cryptocurrencies, it's important to conduct thorough due diligence. This involves Assessing the Legitimacy and Technical Details (Review the cryptocurrency’s white paper, development team, blockchain specifications, and consensus protocol), Analyzing Market Dynamics and Liquidity (Evaluate real-world adoption metrics, trading volume, volatility, market capitalization, use cases, and historical returns), Understanding the Business Model(Research the business model of the cryptocurrency. Look at the company's white paper and see if it keeps up with their promises).
See below the checklist of the steps to follow when working with crypto:
10 Steps to Keep Your Crypto Safe: The Security Checklist
Step 1: Be Smart About the Cryptocurrency Storage
Step 2: Diversify Your Assets
Step 3: Only Follow Official Links
Step 4: Check Before You Download
Step 5: Use Trustworthy Platforms
Step 6: Keep Your Private Keys Secret
Step 7: Store Your Seed Phrase Safely
Step 8: Always Review a Transaction Before Confirming
Step 9: Understand the Risks of Smart Contracts
Step 10: Understand How Cryptocurrencies Work
Another part of your due diligence is working with your portfolio (its allocation or distribution) and understanding crypto cycles. There is one method that can make your first steps easier. It is DCA.
The Dollar-Cost-Average is a strategy where you invest a fixed amount of money sent to the exchange or wallet to buy satoshi in regular intervals, not impacted by price volatility. This approach can mitigate the risk associated with the market's volatility. It's often recommended for beginners as it doesn't require predicting market movements.
Most experts agree that cryptocurrencies should make up at most 5% of your portfolio. This amount is small enough to keep an investor comfortable in periods of high volatility but also large enough to impact the portfolio positively if crypto prices rise. However, the exact percentage depends on your risk tolerance and investment goals. The amount should always be on your quality of life.
A distributed portfolio is a portfolio that is diversified across different assets. According to the 80/20 rule, 80 percent of your portfolio should be in the largest, most established cryptocurrencies like Bitcoin and Ethereum, with a smaller percentage allocated to other cryptocurrencies. This approach can mitigate risk and potentially increase returns. However, always do your research before investing.
Getting Started: Leading by example
When I started my crypto journey, I needed to see who was working in the team behind the project. I will give you real-life examples.
My first experience with crypto was not actually with BTC, but it was one of the most significant. The price of BTC through March 2021 was floating around 50,000 USD. My first purchase was on Binance.com. Eventually, I bought the HW wallet “Trezor”, with a very good user interface for cryptocurrencies. Since 2021, I bought Satoshi with the DCA approach until I sold Satoshi for an altcoin purchase. Until now, I prefer to buy altcoins. I see BTC as a great value storage and a future part of my portfolio, but not the source of significant profits.
Recommendation: This is the best beginner's currency, and I highly recommend reading about the story of Bitcoin for the complex background of cryptocurrencies and this coin background.
Blockchain: The native blockchain is Bitcoin.
MATIC is a token used on the Layer 2 of Ethereum. It supports more than 7000 dApps. It became my popular token when I started buying cheaper NFTs, and (with my husband) we tried to sell some of them. With incoming interesting NFT projects and NFT Insights, we started using MATIC as a native token for our projects and Proof of Attendance for our meetups or projects such as Festival Český Krumlov.
Recommendation: If you would like to play around with interesting apps as Polygon has. Polygon is a playground for developers or mediums to buy interesting NFTs and such - go for it.
This NFT collection is no longer called Baby BAYC (now it is Baby Ape: Origins). It was a period around BAYC and its vibe. The project seemed very relevant - Twitter, active Discord group, web page waiting for the minting and timeline. There was an announcement on Twitter about the fraudulent behavior of the project creators. It has never been proven to be a real fraud, but it shifted the community's trust in the project, and everything eventually fell apart.
Recommendation: DYOR. Do your Due Diligence for projects you have on your radar and consult with professionals about the details. Decide your strategy.
My first crypto step belongs to this project, which was founded in 2021. It was my first investment and one of the long-term investments I keep in my portfolio. Probinex is a cryptocurrency exchange that aims to connect the worlds of traditional finance, fintech, and cryptocurrency. It introduces asset tokenization and a utility token called PBX. It is used to pay exchange fees, earn more in Earnio (a semi-fully automated trading platform), or allocate within the Probinex ecosystem.
Recommendation: My personal take is that crypto should be approximately 1% of your portfolio, and having a fintech should be part of it. Always search for the project team, token or coin liquidity, and timeline. It is important to see regular updates and the community flow in different social media venues. If the project has a token instead of a coin, always search for the token's utility. Instruments in a fintech project are a high risk, and your research before investment is key.
Blockchain: Binance Smart Chain
Female Investors to follow
I must ensure that I can provide educational content for amazing females in the Femme Palette community. I empower women to support them in being informed before they make any financial decisions and promote a supportive community for female participation in crypto. See below a few links on interesting female crypto leaders. The list will always change as the female crypto community is growing.
We have covered digital assets from different but critical angles. Understanding various crypto assets, their usage, and the mainstream adoption data shows great potential and still leaves space for much broader adoption and education. Doing your own research before you step into any crypto project is essential. There are cryptocurrencies you can start with smaller investments until you feel confident with bigger projects. Remember, while the potential for high returns exists, so does the risk, making education and security paramount in your investment journey.
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