2021 generated the kind of market returns that investors generally dream of. A climate of uncertainty driven by the pandemic, and accelerated trends to online saw biopharmas and stay-at-home stocks like delivery companies, work from home stocks like Zoom and home entertainment stocks like Netflix flourish. Even sell-offs in tech stocks created opportunities for investors to buy the dips.
Markets were laden with woes, including energy crises, supply chain disruptions and logistical disruptions plus an atmosphere of surging inflation, which laid the bed for uncorrelated assets like cryptos to flourish.
Solana was the biggest winner of 2021 by far from the crypto class with gains of over 9649%, followed by Ethereum with its mass utility for DeFi and other apps, which soared 265%. Bitcoin itself had a rather rocky year, but still managed to gain over 65% in 2021.
With so much uncertainty going into 2022, what is the best way to manage your crypto portfolio?
Here are our top 5 tips
1. Risk Management
Many crypto experts say that you should only allocate up to around 5% maximum of your portfolio to cryptocurrencies. They are, as we know, volatile assets which can spike up and down by a staggering 10% or more in a single day.
2. Look for utility
While Bitcoin is the king of speculatory assets, its foundations were as a means of currency exchange across the world. It didn’t turn out that way due to its volatile nature, meaning it is unsuitable as a payment method, but it certainly brings opportunity for investors and day traders. If 2021 showed us anything it’s that the real crypto winners are those that have actual utility and real-world application behind them. Look at Ethereum and Solana for examples of that. When investing in cryptos, look at the projects or protocols that sit behind them. How much utility do they have? How many projects are hosted on their networks, or how many users do they have? This is a sure sign for an eventual winner. Meme cryptos are cute, but do they actually have any real-world utility behind them? Probably not.
3. Follow Popular Investors
In 2021 we saw the rise of the TikTok investing influencer. With a huge portion of new traders not knowing how to invest in cryptos, they followed the advice of influencers on Instagram and TikTok. The unfortunate part of this story is that these influencers do not come with proven track records of how successful they are at trading and as the saying goes, “those who can do, those who can’t teach”. Instead, turn your focus to copying real traders. You can do that via social trading platforms like NAGA and eToro.
NAGA is a publicly-traded company and all of the trade leaders are completely transparent in terms of their trading successes. You can see how their portfolios are doing and how the level of returns they bring their copiers. Copy-trading allows you to automatically replicate their trades, and the best part is, you do not need to be an expert in trading to do this. It allows the trade leaders to do all the research and strategy on your behalf, while you draw from their wisdom.
Diversification is the way that you expose your portfolio to as many different types of assets, markets, sectors and regions as possible so that if one fails, the others have a chance to succeed. Taken in the context of cryptos, that means don’t just buy Bitcoin, spread your capital among a range of different cryptocurrencies. Gain exposure to cryptos by buying them, trading them, and even through stocks that are correlated with them such as mining companies and crypto platforms. Diversification is what will allow your portfolio to weather any storm.
5. Dividends and passive income
Cryptos, unlike some stocks, do not pay monthly dividends but they do allow you to stake them in return for passive yield. In 2022, look into staking, loaning and lending protocols, to make your idle tokens work hard for you.
The only thing we know is that we can expect a tumultuous year in 2022 in the markets. However, this kind of climate creates volatility, which when harnessed properly brings an opportunity to investors and traders. More money is being poured into the crypto arena than ever before, so we can expect another interesting year for this asset class. The trick to managing your crypto portfolio is to keep your capital for as long as you can while extending gains and minimizing your risk. Follow the tips above and this will give you a strong foundation for the year ahead.
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