Last year when I looked at how many crypto currencies there were it was just under 2,000.
Now there are about 3,000 digital currencies being actively traded. So it seems that despite an almost year-long downtrend, crypto coins and tokens remain a popular asset class among millennials and tech-savvy Gen Xers, who typically find the barrier to entry to be relatively low. Because you can buy just a fraction of any coin, unlike stocks, anyone with any amount of initial capital can become a crypto investor. Becoming a successful one, however, could prove to be the hard part.
Investing in crypto is not that easy anymore
If you were a crypto investor back in Q4 2017, you probably felt like a genius. All you had to do was buy some Bitcoin or a bunch of altcoins, go to sleep and wake up the next morning with 2x gains. Those days are now just a fond memory in the minds of HODLers who didn’t think to cash out last December.
Knowing that dollar cost averaging when investing is wise, with most cryptocurrency prices currently resetting to their pre-Q4 2017 valuations, now could be a good time for everyone from heavily invested to the hesitant, crypto-curious to dip their toes in.
Risk management is important
Since we aren’t in a bull market, placing hard-earned capital in the right crypto coins and tokens is crucial. If you don’t have a crystal ball, it can require spending weeks doing nothing but research, reading all sorts of white papers about the technology and fundamentals of each blockchain project. Which is all fine and dandy if investing is your full-time job.
But even after going through hundreds of documents, there is no guarantee that the best crypto currencies will be the most successful in the market. In fact, sometimes a fundamentally mediocre project with an excellent marketing team behind it can prove to be an extremely profitable short-term investment.
On the other hand, a technically sound project with a solid team and great partnerships could tank in the market due to some unforeseen circumstance, a black swan event. For example, its blockchain could get hacked due to some overlooked vulnerability in the code or the CEO could suddenly quit the project. This is why it’s always wise for crypto investors to spread their risk by allocating their capital among a variety of projects.
Research pays off, sometimes
The fact that most altcoins and tokens follow Bitcoin’s price action is extremely frustrating for many investors. While the market has recently witnessed a few breakout altcoin projects (XRP, Stellar, Ravencoin), these have been few and far between.
Stellar has kept a remarkable upside trend in the overall market downtrend, mostly thanks to the project’s strong technical fundamentals. And while XRP’s price looks like it is being driven by sporadic hype cycles, the Ripple blockchain shares very similar fundamental advantages to Stellar’s–most notably, an extremely fast transaction time.
Ravencoin’s recent price increase, on the other hand, can be attributed to the anticipated future valuation of security tokens. While doing the necessary research could have tipped off some investors to allocate capital in these winning projects, the same research could have told them to invest in Lisk or Icon. While both are solid projects with strong fundamentals and respected teams, their token price action has been quite disappointing, which only goes to show that even with extensive research, constructing a perfectly profitable cryptocurrency portfolio is a challenging undertaking. This is why many new crypto investors are warming to the idea of parking their capital in the equivalent of a crypto ETF.
Is ETF investing a lower-stress option?
In the traditional investment world ETFs are considered more flexible and more convenient than index funds and are a good way to diversify traditional portfolios. Specifically a crypto ETF would be a bundle comprised of different cryptocurrencies, such as european ICO coins, or maybe the top 10 digital currencies ranked by market cap.
Investing in an ETF fund isn’t just for beginners or the more risk-averse. It can be perfect for seasoned investors who don’t have enough time or patience to sit down and do the research into hundreds of blockchain projects. Like any investment, however, patience is key. The crypto market is just like any other market, in that it moves in cycles. As the 2018 bear cycle continues, many crypto experts predict we will witness a very interesting 2019. However, the growing number of crypto funds is perhaps one of the most interesting signs that the market sentiment is slowly starting to shift towards a more bullish outlook.