Cryptocurrency – How to navigate this high-risk investment

*This content is brought to you by Jaltech

By Jonty Sacks*

Investing in high-risk investments such as cryptocurrencies and most other alternative investments requires a well-planned and thought-through strategy. The strategy needs to be aligned not only with the particular asset class but to the investor’s portfolio as a whole. For instance, younger investors can not only take on far more risk but the type of risk within the portfolio will vary completely when compared to a more senior investor.

Where an investor is in a position to include high-risk investments such as cryptocurrencies within his/her portfolio, the investor should consider the following approaches and principles:

Invest in large-cap cryptocurrencies

Look to invest in cryptocurrencies that have gained market adoption and as a result, have built up a significant market cap. Examples include Bitcoin, AAVE, Ether, Litecoin, Solano and Uniswap all of which have a market cap within the billions of Dollars. The importance of investing in large-cap cryptocurrencies is twofold:

  1. the probability of the cryptocurrencies going to zero is unlikely, and;
  2. once regulations globally are introduced, it’s highly likely that large financial institutions will first look to invest in large-cap cryptocurrencies thereby driving the price up.

Portfolio allocation

A typical allocation for an investor in moderate to high-risk investments is between 1% to 10% of an investor’s portfolio. Within the moderate to high-risk segment, an investor should consider what portion should be at moderate risk and what portion should be at high risk.

As cryptocurrencies fall within the high-risk portion, investors should limit their investment based on their risk allocation to high-risk investments.

For more information on Jaltech’s Cryptocurrency Basket, click here.

Investment term

Cryptocurrencies are at the early stages of adoption and tend to be very volatile in the short term but very attractive over longer periods. For an investment strategy, investors should only allocate capital that they will not need access to over the next 3 to 10 years.

Invest only what you can afford to lose

Cryptocurrencies are high-risk investments and should only form part of an investor’s portfolio that he/she can comfortably live without should the investment go to zero.

Dollar-cost average

Dollar-cost averaging is an investment strategy that involves investing a predetermined amount over a period of time, rather than investing it all at once. The strategy can help an investor smooth out the price of cryptocurrencies over a period thereby minimizing the risk of price volatility.

Diversify

Having a diversified portfolio is an important strategy to reduce the risk profile of an investment. This de-risking measure ensures that an investor is not too exposed to a single investment, should the investments underperform.

For more information on Jaltech’s Cryptocurrency Basket, click here.

Prioritize liquidity

Liquidity is the ability of a cryptocurrency to be easily converted into cash or other cryptocurrencies. Many investors make the mistake of investing in small-cap cryptocurrency in the hope that the investment increases by 10 000%+, what they fail to consider is the fact that there may not necessarily be enough willing buyers to allow the investor to exit the investment.

In my personal opinion, most investors must have some exposure to high-risk investments given their asymmetric return profile, the key is to take steps to mitigate risks. At Jaltech, we believe that we have developed a basket of cryptocurrencies that incorporate most of the principles mentioned above.

Jaltech’s Cryptocurrency Basket offers investors a diversified basket of large-cap cryptocurrencies that matures as the market evolves.

The basket provides investors with a managed cryptocurrency investment whereby cryptocurrencies will be included or excluded from the basket based on the movements and developments in the market. The inclusion or exclusion of a cryptocurrency(ies) is assessed against a clear set of criteria established by Jaltech’s team of cryptocurrency experts.

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