Let’s talk about crypto portfolios.

If you held on to a single crypto asset since the beginning of this year, your return on investment (ROI) would be anything between -40% and 500%, depending on the crypto asset.

However, if you bought several crypto assets and created a portfolio, you could get a return on investment as high as 500% with a guarantee that you wouldn’t lose a portion of your investment, even in the worst-case scenario.

The point is, portfolios come with a significantly lower risk of losing value, and they have more guarantees of returns.

But it is important to point out that the performance is subject to their content and composition.

Before I go any further, let me cover the basics first.

The point is, portfolios come with a significantly lower risk of losing value, and they have more guarantees of returns.

But it is important to point out that the performance is subject to their content and composition.

Before I go any further, let me cover the basics first.

What is a portfolio?

A portfolio is a collection, mix, or basket of different investment assets that an investor holds with the hope of gaining from their market price changes. The collection should not be random, though.

Careful consideration has to go into deciding what assets to include and what percentage of the total each contributes.

You also have to consider how each asset has tended to perform in the past and how differently market forces affect them.

For example, how unique does each asset react when there is a threat of war. Some assets, such as stocks of weapon manufacturing companies, will go up while those in the travel business tend to lose value.

The concept of portfolio has been around since time immemorial. Investors have always thought it is a good idea to own a piece of different types of assets to minimize risk and increase the potential to earn a higher return on investment.

Over the years, creating portfolios has become some sort of science, and investors have developed and tested different strategies to create those that yield the most returns.

The concept of portfolio has been around since time immemorial. Investors have always thought it is a good idea to own a piece of different types of assets to minimize risk and increase the potential to earn a higher return on investment.

Over the years, creating portfolios has become some sort of science, and investors have developed and tested different strategies to create those that yield the most returns.

Let’s say you have $1000 to invest. You could decide to purchase investment assets as follows:Stocks worth $300

  • Stocks worth $300
  • Government bonds worth $200 bonds,
  • Mutual funds worth $300
  • Cryptocurrencies worth $200.

What you have above is a simple portfolio, and you could go to each item and create a sub-portfolio. For example, the $300 for stocks could be split to buy shares from various public traded companies.

The different assets in the portfolio are usually put there for different reasons. Some promise high returns from their high risks, while others function as a buffer against losses.

For example, a specific stock could be included because its value or price is expected to shoot up significantly.

Because it can go up significantly, it is also likely to drop significantly and wipe out value. Assets that gain a lot in a bullish market tend to lose a lot in a bearish market.

Because of that risk, government bonds and precious metals might be included to mitigate the loss if it happens.

That is because while they usually don’t gain a lot even in bullish markets, government bonds and precious metals don’t lose a lot even in their bearish markets.

The amount of each asset class that forms your portfolio has to be well thought about and analyzed based on their historical market performance, particularly growth in value and the risk levels.

So, it is important to reiterate that a portfolio is not a random collection but a well-thought-out mix of assets.

Price Correlation

At the core of deciding what asset goes into a portfolio is what is known as asset price correlation.

Because of different market forces, some assets have their prices move in the same direction while others do not.

For example, generally, the price of Bitcoin and that of Ethereum and other crypto assets move in the same direction. When Bitcoin price goes up, that of Ethereum is likely to go up and vice versa.

They are positively correlated.

Meanwhile, the price of Tesla stocks could likely go in the opposite direction with the stocks of petroleum companies.

They are negatively correlated.

Portfolios with crypto component

Today, a significant amount of crypto assets are held by mainstream investment firms as a section of their portfolio.

That means that the investment firms have in their portfolio assets like stocks, mutual funds, bonds, and precious metals, so they see crypto as another asset class they have to add to increase the potential of return on investment and reduce the risks of losses.

In the past two years, mainstream firms have been busy adding Bitcoin to their investment portfolios. The list includes:

  • Microstrategy, with Bitcoin worth over $5 billion,
  • Tesla with $2 billion, and
  • Galaxy Digital Holdings with over $700 million.

The interest from mainstream investment firms in crypto is mostly driven by the long-term positive growth in the market. The negative correlation between crypto-assets and other asset classes such as stocks, precious metals, and bonds is also driven by the negative correlation.

Portfolios made of only crypto assets

There are now, however, portfolios that are made of only crypto assets. This type of portfolio has become more viable with the growth of the blockchain space and the emergence of different types of assets on the Blockchain.

The three main types of assets on the Blockchain that investors are adding to their portfolios are:

  • Cryptocurrencies like Bitcoin
  • Tokens like Storjcoin
  • Non Fungible Tokens (NFTs)

Example of a crypto portfolio

The following is a composition of an actual portfolio that was created in January 2021:

  • Selfkey 25%
  • Klaytn 20%
  • Mantra DAO 15%
  • Morpheus Network 15%
  • Edgeware 10%
  • Xaya 10%
  • Robonomics networks 5%

Analysis

Overall, the portfolio above has grown its value by about 230% in the last eight months. At the individual level, this is how each asset has performed:

  • Selfkey has gained 234%
  • Klaytn has gained 133%
  • Mantra DAO has gained 215%
  • Morpheus Network has gained 526%
  • Edgeware has gained 5%
  • Xaya has gained 443%
  • Robonomics network has lost about 33%

While the Robonomics network asset has lost what could be a significant value if the investor had spent all the money to buy it, the losses have very little impact on the portfolio.

And that is the value of a portfolio.

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