Building A Crypto Portfolio

Market Meditations | August 2, 2021

Most people enter the crypto scene through purchasing their first Bitcoin. If you’re a regular reader of the Market Meditations, you’ve likely already come across our: beginner’s guide to owning your first bitcoin

For many people, a simple dollar cost average strategy into Bitcoin is sufficient. They obtain exposure to the crypto asset class and indeed the leader of the crypto asset class. Others want to take things a step further, and develop a crypto portfolio. Today, we explore characteristics of crypto portfolios. In part 2 of this topic, we will discuss different portfolio allocations.

By definition, a crypto portfolio includes a range of assets. In the crypto universe, these can broadly be categorized as:

  1. Payment Coins. It’s more rare to find coins that primarily deal in payments these days. That being said, Bitcoin (BTC), Ripple (XRP), Bitcoin Cash (BCH) and Litecoin (LTC) are examples of payment coins. Consider these the first generation cryptos that existed before Ethereum and the introduction of smart contracts.

  2. Stablecoins. Put simply, a stablecoin aims to track an underlying asset such as fiat currency. Examples include USDC and USDT. They allow users to cheaply and rapidly transfer value around the globe while maintaining price stability. Less known to market participants are the opportunities to earn passive income through stablecoin yields, for more on this check out our Passive Income Guide.

  3. Security tokens. Just like traditional securities, a security token can represent many things. It could be equity in a company, a bond issued by a project, or even voting rights. They’ve just been digitized and put on the blockchain. Security tokens fall under the jurisdiction of local regulators. As such, they must go through more rigorous review and due diligence.

  4. Utility tokens. BNB is an example of a utility token. Utility tokens are typically issued by projects in the fund raising stages of a coin offering. In theory, a token’s value should have a direct link to its utility’s value. These coins can also be used to pay for transaction fees when interacting with DApps.

  5. Governance tokens. Typical within the realm of DeFi platforms such as PancakeSwap, Uniswap or SushiSwap. Similar to utility tokens, their value should relate to the success of the underlying project. Holding a governance token can grant voting power on a project and even a share of the revenue!