Crypto risk management strategy

If theres one thing I observed from this past year on my crypto journey, its that crypto investment needs discipline. Too many people have burnt their hands by FOMOing into pump and dump projects. The promise of greater than 2-digit multipliers is too hard to resist.

This post is mainly about risk management and methodology has 3 fundamental pillars

Long Term growth potential

Balanced Risk Management and

Portfolio Stability

Keeping the fundamental pillars in mind, a crypto portfolio can be split into LOW, MEDIUM, and HIGH Risk, each having its pros and cons.

LOW Risk (40%)

Bitcoin (40%) is the only proven store of value. Its volatility has steadied down and it has slowly seen an upward trend in its growth. During the Black Swan event of 2020, the value of Bitcoin fell to around $4000 during the Black Swan event. However, it has bounced back to $12000. This is the safest bet in crypto with a strong positive in all the fundamental pillars.

MEDIUM Risk (40%)

This will mainly consist of proven projects with good long term potential. We will give more weightage on base-layer protocols. These are blockchains trying to solve the Blockchain trilemma of speed, security, and decentralization. The most important project which comes to mind in this segment is Ethereum. Ethereum (30%) is the most acknowledged project. Most of the popular decentralized applications are built on Ethereum. This includes gaming platforms, NFT projects and stores, and most importantly, Decentralized Finance. Every transaction in Ethereum needs Gas fees. The popularity of these Ethereum Dapps ensures that Ethereum is used in each transaction. People need to buy Ethereum to use such platforms. We have seen the gas war during the launch of the UNI token. Most corporate blockchain solutions are built on Ethereum. It also has one of the highest developer activities. With Bitcoin and Ethereum, we have covered 70% of our portfolio. Now we will dive into unchartered territories

Other Base layers — Anyone (5%) This is one area where much research is needed. No core layer has come close to compete with Ethereum. Many like Tron has lost their way. Many like Cosmos and Polkadot are showing potential. The good thing is that tokens of such projects are still cheap to purchase. A small purchase of one of Polkadot/ Cardano/ Tezos/ EOS/ Cosmos/ Algorand makes sense. Do your research and understand their trade-offs and roadmap.

Others — Dapps, Layer 2, Gaming, Privacy Coins (5%) Many projects built on Base layers have become popular, the introduction of interoperability ensures that such projects can move between base layers, in case a single base layer does not work out. A small investment in high potential projects like Enjin, Monero, Sia makes sense. Each one of them has its utilities. Check out which use case appeals more to you and you are going to use it. Purchase the tokens and start using them.

HIGH RISK (20%)

High-Risk projects are mainly purchased to gain multipliers. Such projects might or might not have long-term potential, however, they might have great concepts or huge hype behind them. The entry point of most of these projects is during the launch phase. As these are short term holds, the only policy here is to buy low and sell high. Blockchain has given rise to huge potential. Some of the newly developed/ relatively untested projects are termed under Emerging Markets.

NFTs/ Digitals Arts (5%): NFTs are now becoming popular with the introduction of Rarible, however, they have been in the ecosystem for quite some time. Digital Art platforms like SuperRare and Knownorigin are very famous. The introduction of OpenSea has also provided easy access to such assets. Enjin backed ERC-1155 NFTs have the potential to revolutionize the gaming industry. It’s always good to get a few NFTs in your wallet. Im quite sure that the first generation of NFTs will cost a lot in the coming days. The introduction of Digital Land (Decentraland, Sandbox) is a game-changer where one can gamify your land and earn passive income from the same.

DeFi (5%): Yes, I have allocated only a small %ge to DeFi tokens. The hype is over. DeFi governance tokens do not make much sense, yet. Also, the DeFi yields are slowly reducing. It’s good to have a small portion of tokens of good projects like Uniswap or Compound in your wallet. A good use case of such tokens might come up soon.

IEO/ Token Launches (10%): There is where the degens thrive! This is where the money is made or lost. This is also where most research needs to be done. Find out projects which are going to launch which will bring in innovation. If possible enter into the seed round, if not let into token launches. A safe option would be Binance Launchpads. Such projects see a rapid price rise. Be careful, always sell at your Target price. The price of such projects has the potential to fall hard after the initial rise.

Note that I am not a blockchain expert, these are my personal opinions. Please do your research before investing in any projects.

To the moon!! Thank you.