investing in cryptocurrency
In the digital asset market, it is possible to increase capital through investments. But if you do not follow a well-thought-out strategy and make impulsive decisions, you can incur losses. The experts of RBC-Crypto told about the options for compiling a cryptoportfel in the current market conditions.
There are no safe haven assets on the cryptocurrency market where investors can sit out difficult times: absolutely all coins fly down during corrections, said Chen Limin, financial director and head of the ICB Fund’s trading operations department. He explained that in the stock market, investors can close positions on growth stocks and purchase securities, for example, representatives of the energy sector. And in the crypto market, they have to completely close positions and go into the cache.
The expert believes that the only correct option during the correction will be 100% allocation in stablecoins. Nevertheless, he suggested that if a person is just starting to recruit a portfolio of cheaper assets, then as a conservative option, you can specify the placement of funds in two assets in which market participants are really confident — BTC and ETH.
The head of the analytical department of AMarkets, Artem Deev, agreed that the conservative portfolio provides for fully protective assets, which, among cryptocurrencies, can currently only be bitcoin and Ethereum: they still have the possibility of growth in the long term.
According to the expert, the portfolio of a crypto investor during the crisis is not much different from the portfolio that a person trading on the stock market has.
“The principle always works the same: in a period of turbulence and uncertainty (not to mention pessimistic market sentiment), reduce risk, go into protective assets as much as possible. Similarly, a crypto investor should act in the same way,” says Deev.
During the decline in the capitalization of the crypto market, portfolio investment in the CFA market is a big challenge for an investor, according to Viktor Pershikov, a leading analyst at 8848 Invest. In his opinion, without hedging instruments like futures and options on digital assets, the result will be negative against the background of falling quotations.
“The high correlation of crypto assets does not allow us to diversify the portfolio qualitatively in order to minimize risks. This makes classic portfolio investing unprofitable during the decline of cryptocurrencies,” the expert says.
Pershikov explained that a conservative portfolio may approximately consist of the most capitalized cryptocurrencies, such as BTC and ETH, by 30%, stablecoins by 40%, and futures (hedging) will take about 30%.
A riskier option is a portfolio of bitcoin and Ethereum plus other top infrastructure projects, for example: Solana, Avalanche, Near, Harmony, admitted the financial director of ICB Fund Chen Limin. He noted that the example of Terra does not allow us to call the purchase of tokens even for large projects a low-risk occupation.
“Nevertheless, there is an opportunity to earn about 600% by purchasing these tokens at a discount, if the coins simply recover to their peak values from current levels. But you should be prepared that they may become cheaper by at least another 50%,” the expert warned.
A moderate portfolio is one where defensive and risky assets are relatively balanced, according to Artem Deev, head of the analytical department at AMarkets. As an example, he cites a portfolio where 50% are various “meme” assets, and another 50% of the portfolio are bitcoin and Ethereum.
According to Viktor Pershikov, a leading analyst at 8848 Invest, a moderate portfolio, as well as a conservative one, includes not only a set of cryptocurrencies, but also elements of hedging. For example, allocation in stablecoins and derivatives: mainly in short futures and put options.
Pershikov added that such an approach requires the ability to use a wide range of crypto market tools, in addition to the banal purchase of digital assets. The expert is of the opinion that during periods of falling prices, it is precisely such components that can ensure the absence of drawdowns in management, primarily due to hedging.
According to the analyst, the approximate composition of a moderate portfolio may be as follows: cryptocurrencies account for 40% of the TOP 10 assets by capitalization, stablecoins account for 30% and futures (margin trading and hedging) also account for 30%.
The cycles of the CFA market clearly indicate that any decline represents an excellent opportunity to enter the market, Pershikov noted. He believes that even during the period of falling prices, it makes sense to be in certain crypto assets.
“You can at least count on a market rebound within the framework of medium—term investment, and at most on the formation of the bottom and further upward movement, as it usually happens in the cryptocurrency market,” the expert explained.
The composition of an aggressive portfolio may consist of 50% of cryptocurrencies in the TOP 30 of the market, 20% of stablecoins, and the remaining 30% are futures (margin trading and hedging).
A risky portfolio can now be called one where most of the funds are invested in newly appeared coins, DeFi and NFT, says Artem Deev, head of the analytical department of AMarkets. He is of the opinion that the period of rapid growth of these assets is clearly over, and the prospects are extremely vague. According to the expert, most likely the coins that showed records of value growth will continue to fall no less rapidly.
ICB Fund CFO Chen Limin pointed out that very few projects from the top by capitalization in 2017 were able to survive the subsequent bear market. Therefore, it is not worth experimenting with the long-term purchase of DeFi tokens and meta/ game projects, the expert believes.
The chances of survival for such projects are initially quite low, so interaction with players who are unable to maintain demand for coins for a long time may end “quite sadly,” Limin admitted. In his opinion, it makes sense to increase the overall profitability of the portfolio by participating in the initial coin offering rounds.