Tools and Resources for Crypto Investors

Despite popular belief, you don’t need to be technically minded in order to invest in cryptocurrencies, but you should spend the time to learn the basics of how they work. There are numerous resources that can be found online that detail cryptocurrencies and the blockchain, such as the Wikipedia articles for both of those subjects.

Besides those 2 articles above, you should ready yourself with a range of informational sources. For your convenience, we have compiled a great list of tools and sites that are worthy for you to bookmark.

Market information

  1. http://coinmarketcal.com: Keeping afloat of everything that is going on in the world of cryptocurrencies can be a tall order. So wouldn’t it be easier if there was some kind of calendar that you can reference when you need to? This is where coinmarketcal comes in, as it shows you each upcoming crypto event, such as product releases, exchange listings, and coin burns. You can even filter through the different kinds of events and their timeframes.
  2. http://coin.fyi: Good resource for following sites related to certain cryptocurrencies.
  3. http://cryptopanic.com: A news aggregator that can show you the different crypto news sites. Filterable.
  4. http://coinspectator.com: Yet another aggregator that contains over 100 different sources of news for cryptocurrencies.
  5. http://cowl.com: News from major cryptocurrency sites such as Coindesk and Coin telegraph in one easy to read page.
  6. http://cci30.com: Similar to an S&P500, except for cryptocurrencies. It has an index of the 30 biggest cryptocurrencies.
  7. http://eveningstar.io: This is the equivalent to the Morning Star of news, except for cryptocurrencies.
  8. http://icotracker.net: This is a good site for seeing what ICOs are due to be released to the market.

Analysis Tools

  1. http://cryptowat.ch: Excellent charting tool that gives you a wide look at the performance of cryptocurrencies across exchanges.
  2. http://coinmonsta.io/metrics: This gives you an idea of what the most shilled coins are on Twitter. It gives you a ranking of the number of tweets versus the sentiment to arrive at an overall score.
  3. http://onchainfx.com: Arguably a better version of coin market cap, as it has all kinds of information and columns that you can see. We like their segmentation filters for easy viewing.
  4. http://www.sifrdata.com/: Easy visualizations of various metrics. Most people find that their correlations are very useful when it comes to choosing the right cryptocurrency to purchase.
  5. http://iconomi.net/dashboard: This shows different kinds of EFTs from cryptocurrencies. It’s a good place to get some ideas for your investment portfolio.
  6. http://cointrading.ninja/correlation: Shows a matrix of price movement correlations between cryptocurrencies over different speeds.

Portfolio Tracking

Delta and Blockfolio are considered to be the major trading mobile applications. Most people prefer using Delta.

For desktops, there is the CoinMarketCap API in Excel that helps draw in live data from the website. Since the app is made in Excel, you can then customize it for your needs. There are a lot of different tracking sites that you can use such as AltPocket, too.

YouTube

There are not too many resources to follow on YouTube if you are after independent tips, as this site is dominated by figures such as Trevon James and Crypto nick. But there are others too that could be worth your subscription.

  • Crypto Investor: His background in finance gives this channel a much more educated and sophisticated approach, and the channel posts regular high quality content on psychology. To avoid imbalance, the channel also posts a lot of criticism about the slights that the crypto sector has experienced.
  • Coin Mastery: Coin Mastery is the channel name for Carter Thomas. Thomas claims to take a rational mid to long term strategy when it comes to cryptocurrency investing, and has been featured numerous times in other media.
  • IvanOnTech: This guy brings a programmers perspective to the investment world. He even goes through Github to explain the various programming issues that the blockchain faces.

Creating an Investment Strategy

You should not underestimate how important it is to have an actual investment strategy that can meet your goals. Think about what you want and how much tolerance for risk that you have, and put a plan into place for what your portfolio is going to look like. Consider how you will get to those goals instead of just chasing the next shiny object.

Having a strategy is crucial as it will make you slow down and think about each decision before you make them. This is will mean that each of your decisions will be made via rational thinking instead of emotion, and will make your choices more profitable over the long-term.

Setting ROI targets

To put it bluntly, too many investors who are new to industry have fantastical notions about the kind of returns and the amount of risk they are exposing themselves to.

Many people have never made an investment before cryptocurrencies, which makes them think that a 10% return in a month to be not worth their time, even though that is the ideal target that they should be aiming for.

You can see a lot of people on Reddit and other sites making their decisions based on false expectations to double their money each month. This has caused a huge amount of new investors putting too much of their money into these coins too quickly, getting their tips from sites such as CoinMarketCap with a low dollar per coin. These people are hoping that their investments will help them get out of debt quickly, or to escape a life of drudgery inside a cubicle.

For this reason, it’s important to keep the hype and sensationalism in mind when it comes to investing in cryptocurrencies. Realize that the reason why people made so much money back in 2017 was due to the market’s volatility. It wasn’t because the coins suddenly became a mainstay of investments, nor has their adoption increased. The only reason we saw such impressive gains was because people bought in due to the fear of missing out (FOMO). People are hoping to ride the bubble and sell their coins to someone else over the next few months.

We exceeded the $10k point again for Bitcoin, which hasn’t happened since the Mt. Gox hack, and it just snowballed from its hype and positivity in the market. Headline and headline came out that showed people were making millions from a relatively small sum of money. It should be noted that those returns of 10% each month are not normal; in fact, it is actually dangerous for type time of investment.

To put it into perspective, here are the returns that Bitcoin relieved since 2012:

Year

2017
2016
2015
2014
2013
2012

BTC Return

1,300%
120%
35%
-60%
5300%
150%

It’s important to keep in mind that a 10% increase with compounding interest accumulates to a 300% yearly return, which is just over 3x of your money. This might not sound like exciting to news for people who have just entered the market with dollars in their eyes. After all, some people have seen their money goes up 20x on a coin like Tron before experiencing a major price correction. Yet that 3x yearly return is better than the return of Bitcoin each year except before the market meltdown of 2017.

Due to the huge price increases of Bitcoin, investors should expect and plan for a major price correction and set realistic expectations for their crypto portfolio in the future.

Setting an ROI target

So, how do you go about setting your personal return on investment target? A good (and realistic) rule of thumb is to set a portfolio return of around 385% each year, which is amount 11.9% each month when compounding in factored in. This number is realistic as it is based on the average compounded annual growth over the last 4 years of the market.

Year

Jan 1, 2014:
Jan 1, 2017:

Total Crypto Market Cap

$10.73 billion
$615 billion

Compounded annual growth return (CAGR): (615/10.73)1/3 = 385%

A viable strategy is to hold on to the coins for a few years, but then sell part of the portfolio each December and buy back into the market at around January. You should also revaluate the coins that they have in your market, although keeping your coins for 3 years is needed to ride through the swings of the good and bad. This method should work for most people as a general guideline as it includes the years that the coins do good and bad. In the short term, you may find that your returns are under 100%, yet we are still in the opening stages for this class of investment.

Once you have established your target, you can then construct your risk profile of low and high risk coins. If you’d like to shoot for a higher CAGR than 300%, then it’s likely that you’ll need to go for more speculative options. Your target is up to you, but ensures that it’s not dependent on you getting vertical parabolic price attraction in small cap coins.

The most recent January dip showed that while core coins such as Bitcoin and Ethereum would dip a certain percentage, the altcoins would dip to often double or triple that correction. This means that it’s a very fragile market, and the kind of stupid decisions that people were making made it profitable. This bull market has its consequences. People jumped on the bandwagon before thinking about the adjusted returns of their risk. The same mentality will be used to blame the deflation of the bubble, whether that finger is pointed towards Wall Street, Bitcoin Futures, or an overseas government.

No one who put money into garbage coins that have no case or utility will accept that they are responsible for their own actions. Nor will they admit that they had unreasonable expectations for the gross mispricing of cryptocurrencies.

Risk Management

Understanding your risks in cryptocurrencies can be a difficult endeavour, due to the fact that historical returns are not typically distributed, this means that tools like the Sharpe Ratio and other metrics cannot reliably be used as they were intended.  Instead, you’ll be required to consider your own risk tolerance and evaluate the amount of risk that each crypto has based on the project, team, and use case.

You can consider each crypto as having a factor of risk that encompasses the whole crypto market. Everything is inherently tied to the price of Bitcoin: if the price falls, so do other coins, and if it rises, so do the altcoins. Yet it still has its own risk tied to the value of the coin.

The risk of the cryptocurrency market is something that cannot be avoided. For example, if there is some fear and doubt (FUD) in China and this puts regulations on Bitcoin, then your choices in altcoins will go down in value along with Bitcoin. This return is essentially the risk that you are subjecting yourself to reach your goal of a market ROI of 385%. You can minimize part of this risk by looking through the coins that have the best teams or optimal market prospects. However, there is no way you can predict this 100%. You can only take the time to do your own due diligence and form a personal opinion for how risky these ventures are going to be. Look at the pros and cons of each coin and look for the following red flags:

  • Guaranteed returns
  • Float allocations that benefit the founder more than anyone else
  • Vague whitepapers
  • Unrealistic timelines
  • No clear use cases
  • Githhub that lacks code or sparse activity
  • A team that is anonymous, or difficult to find information about

While it’s true that every cryptocurrency is a risky investment, you can usually break down the market in low risk and high risk investments:

Low Risk

A low risk crypto is one that is well-established. These coins are sure to be around in the next 5 to 10 years, and will recover even in the midst of a bear market. Cryptocurrencies such as Bitcoin, Litecoin and Ethereum fall into this class, as well as Monero.

Medium Risk

Medium risk coins would be ones that are established, but have a higher risk than others. Think names like Zcash, Ripple and NEO.

High Risk

High Risk coins are anything that has come out in the last few months. Coins that have low caps, ICOs, etc. It should be noted that most cryptocurrencies are in this category, with them likely to be worthless within the next 5 years.

So how much risk should you expose yourself to? That depends on your age and life situation, yet it should also come down to your financial expertise and your experience in financial analysis and tech. So, if you are a new to the game of cryptocurrencies and don’t understand the tech behind it, then your risk tolerance should be much lower than a programmer who gets the market.

Right now, the big 3 coins are Ethereum, Bitcoin, and Litecoin. Together, each coin accounts for 55% of the total market capitalization. This means that a starting point of 50 to 70% of your portfolio in these coins would be a good start. Then you can dip into the more speculative coins as you gain both confidence and experience. But always keep about a third of those coins in safe positions. Don’t go all in on speculative coins.

Core Principals To Minimize Your Risk

Important: Invest only what you can afford to lose, and don’t have more than 5 to 10% of your net worth in cryptocurrencies.

You should have the majority of your coins in things that you have positive feelings about for a minimum of 2 years. Do not use most of your investment for day trades or trading in the short-term.

Consider the use of dollar cost averaging to enter a position. This means to invest a certain amount over several periods, instead of all at once. You can also use a downward dollar cost averaging to reduce against downward risk. For example, instead of putting in $1000 at once in a position at the market price, you can buy $500 at the market price and then apply limit orders at lower intervals. For example, $200 at 4% lower than the market price, $200 at 9% lower than market price. This means that your average cost for each acquisition can be lower if the crypto declines over the short term.

One thing that should be mentioned is to not chase a pump. It is too risky as cryptocurrencies are inefficient and unregulated. If you chase pumps on a consistent basis, ten you run the risk of losing most of your money as those decisions will be based on the fear of missing out, which is the same as gambling.

Important: Invest only what you can afford to lose, and don’t have more than 5 to 10% of your net worth in cryptocurrencies.

Think about what amount of loss you cannot accept in a position with a high risk factor, and use stop limit orders to protect against sudden crashes. Set your stop limit at around 10% above your lowest limit. Although stop limits are imperfect, they are still better than not having a strategy at all, especially in the case of a crypto meltdown. But only you can decide what coins to invest in and what bags you’ll hold at the end of the day.

Diversify your holdings across multiple coins and re-balance each of your allocations periodically. Remember to hold 1/3 of your coins into low risk holdings.

Keep some of your fiat in reserve inside a FDIC insured exchange such as Gemini. Be ready to add to your wining positions during a pullback or correction.

Keep in mind that you don’t actually make money until you withdraw your profits, so take your money out when everyone else is in their FOMO bubble. This will mean that you will sleep much better once you take out the money from your principal investment.

Portfolio Allocation

Besides thinking about your portfolio in terms of risk categories, it’s also helpful to consider what segments you are in.

Along with thinking about your portfolio in terms of risk categories described above, I really find it helpful to think about the segments you are in. OnChainFX has some segment categorizations to consider.

These segments can range from tokens that are used with applications through to stores of value such as Bitcoin.

The key point is to invest your medium and high risk selections in a segment that you understand fully, and in which you can judge the risk accurately. If you don’t understand enough about how banking works or SWIFT international layers, then don’t put your money into a coin such as Stellar. If you don’t get how a supply chain functions, then don’t put your money into VeChain.

Buffet calls this method of knowing what you have your money in “circle of competence”. Buffet invests in areas that he is comfortable with and avoids those that he doesn’t. Doing the same with cryptocurrencies could be a smart move.

It’s interesting to note that we see coin-like movements often. For example, when a coin from one segment pumps in value we will also see a related coin in the same segment increase in price e.g. Stellar following after Ripple.

Think about the historic correlations between the coins you invest in. Typically, when Bitcoin jumps in value, altcoins drop in value, at what rate depends on the type of coin. Yet when Bitcoin sees lateral movement we can see altcoins pump. If Bitcoin goes down, so does everything else.

Our Final Thoughts

This guide was written to get you to consider what return targets you should aim for with your portfolio and how much risk you are willing to take on. We also discussed what strategies you can take to mitigate those risks.

Finally, a return of around 385% might be a good starting point to work with, as this is the average CAGR over the past 3 years. You can tweak this number based on your risk appetite whilst still being realistic. What kind of crypto coins you choose need to be determined by your greed factor for above market returns. A portfolio that has 50% core holdings and 30% in medium risk and 20% in high risk coins is probably what your portfolio should look like. Newbies should aim for 70% core and 5% speculative.

Just by thinking over these things it’s possible that you’ll do better than most other crypto investors, just because most people don’t have a plan or strategy in place for their investments.

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