How to choose core holdings of a crypto portfolio?
OK, but how can an amateur investor navigate in all this drama and find solid projects without spending hundreds of hours on the research? Since core holdings consist of well-established projects, you can find them by looking at the top cryptos by the market cap.
Let’s look at the 5 years time period and compare prices snapshots from January 2015 to December 2019.
As we can see, most of the top cryptos by the market cap from 2015 were still in the top after 5 years, so we can assume that they are relatively stable crypto assets, despite a daily volatility.
Bitcoin (BTC) safeguarded the largest market cap, but ETH and XRP showed higher gains even after a long bear market of 2018–2019:
However, some newer cryptos can occasionally jump into the top due to hype and FOMO, so here is a short-list of other metrics that everybody can easily check apart from the market cap:
Here is an example. At the time of writing, TRON (TRX) and Monero (XMR) had a similar market cap with TRON being a bit higher in the rating.
An amateur investor can assume that both projects carry the same degree of investment risk. However, once we compare some basic stats, we see another picture.
First of all, Monero subreddit has been created 3 years earlier and it has twice more subscribers. Keep in mind though that the number of members can be manipulated with bots, so let’s look at the actual activity on the subreddit. At r/Monero we can see meaningful posts with many comments and upvotes like a call to use smaller mining pools for higher decentralization.
While TRON’s subreddit doesn’t have much activity and the front page is full of short educational videos with low engagement. These videos are posted by a moderator, so it looks more like an attempt to artificially create an illusion of some activity.
Next we can look at GitHub repositories of each project and see that Monero has more stars, forks, contributors, open issues and pull requests.
Of course, stars and forks can be manipulated with bots, while a high number of open issues/pull requests might mean that Monero devs are very slow at resolving them. However, when we take a closer look, we see that Monero project has much more submitted pull requests and opened issues in general.
There is an interesting tool coincodecap that tracks GitHub activity of different crypto projects, and it also rates Monero higher than TRON, even though some metrics of TRON project are actually higher.
Ask we can see, either Monero has a bigger and more active community, or TRON community uses other platforms for the communication, e.g. Chinese social media apps like Weibo, WeChat, QQ. Keep in mind though that Chinese apps can ban crypto projects at any time and that’s exactly what happened with a Weibo account of TRON’s founder.
Another important and easily accessible data is daily transactions and daily active addresses. BitInfoCharts is a great tool to compare different cryptos.
Unfortunately, TRON is not among 40+ cryptos listed on the website, but we can find TRON’s network data at tronscan. Surprisingly, the number of daily transactions is very high comparative to other major cryptos, which is usually a good sign.
However, this data can be manipulated with SPAM-transactions, especially when transaction fees are very low, so be cautious.
Obviously, this was a very simple quantitative analysis without looking into the details, but this kind of research doesn’t require any technical knowledge and can be performed by any amateur investor. Within just 15 minutes we’ve found out that TRON project is too new and risky for the core holdings of our portfolio.
Can we still hold TRON tokens?
Well, after having a quick look at wikipedia pages or coin tracking websites like coinlib or coinlore, we can discover that Monero and TRON projects have very different goals. While Monero is highly focused on privacy, TRON is a developer platform, which should be compared with projects like Ethereum and EOS, but that requires more skills and knowledge than ordinary people have, so we can make decision based only on the metrics that we have.
Of course, we still can hold some TRON tokens, but we should allocate them to a more risky portion of crypto holdings, which implies a much higher level of diversification with other cryptocurrencies like EOS, NEO, ADA, IOTA, BNB, XLM, etc.
You won’t buy stocks without any research, right? The same logic applies to cryptocurrencies. If your goal is to invest some money into cryptos for the diversification purpose, then I’d encourage you to do at least a quick research about each crypto asset that you’re planning to hold.
Now you have a better understanding of how to build core holdings of a crypto portfolio, and how to do a basic research that doesn’t require any high-tech knowledge.
If you’re new to a crypto market, then make sure to read the previous article where we’ve discussed in details how to buy cryptos using privacy-oriented platforms, when exactly to buy, and how to store cryptos.
In the next article of this series we will talk about further diversification with satellite holdings, which are the more risky part of a crypto portfolio.
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Disclaimer: I am not a licensed financial advisor, and this article is not a financial advice. The information presented here is for educational purpose only, it represents my personal opinion, and is not purported to be fact. Cryptocurrencies are very volatile and can move quickly in any direction. I’m not responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods, services or companies mentioned in this article. Seek a duly licensed professional for an investment advice.
Published at Sun, 29 Dec 2019 13:36:27 +0000
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