My Crypto Investment Strategy

In contrary to what people might think, I’m not holding any bitcoins directly. My main focus is on mid to small cap alt coins. Higher risk, but way more potential for upside. 10x or even 100x. It takes only 2-3 winners to eliminate 10-15 losers.

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The extreme case of a small cap alt coin is an ICO. Comparable to an IPO, but an investor does not buy a stake in the company. It’s crazy how much money can be made by buying into ICO’s. Last week I bought into a promising company called Titanium and at the first day of public trading, price x 3. However, these also have the biggest risk to fail. On the other hand, if they succeed, one can make thousands of dollars.

Although I do think Bitcoin is not at the end of its bull run, I think the returns will be significant lower than smaller coins. This is rather logic due to the law of the bigger numbers. Oh, and I do think that Ethereum will close the gap with Bitcoin by the end of this year. The bitcoin supply is limited and already 80% has been mined. I think the price of 1 bitcoin might stabilize as we get closer to the 100% mark, making it way more interesting as a currency.

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Daytrade or hold for the long term? Holding of course! As my market timing tends to suck in most of the cases, I keep my hands off daytrading. Knowing your own weaknesses is a major benefit in investing.

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Now is there a way to invest in an index way, like an ordinary S&P500 tracker? At first sight, no. There is no basket of different crypto’s available to buy for diversification. Although, in my opinion, there is a way to do some indexing. By buying Ethereum or NEO (comparable, but the smaller, Chinese version), you have a broad diversification of other coins. How? Well, you could see it as a platform on which other companies build their application or idea. It can be seen as the oil making it possible for engines, machines, planes, cars… to run. I wouldn’t expect a 50x increase in a year but a solid 5-10x should be possible if the cryptomarkets keep on booming.

What would your chosen approach be?

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Crypto Cradle

Yes, you read that right. I started buying cryptocurrencies last week.

The truth is I’ve always been a bit reluctant to cryptocurrencies and their extreme spikes in price. This seemed unsustainable and the bubble would certainly burst. However, I decided to dive into the idea behind blockchain and I must say it is really interesting and innovative.

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I’ll introduce my case with an example of the air line industry:

McLaughlin says: “Many industries pay billions of dollars a year in the cost of collections through card products, so there is extreme interest in the development of alternatives that may drive costs from percents to cents.” For some industries, the removal of fees will provide a substantial boost to profits. The International Air Transport Association states that collections cost the airline industry as a whole around $7 billion a year in fees, with the majority from credit cards. Further, the industry is exposed to around $1 billion a year in fraud.

and the banking industry:

Now, a new report by consultancy Accenture and benchmarking firm McLagan suggests an area particularly deserving of incumbents’ attention. The study, using data for eight of the world’s largest investment banks, looked into the potential benefits that blockchain adoption might deliver. It found that blockchain could save these banks $8 billion to $12 billion annually and cut their operational costs by 30% per year on average.

Notice that this is only for the eight largest investment banks.

Point is, blockchain has some huge savings potential and the practical benefits are also enormous. If I want to send a money transaction from here to Singapore, it would take days to arrive and a costly fee. Even sending money in the weekend is not possible! Last week I sent something out Friday evening and it only arrived Tuesday afternoon! It is simply not acceptable that money transactions are not going on in the weekend.

Enter blockchain and its innovative theory. I’m not going to explain the whole process but in short it is a decentralized system for digital assets. This means there are no 3rd parties involved thus reducing fees to a maximum. The only thing that needs to be paid is the mining. This mining costs electricity and equipment which is the major cost to mine. However, it far outweighs the costs of a traditional system.

I’m gonna save you the explanation of how I started, but I’m gonna share the timing. Boy, could it have been worse? Reaching an all time high at $830 billion market cap of cryptocurrencies last week, it dropped towards $720 billion shortly after. Thinking this little dip would provide a good opportunity to get in, I bought for €4000 in coins. Two days later, bang, big crash! The total market cap dropped shortly to around $430 billion.

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It’s actually the 2nd time this happens to me. Remember 24th August 2015? A flash crash on the stock market happened. I started investing one week before, worst timing ever. Once again, markets cannot be timed…

So now, what does a rational investor do when prices drop? Buy more. And that’s exactly what I did. It’s one of the benefits of my stock market experience. I had to do some dollar cost averaging to lower my overall purchase price. I transferred another €7,000 from my savings account and started shopping. From that €7,000, there is currently €5,800 invested with the remaining €1,200 as cash buffer. This makes a total of €9,800 invested in the crypto market.

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At the moment of writing, the crash has partly recovered and my €9,800 is already up around €3,500. In terms of return, that’s about 35% in just a couple of days! Extrapolated to a yearly basis, this would be crazy. I have to work 2 months for this amount of money. By the end of writing this post, there can already be a big difference due to the high volatility.  Let’s hope the climb continues as from now on, but there is some rumor about expiring futures on Wall Street on the 26th of January. This might cause a new flash crash, for which I will transfer another €1,800 from my bank account. This will put the ‘just in case’ crash cash on a total balance of €3,000 but then my limit is reached. Then it’s just holding.

I truly believe in the potential of blockchain and it’s applications. That’s why I invested more than I initially intended to. I’ll quote Hitters Xu, one of the pioneers:

People seem to have misunderstandings about the ‘killer app’ of blockchain in that they think it must bring value to traditional industries as a tool. But blockchain is more than just a tool, it represents a fundamentally different way of thinking.

I know many of you might be opposed to crypto currencies, but I see it as a high risk/reward diversification of my portfolio and net worth.

I’m not gonna cover every detail in this post to keep it digestible. Expect more related posts in the future.

What’s your take on the matter?