Don’t invest in altcoins with big market caps. No, seriously. You’re missing profits and sleeping worse.
Ocassionally colleagues in the field ask me about putting some money into projects like Tezos (XTZ), Chainlink (LINK) or Cardano (ADA). My inner self never says ‘NO!’ fast enough. Personally I don’t have anything against these projects (I didn’t researched them deep enough & don’t even have the time), but overall I don’t like to overcomplicate things excessively.
And this is not a rant against exclusively the three coins mentioned above. I have the same problem with the 100% of the coins listed in the first top #50 of Coinmarketcap (from now onwards CMC).
And yes, (maybe) these mentioned beforehand are good projects. Regarding the top #50, I like many of them. But can’t avoid to mention that there’s a lot of shitcoins with 0 long-term value (not gonna say names).
Then, what’s the problem?
Yes, simple as that.
In a concise & clear sentence:
The risk that you’re taking when ‘investing’ in these coins are not worth Vs. Bitcoin.
Because even considering myself as a ‘altcoin player’, the risk that you’re taking from a security perspective when you invest in the top #50 of CMC isn’t worth the risk compared with Bitcoin. In most cases YOU’RE BUYING OVERPRICED STUFF.
Don’t get me wrong. As I’m talking exclusively about financial returns here and the viability of a hypothetical return of investment. Not talking about tech, community or other factors, I’m sure many of these projects in the top 50 are doing amazing things.
I’m putting in perspective the security of Bitcoin as a Investment vs. the remote possibility of a bigger % in terms of ROI.
In most cases, long term you’re better focusing only on Bitcoin.
Let’s play with some percentages:
Imagine that I offer you one of the following two options (you can only select one).
- A ~95% possibility of getting a ~500% return.
- A ~70% possibility of getting a ~1000% return.
The outcome If the odds aren’t on your side is that you lose the 100% of your investment.
What do you choose?
I’m sure that at least ~80% of readers would select the first option; because a 500% return is ‘nice enough’ with almost a 100% guarantee.
Instead, it’s true that a 1000% it’s ‘a lot more’ (the double, in fact), but it’s really worth it to sacrifice almost a ~30% of the overall success rate in exchange?
The easy answer is ‘NO!’ because the pain of losing all the money would be very big. For that reason most people would play ‘safe’ and select the first option.
But what would happen If I would offer the option to distribute your portfolio between the two options? Things would change dramatically, right?
If that scenario would be feasible, I’m sure (In fact is what I personally would be doing) that I’m allocating like 60-80% of my overall portfolio in the first option & the remaining 20-40% into the second.
With that approach I’m ‘guaranteeing’ myself a big chunk of profits with the first option, while chasing aggressively a greater return with the other. If something fails, well, that’s life.
In case that you still don’t get my analogy, the first option represents a possible outcome of investing in Bitcoin, while the second represents the possible outcome of investing in altcoins with a big market capitalization.
…instead I offered you two other options?
- (Again) A ~95% possibility of getting a ~500% return.
- A ~60% possibility of getting a ~5000% return.
Things are similar if we are limited to choose a single scenario (most people will keep preferring the ‘moderate’ option).
But again what would happen If we allow investors to spread their portfolio?
Now things change dramatically.
Because ‘only’ a 10% portfolio allocation in the second scenario is enough to unlock life changing gains without sacrificing the overall health of the portfolio if things doesn’t go as intended.
Sacrifice a ~10% success rate in favour of +500% gains (vs. the second option of the first two possibilities) don’t think it’s a bad deal at all. You can easily compensate the risk allocating a lesser % of your overall portfolio.
In summary; whereas before we were allocating a max cap of 20-40% to the ‘risky’ scenario, now we can play with a 10% allocation without sacrificing potential gains (in fact we’re doing the opposite, we’re securing profits).
In that case the first scenario still represents Bitcoin, but in the second case I’m talking about investing in microcaps. You’re (not necessarily) not taking a much higher risk vs. other higher ranked alts, but you’re opting to massive gains.
In my humble opinion. This is how you invest in altcoins properly. You’re willing to take the risk? Do it properly. You’re not? Stick with Bitcoin & don’t be greedy.
The best of both worlds: invest in altcoins seasonally, hold Bitcoin as a hedge.
When talking about high volatility investments like Bitcoin & altcoins, we need to balance properly our portfolio & watch out how we’re exposing ourselves.
I’m not going to discuss the long term viability of bitcoin as a investment, as I consider it as ‘sound money’ and a great hedging asset. What I consider DAILY is the viability of other alts vs. bitcoin.
A altcoin project can be very promising. But at the end ‘the promises’ are nothing if (from a financial perspective) it underperforms vs bitcoin. Don’t disrespect Bitcoin in that sense. The learned lesson can be very expensive if you’re not willing to accept your own mistakes. It’s never late.
Hope you enjoyed the reading. Do you invest in altcoins? Have you been doing well so far? Tell me below in the comments!
You can also tell me what are your thoughts through Twitter.