Friday, October 20, 2017

EZ Crypto Portfolio

Since I've gone full crypto a while ago, I get plenty of questions regarding investing into cryptos.

Honestly, I think that it is a very, very complicated art. It requires a lot of technical understanding and experience to make better-than-average calls on most of the niche and specialized cryptos.

However, that doesn't mean that if you don't understand it, you can't make money from it.

Take for example the ridiculous US stock market and its insane valuations. Can it go up? Yup. Can you explain why? Nope.

For anyone daring enough to venture into cryptos without first gaining a deeper understanding to the technology begin it and the tons of factors affecting it, I would strong caution them to AVOID alternative coins.

Just buying and holding bitcoins and ethereum would be a simple and easy way for most people to get exposure into crypto without taking on the multitudes of additional risks that are present in smaller crypto that these stalwarts no longer have, or have extremely low risks of suffering from.

I almost like to think of BTC/ETH as being bonds and stocks. Depending on your risk tolerance, you can adjust accordingly.

I'm 100% positive that just a simple portfolio of 50% BTC and 50% ETH will outperform the global stock market and the local stock markets. While there might be volatility, I would expect the mid term (3-5 year) returns to be exceedingly positive.

Let's run an example starting today, shall we?

Assume $10,000 SGD initial capital, USDSGD rate of 1.3600 and frictionless costs, let's start tracking.

Portfolio 1 would be the $SPY, or the S&P 500 ETF. At 255.79 USD, we can get a total of 28.746 units.

Portfolio 2 would be the $ES3, or the STI ETF at 3.38 SGD, we can get a total of 2958.580 units.

Portfolio 3 would be a simple 50/50 split BTC ETH at 5654 USD and 307.50 USD respectively for a total of 0.6502 BTC and 11.956 ETH.

Portfolio 4 (my personal pick), is a skewed 25/75 split of BTC ETH. With the same values, we can get 0.3251 BTC and 17.934 ETH.

Let me give a short primer on my crypto picks.

BTC is the big daddy of all crypto. It has the biggest and best brand name and pretty much everyone has heard of it before, though they might not actually know what it is. It is the one in all the headlines, but most importantly it is the GATEWAY crypto and all other crypto that do not trade directly with fiat will always trade with a price against BTC. This means that it is gets propped up by both fiat inflows and alternative outflows.

ETH in a very simplistic description, an upgraded and programmable BTC. It's faster, cheaper to transact and has many more applications than just simple value transfer. ETH has a large enough userbase as well as developers. I believe that it is a clear and easy pick to succeed. It has the perfect balance of significantly better technology than BTC, and also the community of users and developers to support it and push it forward.

I personally believe that ETH will take over and replace BTC within the next 2 years, especially as the usefulness and applications of ETH expands with all the development surrounding it - both on a protocol basis and dapps being built on top of it. Therefore, I have assigned a larger weight to it. I have done the same in my own actual personal portfolio.

Either way, my personal belief is that cryptos at this stage of time will be massively outperforming the traditional stock market and I have put my money where my mouth is at. I strongly do not suggest anyone to enter without knowing what they are doing. Instead, just monitor this simulated portfolio along with me and we can see how things go!

Additional note: Obviously I'm not providing back tests because it is PAINFULLY obvious (oh, so much regret) that either crypto portfolio would have massively outperformed the traditional ones. Many people believe that cryptos are in a massive bubble and its a giant ponzi scheme / fraud that will be worth nothing... soon. We'll just see about that.

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