I’ve been spending a lot of time recently learning about and investing in crypto. It’s been a bumpy ride, but I’ve now settled on an approach that I’m happy with. I hope that by sharing this, it’ll be helpful to others in their journey.
I’ll cover my overall goals, investing strategy, allocation and security.
What’s my goal?
Before I got into crypto investing, my investing strategy was passive, index funds. It mostly still is. Investing in crypto was my way of exposing some of my portfolio to more risk.
My first goal is therefore to significantly beat the market (S&P 500) over the next 5 years. That’s a given, or I wouldn’t be taking the extra risk.
If I was pushed to name an ROI over a defined time period – it would be 10X over five years. I appreciate this is super punchy – especially when you write it out as 1000%. 😉
Even as I write this, I realise I might need to be open to taking more risks to achieve a goal like this. That said, some crypto assets have seen exponential growth in only the last year – so, anything feels possible.
I’m not going to latch too hard onto the 10X over five years. I’ll let things play out for at least a year with my current strategy and will evaluate from there.
Crypto Investing strategy
I wish there was an S&P 500 equivalent for Crypto. Instead, I’ve had to stumble my way towards building a diverse portfolio that I can mostly forget about.
And I do mean stumble…
From investing in Bitcoin only, to also picking up some Ethereum. I then drifted into taking on a lot of small positions in stuff that I didn’t understand properly. I also went through a stage of getting lost in memecoin land. I’ve tried a lot of things and made plenty of mistakes. But, I’ve finally come out the other end with a clear strategy that I hope will be effective over the long-term – and importantly, one which suits my personality.
Bitcoin and Ethereum make up over half of the global cryptocurrency market cap – so I’ve made them nearly half of my portfolio (47%).
I have 15% allocated to other major layer one blockchains. 18% is allocated to specific assets that I’ve researched, understand and am bullish on. The remaining 20% is allocated to a number of indexes which give me broad exposure to DeFI (Decentralised Finance), Metaverse and Data (data and storage services) crypto assets – aswell as a small bet on the DAO (decentralised autonomous organisation) that runs these indexes.
Below is the more detailed breakdown of each asset as it currently stands:
The only further changes I might make is to get better coverage of some other layer one blockchains (Avalanche, Polkadot etc.) and some layer 2 blockchains (Polygon etc.). This will have to wait until I invest more into crypto because I don’t want to re-allocate and mess with the allocations I currently have.
I also now have a minimum amount that I invest in each asset. I don’t want a large, messy portfolio with alot of smaller positions. I would prefer less positions, in which I have a lot of conviction in. A minimum amount to invest in each asset helps me stay true to that.
My crypto allocation
As I mentioned above, before I got into crypto investing, my investing strategy was passive index funds (70% S&P 500, 30% FTSE UK All Share).
Over the last few months, I’ve gradually reallocated funds towards the following allocation:
- Passive Index Fund – 75%
- Crypto – 25%
This feels about the right amount of risk to take for now. It’s a decent jump into crypto investing – whilst still maintaining a strong position in my core investing strategy (passive, index funds).
The other metric I keep an eye on is what percentage of my net worth is in crypto. Currently, it’s 7%. This also feels about right for now.
I can see a scenario where these allocations are larger, but for now I want to let things play out for a while, whilst I continue to educate myself.
As I’ve moved more funds into crypto, I’ve become more sophisticated with my security.
I used Coinbase when I first started investing in crypto. Coinbase is a centralised exchange which makes it very easy to buy, sell and convert crypto.
As I wanted to invest in assets that were not available on Coinbase, I started to use other centralised exchanges too – Gate.io, Bitmart and Binance. Whilst perhaps not as slick as Coinbase, they’re all fairly easy to use.
I think using centralised exchanges is fine for most people. They’re easy to use and with two factor authentication, they’re pretty secure. The one drawback is that whilst technically your crypto assets are on the blockchain – you do not have full self custody of your funds. The exchange does.
So, the next step for me was to start holding assets in a software wallet (often referred to as a hot wallet). I chose Metamask as it’s one of the most popular and easy to use. This acts as your private key for your address on the blockchain (where your assets are). It gives you full self custody of your funds, but it’s also a big responsibility. You’re more susceptible to a hack and if you’re careless with or lose your recovery phrases, you stand to lose everything.
As I shifted more of my investment portfolio over to crypto, I started to learn about hardware wallets (often referred to as cold wallets). These store your keys on an offline device (so they are never exposed online, reducing the chance of being hacked). All transactions are done on the device itself. Of course, you still have the responsibility of self custody, but there’s a much higher level of security.
Recently I finally took the plunge and went for a Trezor Model T. I’ve now moved over 95% of my assets to it. I still use Metamask, but purely as an interface for doing transactions and to be able to view assets that aren’t supported by Trezor Suite (the software that comes with the wallet).
Hopefully the above is helpful if you’re considering your own crypto investing strategy, allocation and security.
It’s very early days for my crypto strategy and portfolio. In the three months it’s taken me to build this portfolio, there’s been alot of volatility and a couple of big crashes. To give some context, Bitcoin is down 31% over 90 days.😬 I have a well thought out strategy and a long term horizon on my side though, so I’m fine to hunker down and play the long game.
But why invest in crypto in the first place? For me, it was two fold.
Firstly, the potential return. Whilst it’s higher risk and more volatile than more traditional assets, I believe the returns will be higher over the long term.
Secondly, I’m bullish on Web 3 and decentralisation. The technology and use cases need time to mature, just like any other disruptive technology. But over the next decade I think it will eat centralisation, in the same way software ate the world.
Lastly, I just want to thank a few people for helping educate me over the last few months.
Thanks to Barry Avraam for continuing to push me to take risk (I’m naturally risk adverse) – but not for persuading me to buy FLOKI 😂
Thanks to Henrique Olifiers for letting me pick his brain when I was trying to understand new concepts.
Thanks to everyone in the INDEX DAO who has helped answer my various questions on their decentralised crypto index funds.
Thanks to the awesome content creators who have helped me educate myself on everything web 3, decentralisation and crypto – Bankless, Kevin Rose, Chris Dixon, Naval Ravikant, Balaji Srinivasan, Fred Wilson (in particular his Buying Crypto Assets article) and the Coin Bureau have all been super helpful.