Six rules for managing crypto portfolios

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How to manage a crypto portfolio? Six rules: 1. Set objectives 2. Adjust your strategy to your financial situation 3. Balance out asset-allocation 4. Know your risk-appetite 5. Sync your strategy with your time available 6. Understand what you invest in Here's how. 🧵

Rule 1: Set investment objectives. I didn't set these for a long time and it was an expensive lesson. 22th of May 2021 $SWTH reached its ATH. My unrealised profit was a decent $8000.. If I'd taken profit. I didn't because I had no objectives. Don't make that mistake.

Setting objectives is a must. → They make it easy to take profit and cut out emotions. → They help you reflect on your behaviour when emotions take a run with you. → They help you to evaluate your investment strategy and adjust it. Please set objectives.

How to set objectives? → Have a purpose for spending profits such as wiping a mortgage debt clean. → Decide if you want to grow your portfolio value in USD, ETH, or BTC. Knowing your objectives will improve your decision making unregarded of market conditions.

Rule 2. Adjust strategy to your financial situation. Few people can live from their crypto investments. Their main source of income are their jobs. What's left after monthly recurring expenses is available capital to invest in crypto. In my case that's 15 % of my income.

Never do I invest more than 15 % of my monthly income into crypto. If my monthly income or portfolio value increases or decreases I'll evaluate and adjust. So should u. If you're investing without a decent financial plan, you're not set up the right way. Reassess.

Rule 3. Balance out asset allocation. Many influencers say something like this: → 50% blue chips → 30% stables → 20% high-risk It's not ill advice. But, it's WHAT your portfolio should look like, not HOW to locate assets. "How" is more interesting right?

How I choose asset allocation is based on these questions: → What's my portfolio's exposure to asset classes? → What's are timeframes of my investments? → What are the fundamentals of my investment? Let's look at them one by one.

Exposure to asset classes. Last years multiple assets classes originated from blockchain technologies: → Blockchain infrastructure → DeFi → NFTs → GameFi (guilds) → Crypto ETFs The question.. How do you diversify your portfolio's exposure to these classes?

Unregarded of the asset class, understanding it comes first. Building exposure second. How so? Knowing which trends and factors drive sector growth and which metrics are important is key. If you don't, you're throwing darts hoping to hit the bullseye without aiming.

If you know sector trends, metrics and predicted growth you can strategise allocation. My rule of thumb for asset allocation? Proven asset classes < emerging asset classes Simply because trends, metrics and forecasted growth are more reliable for proven asset classes.

Timeframe of investment. Simply put, it's is the period of time of holding an asset in your portfolio before cashing it out. If that period is long, the impact of bearish markets on your portfolio are less meaningful. General rule of thumb is you can take more risk.

However most crypto projects are low timeframe investments. Many won't survive bearish markets. Do you have lots of low timeframes investments in your portfolio? Be smart and take profit regularly. Otherwise bearish markets will severely impact your success ratio.

Fundamentals. Success ratio is also a result of solid fundamentals. To judge them I like to look at these three indicators: → The platform infrastructure is open-source → Consistent user adoption and retention rates → Historical performance of price action

Why these indicators? Historical price action tells you if projects can weather bear markets. If they have, + have maintained user adoption and retention, + the platform infrastructure is open-source, You're investing in long term ecosystem plays. DCA is the way to go.

Rule 4. Risk appetite, don't bite off more than you can chew. Risk appetite is the willingness expose your portfolio to three types of risks to make a profit. What risks? → Systematic risk → Unsystematic risk → Asymmetric risk Let's look at them.

Systematic risk is driven by macro events and developments: → Monetary policies of central banks → Black swan events like covid → The Ukraine War Systematic risks impact all markets and asset classes. Currently, we're witnessing systematic risks playing out.

Unsystematic risk is sector and company specific and driven by high levels of uncertainty. Think of: → Newly forked blockchains or crypto projects → Algorithmic stable coins 👀 They require lower risk appetite because they can shit the bed over night. (Hello $LUNA)

Asymmetric risk is defined by the imbalance between the potential loss of investment vs. the potential profit. Think of making 10K with $100 at risk. Many people see all their investments as asymmetric risk plays. They're wrong ending up being overexposed to shit projects.

So how do you use these types of risks to define your risk-appetite? It's a personal preference: I'm more risk averse meaning I only expose a little percentage of my portfolio to unsystematic and asymmetric risk. I take profit regularly on these investments.

Check your portfolio and make up your risk-appetite. Is your appetite for risk low, but the majority of your investments exposed to unsystematic risks? Don't be a hero. → Downscale that percentage → Take profit regularly → Allocate profits in solid crypto projects

Rule 5. Your time available determines your investment strategy. Time is the most valuable currency we have. → It can only be spent once → It's impossible to get back → You always need more of it So how does this impacts your investment strategy?

Well, managing your investments requires time. Be brutally honest with yourself.. Do you have time to actively monitor all your investments? If the answer is no, you must adjust your investment strategy to the time you have available. Otherwise you're not in control.

Sometimes not being in control is the best thing that can happen. Not when it comes down to your investments. Being in control of your investments is a state of mind. That's why your investment strategy must be in sync with your time available.

What happens if you don't? You'll end up in a nasty state of mind: → Constantly checking token prices of your project → Adding more and more projects to your portfolio → Emotion driven decision making. Your investments will manage you. Don't let that happen.

Rule 6: Understand what you invest in. Since blockchain projects are essentially tech products, does that mean you must know how to code? Nope. But you should understand basics. Example: if you invest in L2 projects, at least get familiar with how the tech works.

Why is it important understanding basics? Here's my personal example. I was new to DeFi in the summer of 2020 and didn't educate myself on how yield farming worked. Never cared or spent time to read about impermanent loss. Turned out to be a stupid thing to do.

I provided liquidity to the FLM/ETH pool on Flamingo Finance. When I removed liquidity, magic had happened. My ETH had become significantly less and my FLM increased a lot. Net Loss? 0.5 eth. About $1035 at the current rate.

The lesson I learned is simple: If you can't explain the basics of how protocols or the underlying tech work.. You don't have the knowledge to manage your investment. Educate yourself first, invest later. That's it.

These six rules are not set in stone. But.. They are great instruments to create a successful investment strategy tailored to your personal life, goals and risk tolerance. Cherry-pick what you like and do let me know if you miss rules or have a different approach!