I recently came across an exercise on an imageboard of a new junior analyst coming up with a 100k crypto portfolio which was diversified between 5 projects including one NFT project. So I decided to take this as a freeform writing prompt to be a Dollar Tree D-Core blockchain analyst for a day. Obviously nothing written here is financial advice, as with all my articles, since I am a machinist not the blockchain analyst that I play on TV.
My idea is to have some aggressive positions and some relatively safe positions. Most accredited investors would say you need to have a minimum of 20 positions to even have some semblance of a diversified portfolio, so for the sake of this drill I will have a 30% allocation to 2 aggressive highcap positions, a 60% allocation to 2 crypto “blue chips” in the large to midcap range, and a 10% allocation to a tokenized index fund to keep exposure to the top 20 by marketcap in crypto.
Position 1: Bitcoin (BTC)
There is only 1 Bitcoin and any cryptocurrency portfolio which excludes Bitcoin fails to see the long term growth still yet to come from Bitcoin. Bitcoin maintains market dominance and has the gold standard of rarity in crypto with organic knowledge about it in the public. With recent price action mining profitability is down ~10-15%, some miners in low profit margin electricity grids without travelling rig setups for their Antminers may close up shop or eat costs if they believe in the Feb/March 2022 market top theory for BTC. There are debating theories on shortening bear market cycles for BTC, but regardless this is a solid position to DCA into during monthly dips as there will likely always be a higher future exit point and yield can be earned on this asset in a variety of ways.
Risks and Challenges: The entire blockchain can be unraveled by Satoshi Nakamoto’s wallet. Governments and ESG aligned finance outfits have been aggressively against PoW crypto from an environmentalist standpoint (e.g. Sen Elizabeth Warren, China, Black Rock.) likely as a scapegoat for the threat to Modern Monetary Theory failing. Public sentiment can turn on cryptocurrency again and selling at an optimal time to keep a liquid swing trade available may prove difficult without frontrunning popular predictions.
Portfolio Allocation: 35%
Position 2: Algorand (ALGO)
If Bitcoin is the Holy Grail of cryptocurrency then Algorand is Excalibur. Many have tried to find an Ethereum killer only to be cut down by the Arch-Crypto Lich Vitalik Buterin and his yet to be evolved smart contract platform token. To pick a champion against something as powerful as Ethereum you must first say why not the other hundreds of layer 1 tokens which have tried to best ETH. Like flipping through an official program at the horse track it’s important to know the past perfomances of these ETH-Killer coins, what they are made of, what they cost to use and maintain dApps on, benefits to holding, etc.
When I put it all in Excel I really do want to bet the house on Elrond Gold based on the tokenomics and high TPS, but other than staking EGLD it really is a ghostchain like Tezos or Cardano with no notable dApps or projects to get excited about. Solana is impressive but is slightly overplayed/overvalued and as notation 3 said has some red flags in TPS and needs a comprehensive blockchain audit to make sure there isn’t a two computers pinging each other on a sidechain shenanigans going on. Algorand is not an Ethereum clone like AVAX, has good throughput for transactions, and has exciting developments with charting dApps and partnerships with governments like El Salvador who is undergoing a revolutionary monetary transformation with volcano bonds, new currencies, and government program cryptocurrency apps. Fee structure is a huge reason for adoption and HBAR, ALGO, BNB and SOL all do well here. BNB faces a long term regulatory issues as evidenced by negative sentiment on CZ readily visible across the western hemisphere. HBAR has dilution issues which will negatively impact its tokenomics for years. Algorand has staking like EGLD with options for governance without need for a seperate governance token.
Risks and Challenges: Algorand may lose momentum and become labelled a ghostchain like other would-be Ethereum killers if more developers are not willing to build on the platform. Chainlink has not added price oracles to Algorand’s blockchain is the main impediment to the mainstreaming of Algorand. Yield will be reduced overtime, which may lead yield hunters to dump their accumulated stake of Algo for higher yielding investments.
Portfolio Allocation: 25%
Position 3: Stacks (STX)
Stacks is a layer 2 for Bitcoin with a steady upward trajectory as more dApps are released on Stacks. Stacks is already being used in the City of Miami by the City Coins dApp to earn residents yield payed out in Bitcoin. There are apps for trading NFTs (nothing big like Opensea or Rarible), DEXs, and cashback apps like a Rakuten clone which pays in Bitcoin. With the growth of Bitcoin the growth of Stacks will be tied at the hip, but with some extra upside as more STX apps become mainstreamed.
Risks and Challenges: Stacks goes down when Bitcoin goes down and by more. Fails to gain more developers with innovative ways to leverage the desire for Bitcoin with the technology. Developers may decide Stacks is not needed to implement their solution.
Portfolio Allocations: 15%
Position 4: LCX
Liechtenstein Cryptoassets Exchange (LCX) is one of the most regulated exchanges in the world. Located in the principality of Vaduz and the tax/crypto friendly areas of the United States this exchange has poised itself to not only be a leading exchange in the western hemisphere, but one of the most advanced multiexchange terminals, the easiest way to place limit orders on the Uniswap DEX, a custody provider with favorable taxation zones, and a regulated tokenization provider in the EEA. LCX is limited to just under a billion tokens. LCX has undertaken new projects and token listings such as a proof of concept NFT which represents a real world asset (diamonds) called a Tiamond. Unlike PAXG which is also redeemable for its real world counterpart, the Tiamond produces TIA tokens for the NFT holder. If proven to be a successful model LCX can replicate this with all assets with unique properties requiring serialization. LCX will have the infrastructure to provide for these assets digital and otherwise. LCX holders benefit with each of these projects as the token is used to pay all exchange fees including the tokenization of new coins and NFTs. There are many upcoming onboarding programs being invented to acquire more customers.
Risks and Challenges: LCX is still volatile and currently under its Coinbase listing price. The exchange has boughts of low liquidity with some tokens not being traded for days. Hypertrader and 3Commas have some features which people appreciate over the LCX multiexchange terminal. Does not have a dust to exchange token feature like exchanges like Binance and Kucoin. The Tiamond project fails and the tokenization of real world assets fails to gain traction.
Portfolio Allocation: 15%
Position 5: C20
C20 exposes the buyer to the top twenty coins by marketcap. Cryptocurrency isn’t ready for a VTI like total market cap coin like TCAP because simply most coins are scams and not worth the bytes on the screen. C20 hyperfocuses on the best performing coins with no more than a 10% weight in any coin rebalanced every week, while this is admittedly a high risk attempt at diversification it makes it so a five position portfolio isn’t ruined by underdiversification. By not being a stablecoin hedged cryptocurrency index fund C20 avoids exposure to new stablecoin regulatory actions by Gensler.
Risks and Challenges: There are several top coins which are memes which are both volatile and subject to the whims of the crowd, which may not be rebalanced in time for the weekly sells/buys. This coin has a 0.5% fee as opposed to developing a homegrown algorithm for trading the top 20 positions which aren’t stablecoins.
Position Allocation: 10%
Honorable Mention: NFTs with Royalty Smart Contracts
This area is still emerging and no platform has shown they will be the one which attracts more artists, investors, and implements seamlessly with existing music platforms so NFT investors and artists can earn royalties from plays. I will be watching this sector very carefully into 2022.
I hope you enjoyed this have a good week everyone.