I am not a financial advisor. This is not financial advice. Cryptocurrencies are highly volatile and risky. You could lose your entire investment.
“The greatest wealth is created by being an early investor in innovation. Making that investment requires believing in something before the majority of people understand it. You will be mocked, ridiculed & criticized for your non-consensus action. It is absolutely worth it.”
Mark W. Yusko — CEO of Morgan Creek Capital Management
In early 2016 you could have bought a Bitcoin for little over $400. In early 2021 Bitcoin passed $40,000 per coin. That’s a return of 100x or 10,000 % in just 5 years. In early January of 2016 you could have bought Ethereum for under $1, in May of 2021 it passed $3000. In just over 5 years a $100 investment in Ethereum would have made you $300,000.
It pays to be early.
I am of the belief that we are still very early in the crypto market overall. We are still in a speculative phase with crypto assets being a niche market (especially anything that’s not Bitcoin). I still believe we will have several coins making returns similar to what Ethereum did from 2016 onwards. Raoul Pal, who is a former executive at Goldman Sachs, made a prediction that the total cryptocurrency market cap would surpass $100 Trillion.
Since we have the rare opportunity to make some huge returns, we should be strategic in which coins we invest in. This is most likely a once in a lifetime opportunity. Instead of leaving it to chance we would want to increase our chances as much as possible in order to maximize our returns.
The aim is to build a portfolio with quality coins based on theories that can be applied to the specific characteristics of the crypto market. Markets differ in nature so we will want to identify what separates the crypto market from other markets and what existing theories that can be applied but I will first explain what my crypto portfolio strategy is and what it is not.
The Strategy
This is a long-term strategy that is based on buying quality coins with certain characteristics that is held for years. This is the strategy in its essence:
Investing in crypto assets/coins/currencies that have the best chance to be used by the world’s largest financial institutions and/or enterprises.
There are strong reasons for this specific strategy and I will try to make a convincing argument beginning with a simple statistic in cross-border payments:
SWIFT sent roughly 430 messages per second on average YTD October 2020. The average daily volume for SWIFT is about $545 Billion where SWIFT gpi does around $300 Billion per day. That would equal to about $6.3 million per second being sent. To put this in perspective, the annual global retail remittance market was projected at $694 Billion in the year 2020. In other words, in a little over a day, SWIFT send as much money as the yearly retail remittance market.
The numbers don’t lie, retail remittance does an average of about 0.35% the volume of SWIFT. Even if a coin would capture only 1% of SWIFT’s volume, it would be like capturing three times the global retail remittance market. You can make similar arguments for other financial use cases other than just cross-border payments.
The main argument would then be that the largest financial institutions transact in much larger volumes than in retail use cases (generally speaking). The more a coin is used in real-life production, the more demand there will be for the coin and subsequently, the price should rise. Just imagine a successful coin being used by the world’s largest financial institution versus a successful coin just used for retail purposes. The difference could be huge as far as volume goes, perhaps hundreds of times more volume by the financial institutions.
References:
(SWIFT) https://www.swift.com/about-us/swift-fin-traffic-figures
(SWIFT 2) https://www.finextra.com/pressarticle/77029/swift-reports-double-digit-growth-in-message-volumes
(remittance) https://www.statista.com/statistics/982000/annual-remittance-volume-worldwide-by-type/
