Just when it seemed that the crypto market had finally stabilized earlier this year, the crash of cryptocurrency exchange FTX and a wave of panic selling by crypto investors followed. Understandably, many investors are now concerned about the future of their crypto portfolios, and some are looking to exit the market altogether in search of less risky assets.
In the short term, things are uncertain, especially when some of your favorite cryptos drop 20% or more in a week. However, now is not the time to abandon long-term thinking which is the key to unlocking future wealth. Here are three steps you can take to focus on the long term and become a total crypto investor.
Focus on high cap crypto
Just two cryptocurrencies, Bitcoin (CRYPTO:BTC) and Ethereum (CRYPTO:ETH) account for more than half of the entire crypto market cap. Bitcoin market cap is $320 billion and Ethereum market cap is $148 billion, making the total crypto market cap $833 billion. This is why some investors refer to Bitcoin and Ethereum as “blue chip cryptos”. Relatively speaking, these two cryptocurrencies are less risky and less volatile than other crypto markets.
Of course, these two crypto blue chips do not offer the protection and risk of stock market blue chips, but they do have a margin of safety. For example, Bitcoin has been around since 2009 and Ethereum since 2015. They have experienced sharp market drops in the past and bounced back every now and then. In contrast, new cryptocurrencies launched during the last bull market have no comeback history, so we don't know what will happen this time around.
diverse
Some investors in the crypto world like to call themselves “Bitcoin Maximalists” or “Ethereum Maximalists”. This is their way of saying that they have increased their portfolio by investing in just one cryptocurrency and under the crypto name. All other cryptos, they say, cannot offer the same risk rewards. This may have been a strategy that worked when the crypto market was very young, but in many ways it violates one of the cardinal rules of successful investing: don't put all your eggs in one basket.
In other words, variations, variations, variations. Currently, there are thousands of cryptocurrencies to choose from. Just as diversification is key to a successful stock portfolio, diversification is key to a successful crypto portfolio. If you look at CoinMarketCap's top 100 cryptocurrencies, for example, it's possible to split these cryptocurrencies into different baskets. By selecting a few cryptos from this basket, you can add fundamental diversification to your portfolio.
For example, a basket of cryptos could include all Layer 1 blockchain projects, such as Ethereum, Cardano (CRYPTO:ADA) , Solana (CRYPTO:SOL) , and Avalanche (CRYPTO:AVAX) . It is the most popular crypto with the highest market cap. Other baskets might include stablecoins, games and metaverse cryptocurrencies, decentralized finance (deFi) cryptocurrencies, and meme coins.
Focus on cryptos with proven utility
Finally, one way to develop a long-term investment mindset is to focus on proven cryptocurrencies. In the crypto world, "utility" has a very specific meaning: it refers to blockchain projects with real use cases. For example, Ethereum has a very real utility: you can trade and exchange Non-Fungible Tokens (NFT) on various markets. Ethereum also offers smart contracts, decentralized applications, and blockchain-based games.
In contrast , meme currencies like Dogecoin (CRYPTO:DOGE ) or Shiba Inu (CRYPTO:SHIB) offer little to gain. Investors buy them because they can increase in value, because they have no intrinsic value. So meme coins will be an important rule to avoid during all market downturns, because crypto only goes up in bull markets.
Avoid market hours
As a final tip, don't try to time the market. Instead of buying low and selling high, many crypto investors buy high and sell low. That is, they only participate when the market is already bubble and speculative and they make money when the market is oversold. They bought Bitcoin when it was trading at $68,000 and are now considering getting out of crypto altogether.
Instead of focusing on short-term trading profits, focus on developing a long-term mindset. By following the three basic rules above, you can better position yourself for long-term success in the crypto market.
Protector:
10 Stocks We Love More Than Bitcoin
When our award-winning analysts have stock tips, listening to them can be rewarding. After all, Motley Fool Stock Advisory , the newsletter that's been doubling the market for almost a decade*.
Investors have revealed what they think are the ten best stocks to buy right now... and Bitcoin isn't one of them. Correctly. They think these 10 stocks are better buys.
View 10 stocks
* Stock Advisor will be back from November 7, 2022
Dominic Basulto has positions in Bitcoin, Cardano, and Ethereum. Motley Fool has a position on and recommends Avalanche, Bitcoin, Cardano, Ethereum, and Solana. The Motley Fool has an open policy.