🏆Building A Winning Crypto Portfolio🏆

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To Operators,

Investing in digital assets is Venture Capital with Public Market liquidity. What do I mean by that? Crypto has the possibility to deliver 1000x returns in a relatively short period of time (years) but it also stands a pretty good chance of leveling your portfolio to $0. That’s VC in a nutshell. The good news is that unlike VC you’re not locked up for 7-10 years in an illiquid startup, at any time you can send your coins to an exchange and dump a position. That’s similar to, or even better than, Public Market liquidity, they’re only open during trading hours.

This blend of performance and liquidity is something the world has never seen before, it is unique and an attribute that makes crypto special.

This uniqueness means investing in digital assets isn’t like picking stocks, a piece of real estate, buying gold, or seeding a startup. It’s a blend of all of these things.

Bitcoin as a Foundation

Bitcoin is a macroeconomic play. It is a store of value, anti-inflationary, decentralized, and transparent. It is digital gold and then much more. Bitcoin was the first cryptocurrency and carries staying power and brand recognition. It has pierced its way into mainstream finance. It leads the market and all other coins follow.

This makes Bitcoin the logical choice to use as the bedrock of any crypto portfolio. While it may not carry the insane multiple possibility of altcoins, it has strong upside potential with a firm macro outlook. As the world accepts cryptocurrency Bitcoin will lead the pack.

Altcoins as Technology

Altcoins are technology plays. As you move beyond Bitcoin the investment analog shifts from macro to VC. You’re no longer buying gold or indices, you’re investing in startups.

Crypto projects are supercharging decentralized finance, contracting, supply chain management, database reconciliation, payment remittances, cloud computing and much more. The breadth is huge but the process of selecting winners remains the same…

Successful VCs invest in 5 things:

  1. Team

  2. Team

  3. Team

  4. Product market fit

  5. Traction

Crypto projects are software and software is built by humans. To make a successful bet you need to know exactly who is building the code. What are their backgrounds? What have they accomplished before? Are they trustworthy? Just because a project has a flashy problem-statement doesn’t mean it’s worth your money.

Once you’ve cleared the people hurdle, dig into what problem the project is solving.

Ask these questions:

  • Does the world need this?

  • Is this better accomplished off of a blockchain?

  • If this is adopted by the world, who benefits?

If these questions can’t be answered, or if the answers are negative, walk away.

Last but not least we get to traction. Has the project seen success in the marketplace? Do they have active users, transaction value, contracts executed? If you believe in 1-4, this becomes less important if you’re early in a project’s life cycle. Having all 5 likely means less downside risk but you’ll probably be paying a higher price (think Seed vs. Series B).

Cash as a Hedge

The crypto market is highly correlated meaning the market moves where Bitcoin goes. If Bitcoin drops, your whole portfolio will drop. See the correlation coefficients below:

In order to protect against drawdowns you need to hedge out the correlation in your portfolio. In turn this will also reduce the portfolio’s volatility. This is best done with uncorrelated assets. I use cash.

A cash position serves two purposes:

  1. Reduces the relative magnitude of losses during pullbacks

  2. Acts as an option to add to any positions when prices become attractive (aka “buy the dip”)

Additionally, cash does not need to be negative yielding due to inflation. USD can be converted to multiple different stablecoins (USDC, GUSD etc.) and earn high single digit % annual yield via DeFi or other lending programs.

A Portfolio by the Numbers

So what does all of the above look in terms of a portfolio? Here’s how I breakdown my current allocations:

  • 95% Digital Assets

  • 5% Cash

This is an aggressive allocation as I believe we’re on the cusp of a big movement in Bitcoin and the rest of the crypto market. Previously I’ve maintained allocations that look like this:

  • 60% Digital Assets

  • 20% Emerging Markets

  • 15% Precious Metals

  • 5% Cash

Overtime I’ve concentrated into digital assets as my investment thesis changed and global macro factors changed as well.

In the current portfolio, my cash allocation will slide from 5-30% as market conditions change and it starts to make sense to take money off the table. Crypto is a nascent market which means right now it is highly cyclical in boom/bust phases. Taking cash out of the cycles will allow greater compounding when the next cycle hits.

That’s all, thanks for reading and I’ll talk to everyone on Thursday.

Forward.

– Mac


Situational Awareness


The Portfolio Rundown

Bitcoin battles back from it’s second test of support in 4 weeks to maintain the $19k level. This is largely bullish though the resistance at $20k is very strong and the chance of a pullback to the mid-low teens is still possible even if BTC puts in a new all-time high in the coming days. Look for support at $16k then down to $13k.

Crypto market largely flat since last week so no major movement in the portfolio. I do want to point out that as BTC nears an all-time high there is still lot of ground left to cover for major alts to hit similar heights. Most notably Ethereum which needs to touch $1k (close to a 2x from current levels). I think things may be quiet through the end of the year but 2021 is looking fantastic.

Share Bitcoin Operator


Nothing in this email is intended to serve as financial advice. Do your own research.


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