Most people think of bitcoin when they talk about crypto as an investment class. Over the last few years blockchain technology has made rapid progress and so has the crypto market evolved . It becomes a daunting task to invest bescause it is something which most people are not very conversant with and secondly the asset class is very volatile.
Let’s put down some tenets for investing in Crypto?
- Bitcoin is just one part of crypto currency universe
- It’s a very volatile asset class
- We should add only a small portion of our wealth to it.
What are the various alternative to Bitcoin?
In terms of market capitalization Bitcoin is a heavy weight,if you own that you are invested in 65% of the market, but in terms of number there are more than 3000 alternate currency. Some of them have great utility and hence they are increasing in value while some are duds going up on speculation .
What we are often exposed and aware in general are about the currency which comes under the category of Cryptographic Assets
Also, with the help of this graph you would be able to understand as to where the different cryptocurrency fan under with the help of this map.
Cryptocurrency can be grouped into four main classes which are; transactional cryptocurrency, utility cryptocurrency, platform cryptocurrency and application cryptocurrency.
- Transactional Cryptocurrencies
This is the category which cryptocurrency is originally intended for. The most popular of them all is without a doubt Bitcoin. The intention of this cryptocurrency is to remove the control of of central authority and cutting out the middleman in our day to day transaction.
- Platform Cryptocurrencies
This category creates a form of bedrock that facilitates the operation of other decentralized application. Examples include Ethereum and NEO. Ethereum & NEO allow the creation of smart contract, with Ethereum being the most widely used smart contracts platform to date. Platform cryptocurrencies provide the foundation as well as buildings blocks that allows the swift development of other dencentralized apps/cryptocurrencies
- Utility Cryptocurrencies:
A utility cryptocurrency is a cryptocurrency designed for a specific purpose. Siacoin is one of the notable examples. Siacoin is designed to facilitate a decentralized storage network which is a fairly unique concept and novel application of blockchain technology.
- Application Cryptocurrencies
Application Cryptocurrencies refers to the class of cryptocurrencies that were based upon the platform cryptocurrencies
How do start Crypto Investment?
2 things I consider while investing in crypto
- To be able to diversify across multiple crypto assets
- To reduce loss if a market crash happens.
To address the first part I have decided to put 30-40% in Bitcoin and rest in other cryptocurrency which have potential. How do I find that?
As of now I am investing in 2 platforms, albeit a small amount in each
- Iconomi Platform: It is one of the first platform where multiple crypto portfolio are available where retail people can start investing from as low as 10$.
Crypto Strategies are managed by experienced investors – ICONOMI Crypto Strategies Experts. You can add funds/follow (invest) ICONOMI experts’ Crypto Strategy with just a few clicks.
While Iconomi Platform is taking care of the complexity behind the technology, users can add funds/follow (invest) in or create their own Crypto Strategies in just minutes.
Iconomi Platform provides a simple and elegant user interface while relieving the users of the complexities that deal with multiple exchange accounts, setting up complex orders, transferring cryptocurrencies from one exchange to another, trading, storage, pricing, etc., thereby providing superb user experience. Everything is done on ICONOMI platform, with you owning only one account
Crypto Strategies are a great entry point for beginners, for those who would like to invest their money into cryptocurrencies, but are not sure where to begin. That is where Crypto Strategies managed by ICONOMI Experts come in handy. ICONOMI Experts choose the cryptocurrencies and adjust the strategies depending on market conditions, while followers (investors) can sit back and track their investments anytime and anywhere.It’s like a mutual fund for crypto.
You can choose to invest in a passive index: Like a top 20 crypto or more active index.
I have invested in : Crypto crush fund by victor lai, crypto researcher and owner of a very popular crypto blog
You can register for Free here: Iconomi Platform
- Ember Fund: This is a similar fund but it has only 5 strategies. The strategy I have chosen is of Marius Kramer, very popular on Quora for answers on crypto. I might be wrong here but I thought I will give a try as he invest in very few crypto in which he is very confident .The minimum is slightly higher at 300$.
For investing in both you have to use Wazirx Free Crypto Trading Link to transfer the crypto if you are based out of India or any other crypto wallet used in your country:
Iconomi Platform accepts: USDT
Ember Fund accepts: Ether and Bitcoin
Protecting the downside Risk?
As all altcoins are highly correlated if Bitcoin goes down others will too.
To protect loss incase of a bitcoin drop I have used a hedging strategy. For this I use a platform called Deribit :
It has the highest volume of bitcoin derivative in the world:
Use the free registration link: https://www.deribit.com/reg-10727.750
Overview of the strategy:
(Actual hedging exposure depends on your investment amount and market view)
Let’s take example of 1 Bitcoin option ( approx 7 lakh)
I sell 1 Bitcoin Call option for Dec 2020 , of strike 20000 I get approx 400$(when bitcoin was 9400) = INR 30000.
For this I have to keep bitcoin margin of 10% = .1 Bitcoin ~ 75000 INR as margin.
Now 3 things can happen:
- Crypto Bull Run in next 6 months of 50-60%.How much I make
Option Premium(30k in this case) + 50% on the margin i.e 50% of 75000 = 37.5K + money in my crypto fund = 60-80% returns in next 6 months
- Crypto Bear Market of 40-50% decline
Option Premium(30k in this case) + Option Premium I make selling more option on the way down (approx 15-20k)- 50% loss on the margin i.e 50% of 75000 = -37.5K – money in my crypto fund =almost zero returns .
Also When market is at 4000 Bitcoin level I will increase my fund allocation and also sell 3000 bitcoin put (and get 20-30k premium)as at that level I want to buy more bitcoin
- Crypto bubble i.e Crypto double in 6 months
This is the riskiest as I might have to pay option loss,so what I do is I keep buying small amount of bitcoin future in deribit as market cross important levels i.e 12000,14000 etc to neutralize the change in option price(it’s called delta hedging).
I would make 100% return in my funds plus able to neutralize losses in sold call option. People who want to be more conservative can sell March 21 ,30000 level which is highly unlikely to be breached!
People should understand mechanism of options before executing this strategy else could backfire.
- Allocate small amount to crypto funds to take expsoure to crypto other than bitcoin. You can take passive approach(Index) or active(Fund).
- Iconomi Platform and Ember Fund are some of the good names. I will be adding more names in future based on my experience.
- Bitcoin exposure is taken from Deribit platform where bitcoin is used as margin and a Call (Dec or March) is sold to hedge the downside risk
- Monitor performance and if market crash sell put or add more in funds.
- If market goes into bubble delta hedge the call.