Beyond BTC & ETH - building an altcoin portfolio

Jun 6, 2021

Here at Avicenna, we get many questions about ‘what else’ people should consider buying - other than BTC & ETH - after they’ve started to dip their toes into the crypto ecosystem. In a previous post, we talked about the idea of investors now being able to directly create a diversified basket of exposure to assets with asymmetric upside.

This is essentially the thesis of the Venture Capital industry - the winners win big, and the losers are easily forgotten as a result. The simple fact that we can compare the economics of crypto to the economics of an early investment in a venture-backed startup - and that everyone has access to the economics of crypto - is incredible.

The playbook

Here’s one way to think about it - would you be prepared to lose all of a $10,000 investment if making $100,000, $500,000… or potentially $5M from that single investment if possible? Your answer to this question may be yes, but this is where we believe there is a real opportunity to execute on a better playbook:

  1. Start with the total amount of money you want to allocate to this strategy
  2. Get smart about how you want to allocate (e.g., top 3 yield-generating DeFi tokens, top 10 cryptocurrencies by market cap, x-month price appreciation, etc)
  3. Decide on whether you want to be broad or narrow in your diversification (ie whether you want to allocate across 3-5, 7-10, or 10+ assets)
  4. Identify reasonable price targets for each of your selected assets
  5. Start building your portfolio

With a strategy like this, you don’t have to be right on a single asset (there are so many!), allowing you to get exposure to multiple potential upside scenarios which essentially protect you against the (very real) downside risk that comes with any of these assets. For example, Theta was a high flyer only a few months ago…

Ape in, intelligently

Allocating capital this way will increase your chances of success, and allow you to learn about these assets in a way that will improve your ability to invest in them over time. You can choose to boost your return profile by selectively doubling down (ie increasing your position) on outperforming assets over time, particularly as your knowledge and conviction improves. And if all of this seems like way too much, you can take an easier approach - albeit with less control on which assets you select and double down on over time - by taking a look at TokenSets and selecting a portfolio.

A consideration for maximalists

Consider that, for the month of April, which was a relatively neutral month for crypto, several altcoins increased in value by over 100%, while BTC was down slightly. In March, we saw five coins that increased in value by more than 500%.

May was obviously a very different month, but opportunities remain - we still saw significant increases in altcoin values (ex. $MATIC), but at a different scale and with a different set of coins hitting the top 10. The bottom line is that there is no single answer to the ‘Beyond BTC’ (and ETH) question, but there is no doubt that taking an intelligent and diversified approach to investing in this ecosystem is a great way to start building your exposure and knowledge. But let's not buy too many coins named after dogs.

Avicenna capital

crypto / fintech / macro research

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