How I Protect my Portfolio With this Simple Strategy

Dennis

November 20, 2023

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Welcome to another Crypto Weekly Digest brought to you by VirtualBacon.

In the midst of a turbulent market, characterized by a significant short-term correction, it's more important than ever to share insights on effectively navigating these choppy waters. In today's discussion, we're diving into my personal strategy for engaging with a volatile market while maintaining stability during these downturns. Managing a portfolio in such uncertain times can be challenging; it's about striking that perfect balance between seizing growth opportunities and safeguarding against potential losses. We’ll focus on my straightforward three-tier portfolio strategy, designed to minimize fear of missing out during surges and provide a safety net when the market takes a dip. Let's explore how to keep your investments secure yet flexible in these fluctuating times.

Portfolio Strategy

Let’s delve into my three-tier crypto portfolio strategy, broken down into five straightforward steps. This approach is applicable across various market conditions, be it a bear or bull market, and forms the key area of a balanced investment approach. The key here is not to put all your eggs in one basket. Instead, we focus on scaling the portfolio and adjusting the percentage allocations based on current market conditions and, crucially, the performance of Bitcoin. This strategy is about responding intelligently and flexibly to the market's shifts, ensuring your investments are both secure and positioned for potential growth.

Before diving into my portfolio strategy, let's discuss the crypto money flow chart, originally by Rekt Capital.

This chart illustrates how investments typically move from fiat to Bitcoin and Ethereum, then to large, mid, and low-cap cryptos as market confidence grows. However, simply moving your entire portfolio down the risk ladder to maximize profits isn't sustainable. A market downturn can erase gains made in more volatile investments like mid and low-cap coins.

My approach modifies this money flow concept for portfolio management.

Rather than allocating all funds into one category, I adjust my portfolio's percentages across different risk levels based on current market phases. For example, during Bitcoin's breakout in late October, it made sense to invest aggressively across all risk levels due to the market's strong uptrend. But when the market shows signs of topping or uncertainty, I shift higher-risk and lower market cap assets into Bitcoin and cash, maintaining a balance between medium to long-term market exposure and short-term risk mitigation. This strategy leverages the money flow chart not for all-in investments in one category, but as a guide to diversify and manage risk effectively across different market conditions.

My Portfolio Breakdowns

Let's take a look into my current portfolio breakdowns, outlined through simple pie charts. These charts focus on broader sectors rather than specific altcoins, which often represent a smaller portion of my portfolio. It's crucial to understand that irrespective of the individual altcoins you choose, they're all heavily correlated with Bitcoin and Ethereum. A detailed analysis of my 2024 Altcoin portfolio will be shared later, but for now, the emphasis is on the overall distribution among Bitcoin, Ethereum, long-term altcoin holdings, and riskier short-term investments. This approach helps balance exposure relative to your risk tolerance, ensuring neither overexposure nor underexposure in any sector.

Aggressive Portfolio

My aggressive portfolio strategy, especially relevant for the past two to three weeks. My portfolio has consistently included 25% in Bitcoin and another 25% in Ethereum, forming half of my total investment. These have been my bedrock holdings for a long time. Additionally, 30% is allocated to long-term altcoin holdings, including assets like Solana, Chainlink, Arbitrum, Matic, and a few AI coins like Render. These are just a few examples from a more extensive list. The remaining 20% of my portfolio is designated for short-term trading. This portion is flexible, used for intraday or weekly swing trades based on market catalysts, new altcoin launches, or kept in cash for seizing upcoming opportunities.

This structure allows me to maintain long-term exposure to Bitcoin, Ethereum, and altcoins, while also being nimble with 20% of my portfolio for short-term speculative trades. Even during market uncertainties, like the recent hesitation around the 36.5k Bitcoin level, I can liquidate my short-term positions into cash. This approach balances my exposure without the fear of missing out and keeps me ready to re-enter the market or capitalize on new opportunities as they arise. This agile strategy is particularly effective in a trending market, allowing me to adapt swiftly to changing conditions.

Balanced Portfolio

In the bear market or during more uncertain times, I adopt a more balanced portfolio approach, similar to what I utilized earlier this year. This balanced strategy involves holding 25% in Ethereum and 25% in Bitcoin, with the remaining 50% distributed among various altcoins for long-term investment. This allocation reflects a shift from an aggressive stance to a more cautious one, especially pertinent if the market deviates from its current upward trend.

In such scenarios, the 20% of my portfolio previously highlighted for short-term trading and cash reserves gets reallocated into altcoins. This adjustment reduces exposure to market volatility and speculative trades, focusing instead on a diversified set of long-term holdings. This balanced approach is particularly effective during periods of market instability or bearish trends, providing a more secure and stable investment base while still allowing for potential growth through a diversified altcoin portfolio. It's a strategic shift from high-risk, high-reward plays to a more steady, long-term investment mindset.

Conservative Portfolio

For an even more conservative approach, especially relevant during sharp Bitcoin declines or heightened market volatility, I adjust my portfolio to further minimize risk. In such cases, the previously allocated 20% for short-term trading and cash reserves would shift towards Bitcoin and Ethereum, creating a new breakdown of 35% in Bitcoin, 35% in Ethereum, and the remaining 30% in altcoins held in spot positions.

This conservative strategy is designed to provide stability and security amidst uncertain market conditions. While I believe in the long-term upward trajectory of Bitcoin and the broader crypto market, this conservative allocation acts as a safeguard against sudden, drastic market shifts. By increasing my holdings in Bitcoin and Ethereum, which tend to be more stable compared to altcoins, I ensure a strong foundation for my portfolio. This approach helps in weathering market downturns while still maintaining significant exposure to potential market recoveries.

Summary

To sum up my three-tier portfolio strategy, the key is balance—I don't commit my entire portfolio to short-term trades, even in an upward trending market. The cornerstone of this approach lies in maintaining a majority of my investments in Bitcoin and Ethereum. This strategy offers a dual benefit: it allows for steady growth during market upswings and provides a safety net during uncertain times.

Having a significant portion in Bitcoin and Ethereum ensures I don't fall to FOMO, especially during volatile market phases. Even if I decide to exit short-term positions due to market instability, my long-term holdings in these more stable assets keep my investment strategy grounded and my mind at ease. At the same time, this framework grants me the agility to swiftly adapt my portfolio, particularly with the flexible portion earmarked for higher risk and quick-moving opportunities. This balanced, adaptive approach is key to navigating the crypto market's dynamics effectively.

Altcoin Market and Project Updates

Now, let's check out the major altcoin gainers and losers from the past week, and catch up on key project updates.

Best Performing Coins of The Week

Worst Performing Coins of The Week

🟠 Friend.Tech launches FriendsTech Feed, a Twitter-like global text feed where post order is user-voted based on KEY holdings.

https://x.com/friendtech/status/1725355670428651522?s=20

🟠 PancakeSwap launches its Gaming Marketplace, enabling developers to create and publish games directly on the platform.

https://x.com/PancakeSwap/status/1724774271388680276?s=20

🟠 Aave Companies plans to launch Lens V2 on Polygon, enhancing composability and features for social experiences, with existing profiles migrated.

https://www.theblock.co/post/262819/aave-companies-launches-lens-v2-on-polygon

🟠 1inch proposes converting 2,575,405 ARB tokens from Arbitrum Treasury to USDC for its DAO treasury, with 95% approval in ongoing vote.

https://snapshot.org/#/1inch.eth/proposal/0xd22d83201c9b65eb42e889ed2b6416c0e0331345ab9e9ff1f22c10495e0882f7

🟠 Uniswap Labs exceeds $1M in front-end fees in 24 days, with an annualized revenue of about $15.2M, comprising 16% of recent trade volume.

https://tokenterminal.com/terminal/projects/uniswap-labs

🟠 Aave resumes normal operations for versions 2 and 3 after addressing a security vulnerability, with no user funds impacted.

https://www.theblock.co/post/262757/aave-v3-markets-resume-normal-operations-after-security-scare

🟠 dYdX Chain's beta mainnet goes live, enabling active trading across 33+ markets, with validators and stakers earning trading fees.

https://www.theblock.co/post/262993/dydx-chain-trading-goes-live-beta-mainnet-stage

🟠 Uniswap releases an Android wallet app with a built-in swap function, now available on the Google Play store after beta testing.

https://x.com/Uniswap/status/1724443204198744508?s=20

🟠 Microsoft, Tencent, and 16 other tech giants join Consensys to decentralize the Infura network, enhancing its resilience and censorship resistance.

https://cointelegraph.com/news/microsoft-tencent-infura-network-partnership

🟠 Ethereum's EigenLayer launches second phase testnets for EigenLayer and EigenDA, with mainnet expected in 2024's first half and AVS integration later.

https://www.blog.eigenlayer.xyz/launch-of-the-stage-2-testnet-eigenlayer-eigenda/

In this newsletter, we delved into the details of my three-tier portfolio strategy, providing insight into how to navigate market fluctuations with a balanced approach. We explored how scaling investments in Bitcoin, Ethereum, and altcoins according to market conditions can mitigate risks and capitalize on opportunities. Whether adopting an aggressive, balanced, or conservative stance, the key is not going all-in or all-out but maintaining a strategic distribution across different asset types. This approach enables both long-term stability and short-term agility. As always, we also checked out the biggest winners and losers in the altcoin world, plus all the must-know project updates over the course of the past week.