Xulian Follow Feb 5
· 15 min read (Any views expressed in the below are the personal views of the author and should not form the basis for making investment decisions, nor be construed as a recommendation or advice to engage in investment transactions.)
Welcome.If you are here it’s probably because you’ve started to hear your friends talking about some crypto coins and how they know of a guy that made a bunch of money buying a dog themed coin.Sorry to burst your bubble but most people lose money trading those memecoins.However, you still have hope.
In this article I’ll go through 3 different personas you might identify with to mirror your portfolio off of.Then I will talk about some of the biggest mistakes I have seen and even some that I have made in the past.
First, it is important to understand what you want to get out of the market and your investments.There are a few questions you need to ask yourself in order to have the best outcome and the least stress.Ask yourself:
What is your level of risk? Age matters.
It is not the same to gamble savings when you are in your 20s vs when you are in your 40s, 60s and so on.Define your risk tolerance.This also tells you how much you should put in.It is common to say, “only spend what you are willing to lose”, but let’s be honest, you don’t expect to lose, yet you still might.
How long are you planning on holding? This is an important question.Will you be looking at the price of your investments every day and worrying? Or do you understand that markets are volatile but in the long term the trend moves up.Top buyers in 2017 are sitting comfortably now, but many didn’t hold and realized a loss selling at the bottom.
Conviction matters.
Are you an investor or a trader? It is important to define the differences.Traders open and close positions at a higher frequency, and are less attached to their purchases.
Investors on the other hand tend to have a longer outlook and are less concerned with volatility.
Finally, are you in it for the tech? Or do you just want to get rich quick? Get rich quick schemes never end well.Participants more often than not end up getting hurt.It’s all about cashing out before the next person.As corny as it sounds, being in it for the tech has different implications.
You are exposed to something you believe in, and most importantly, you have long term conviction on the adoption of what you are buying into.If we compare this to Bitcoin, you believe that in the long term, people will use, buy and hold Bitcoin.That is to say, the price will be driven by adoption rather than speculation.
Ok, enough with the pep talk.You only want to hear what to buy, when to buy and how to allocate yourself for success.
By answering the above questions, you will be able to place yourself into one of the following roles.
I will present 3 personas: Boomer, Millennial, Gen Z .
Boomer: You are more conservative with your money and you want less risk but still are looking for exposure to this asset class.Maybe you choose to allocate between 5–10% of your net worth into this experiment.
Millennial : You are depressed knowing that you will never own a house, and you work but it’s never enough.You want to get rich and hope that there is a housing market crash so that you can finally own property because your parents said it’s the only legitimate form of wealth.You are in a medium risk category as you don’t want to go broke but are willing to stick your neck out in hopes of a change.
Banks are screwing you anyway.You go in harder with a 40–60% allocation of your net worth.Why hold fiat if it’s only losing you purchasing power?
Gen Z: YOLO.Retirement on a yacht or food stamps.
You probably live with your parents so even if you lose all of your money, you can make it back by working for two months because you don’t have that much disposable income anyway.You want high risk, high reward.You should go all in, but since we’re being conservative in this article, let’s say 80–90% of your net worth.
Yes, with a high risk appetite and very little to lose, there is no reason to not go all in on the most innovative asset class since the creation of sliced bread.
Allocation of your portfolio OK, BOOMER
Let’s begin, you will allocate between 5–10% of your net worth to crypto.You only care about the top projects since they are the most stable.You don’t care too much about the tech or fundamentals, and the concept of mining is still confusing.Proof of Stake ? Don’t even.You might do 50% in Bitcoin, 40% in Ethereum and then gamble a little with other top 10 projects because you wanna feel young again.You heard that Solana and Avalanche are Ethereum competitors, and your grandson mentioned Luna, so you allocate 10% of the stack to those three.
Boomer Portfolio Allocation.How and when should you buy?
You only buy when you see that there is a huge pull back on the news.
You aren’t a trader so you look for the easiest low risk entries.Has the market pulled back 50%? You start to DCA ( Dollar cost average ) because you understand you won’t catch the bottom, but it’s a good time to start buying.You keep it simple and don’t look at the price too often.You want to keep things low stress so that you don’t need a cholesterol pill.
STOP COMPLAINING, MILLENNIAL
You are offended that you aren’t rich yet.Maybe you bought the top of the last bull market but it wasn’t enough to retire you.Worse, it’s all sitting in XRP (Ripple) because you didn’t understand that crypto was about decentralization until now.
How will you make your parents proud? You feel smart, what you do matters, you are changing the world and your wall is filled with medals for participation.Congratulations.It seems you have a little more risk appetite, you are willing to diversify a little more and you understand there are different sectors you can buy into.You’ve heard of the terms DeFi, NFT, Metaverse and Layer 1.
Similar to the Boomer , you will buy the top projects but you will now define them by sector.Wow, smart, you might even look into other metrics too.
BTC and ETH are still here for the long term so 40% of your portfolio will go into these.You believe in the internet computer after reading The Infinite Machine so you are heavier into Ethereum.Your allocation: 25% ETH, 15% BTC.You know that the biggest gains aren’t in Bitcoin anymore, so now it’s time to get creative.Layer 1 protocols are the others you notice when you check CoinGecko ’s top 10 list.These are SOL, LUNA, AVAX, FTM, BNB, and DOT, among others.
There are too many options so you will need some help to refine your picks.You turn to Defi Llama to check the TVL ( total value locked ) as this is a good indicator of the amount of users on each chain.
There are many options here but lets focus on the top 10 non-exchange chains.These include LUNA, FTM, AVAX, SOL, MATIC, and DOT.
Getting exposure to these chains offers you exposure to everything being developed there.Treat it as if you are investing in a country, and the companies are the dApps (decentralized application) being developed on that chain.
“ Instead of applying company valuation models, layer 1 tokens should be valued as currencies of crypto nation states.” — Tascha
30% of your portfolio will be dedicated to these Layer 1 chains.There is some risk, yet great reward.
Some notable mentions that don’t appear in the top 10 on DeFi Llama but have developed great tech are, in no particular order: ONE (Harmony), NEAR and ATOM.It might be a good idea to throw them a bone too.
Next, let’s move into DeFi — decentralized finance.These are dApps that are built on different chains.Again, we can use DeFi Llama to see which ones have the most TVL and thus, the most users.
There are so many options so you will choose to focus on the ones you might have used or may have heard about from a friend.Curve is a stable swap platform.Aave is a lending protocol/money market, similar to a bank.
Anchor is a savings account.Uniswap and Sushiswap are decentralized exchanges.YFI is another savings account.
The above mentioned are multichain (apart from Anchor but plans are in the works) so that is why you picked those.Regardless of what chain wins in the end, these dApps will be on there, again lowering your risk.You choose to allocate 15% of your portfolio into these DeFi tokens because you read on Bloomberg that DeFi is innovating FinTech.In reality, deep inside, you just want to stick it to the man (either Gary Gensler or Elizabeth Warren — you can choose here).You are now a shadowy super coder and have a new medal for participation.
Finally, you have 15% of your portfolio left.
What will you do? Oh yeah, enter the metaverse.
Ever since our alien overlord Zuk decided to rebrand Facebook to Meta, there has been a boom about the metaverse.You watched Ready Player One, but you tell people that you read the book.You are ready! There has been a wave of companies getting into the metaverse and promising to spend ungodly sums of money to create the new dot com bubble.Facebook , Gemini , Microsoft , among many others are looking to spend money developing this new money printer.
This is it, you will finally get rich.But the only problem is that you don’t really know how to enter the metaverse… where is it again? Time to buy.
The top metaverse tokens according to market cap are MANA, SAND, AXIE, ENJ, RNDR and JEWEL.You only buy these top 6 because the rest becomes too obscure.You don’t want to get mugged in the metaverse, do you? You don’t know much about these projects but you figure you’d get exposure to the top ones just in case.You also saw Snoop Dogg building something in the metaverse, so it seems less risky.
Millenial Portfolio Allocation How and when should you buy?
Now that you know how you will be spending those Dollars or (insert local currency), you need to know when to buy.You know your boomer friend does some DCA after intense pull backs but you don’t have that patience.You look to ride the waves even if you are swept under by a few of them.
You will buy the dips, limiting yourself to buying only after a 30%+ dip as this is your risk management strategy.You haven’t opened a chart and you don’t care to, but you know that if there is a big pull back, it’s time to start buying.The main problem with your strategy is that bear markets in crypto tend to continue dipping.It doesn’t matter since you are in it for the long haul (3–7 years) so whenever you see a dip, you buy a little.Oh it dipped again? Buy some more.
You are applying the DCA strategy but being a little smarter about it by buying during the dips.It’s ok because if you zoom out when looking at price history, markets are UP ONLY and you have become an expert on inflation.You’d rather hold an asset that will appreciate over time versus holding fiat currencies that are losing their purchasing power.
YOLO! Mom, what’s for dinner? — Gen Z
Hey kid, welcome to the world of high volatility.20% 1-hour candles and rug pulls.
You don’t care if meme coins take up a bunch of your portfolio, and you are willing to get rugged if there is a chance you could buy a ticket on one of those billionaire dildos flying into space.You still hold GME and AMC because Roaring Kitty likes the stock.Wallstreet bets changed your life — you didn’t make money though.Bitcoin? What’s that, a boomer coin? Volatility for ants? You hold ETH because you dabble in NFTs too.Oh snap! Half of your ETH has gone to gas fees.
You are a gambler and are willing to risk it, so you might buy some of the higher risk assets.Olympus DAO offers 1000% + APY? Sign me up.You don’t buy the SAND token, you buy land in their metaverse instead.You are a visionary .Every project stuck with the concept of digital currencies are dino coins.Bye bye LTC, DASH, XMR, XRP, XLM.You got smart contracts or bust.
So how do you do it ?
Let’s break it down.
20% goes to ETH so you can pay gas fees for your illiquid JPEGs.30% goes to other Layer 1 solutions — heavy in LUNA, AVAX, FTM, and you dabble in SOL.You understand that ATOM and IBC ( Inter-blockchain Communications ) are the future and you want exposure to that ecosystem so 10% goes towards that.These include, OSMOSIS, SCRT and JUNO, try to keep up.Gabling is life so 10% of your portfolio is reserved for JPEGs and memecoins, woof.You have been known to fight right click save bros.If you don’t want that risk, you could reduce it to 5% towards this sector.
Next is Defi 2.0.You understand the value of stablecoins and love high APRs so you allocate to some of the innovators in this space.You buy OHM, ACLX, TOKE, CVX, FRX and even some SPELL because you don’t care if the Frog Nation dealt with a known scammer and criminal .You will allocate 15% toward these innovators in DeFi 2.0, turning DeFi upside down.Last but not least, you want some exposure to the world of Play to Earn and the metaverse.You allocate the remaining 15% towards SAND, AXIE, RON, MAGIC and JEWEL.None of the allocation goes towards MANA because that’s only for VCs and no one is actually using it.
You also find it cringy that millennials like MANA.
Gen Z Portfolio Allocation How and when do you buy?
You are wild, but you also read some Warren Buffett memes and know the power of buying the dip.The problem is that you’ve bought EVERY dip.Let’s fix that.I’ll talk about basic charting since you were born in the metaverse and tech is second nature.
Charting Support and resistance zones.
When you look at a chart and you are looking for support and resistance zones, you look for horizontal zones of importance.
Typically you want at least 3 touches of that zone to confirm that there is a trend.Often a trend that was resistance can later be flipped as support as we see in the middle of this Bitcoin chart.The resistance was later flipped to support and now has flipped again into resistance.You can watch how it develops in real time here .
Understanding this can give you an edge on WHEN you should be looking to buy.You want to buy at or close to support since this is where you are most likely to find local bottoms.I know you are wild and free but simply understanding the basics of horizontal supports and resistances can make your investments a lot more profitable.
Yes, supports and resistances can break as we have seen in the above chart.However, your risk reward is in a much better position when you learn this simple lesson.
Once a support or a resistance is broken, we often get a retest.
These can be on the way up or on the way down.A retest comes after crossing that support or resistance level.
Then the price comes back to that level to confirm whether or not this support/resistance still acts as a reference point.Buying the breakout retest can be the best low risk way to enter positions.On the contrary, selling the breakdown retest can be a safe way to exit or short a position.
Lessons on past mistakes To wrap it all up, there are a few lessons I wish to share about my portfolio experience in the past 4/5 years.
Over diversification
In crypto it is so easy to want to buy into every project you hear about.Everyone is innovating and promising to change the world.The problem is that during bear markets, half of these projects disappear, or these are the projects that have the worst pullbacks and then don’t recover.Having a more concise portfolio can help mitigate these risks while also giving you exposure to the different asset classes.
Lesson Learned: don’t buy every project you hear about.Try to keep the amount of tokens you hold low.
If it requires you to open a new account on a new exchange, then you probably don’t need to be buying that token.
Take Profits
It is very common to grow attached to your investments and never want to sell.
However, you should look at profit taking like taking sips from a tall glass of beer that is slowly getting filled.Take a few sips every so often so as not to let it spill over.
If the price ends up crashing, you already have already got a nice buzz going / have been able to take some profits.Otherwise you are just left with a glass that spilled, but you never got to enjoy it.You can always use those profits to earn some nice interest in DeFi and then just buy again when the price comes back down.
Lesson Learned: Slowly take profits as the price goes up.Especially after a big move, profits should be taken slow and steady, similar to how you might buy with a DCA strategy.
Don’t FOMO
Price always comes back down.
Sometimes it can feel like you missed the boat.Prices are soaring and everything looks like it will literally go to the moon.But prices will always come back down.Use what you learned about supports and resistances, use a high time frame like the weekly chart, and find an area of support to see where you might buy.Price will more often than not come back to test that zone.
Lesson learned: Don’t get caught up in the hype train.Focus on fundamentals and teams that are here for the long haul.
Paytiance
Yes, I wrote that correctly.
Patience pays.Sometimes it can feel like the market will never go back up or that it will never come back down.
Having patience will more often than not pay off.I once sold one whole BTC at 4k after buying at 3K.
Yes, I know it’s now trading around 40k… Paytiance and conviction.
Lesson learned: Have patience, conviction matters.If you did your homework then trust in your research.
Boundaries
Finally, if you aren’t trading then stop looking at the price.I was opening positions in the afternoon and would wake up in the middle of the night to check the prices on my phone.This would only add unnecessary stress for a potential reward that in no way was life changing.
The wife changing money is made in the long run.
Lesson learned: There is no reason to track every movement in the market.It will only make you stressed.Go find something more fun in life.Maybe go outside.Crypto is 24/7 every day of the year so it is important to set your boundaries.
Thank you for getting this far.You are now ready to start buying and setting up your portfolio in the world of crypto currencies.Remember though, it is not just about speculation, it is about changing the world for a more free and decentralized future.
If you want to understand better the reasoning behind choosing some of the above mentioned investments you might enjoy reading my 2022 Investment Thesis.https://medium.com/cryptostars/investment-thesis-2022-5e81ed0fa24f
Be well,
Xulian
@KingJulianIAm.
