The approach toward investing in cryptocurrencies and other blockchain projects depends on who does it, why, when and how. Investment portfolios of average consumers (this category potentially includes anyone who thinks about their financial future) look very different from those of an ICO angel investor. While the first will try to stay on the safe side, the second will raise the error threshold by dedicating larger funds to riskier projects.
For most users, cryptocurrency investments are similar to a solid retirement plan: they are diversified into high-risk, medium-risk and low-risk categories to produce a minimal loss in downturns.
There are many ways to diversify investments if you don’t want to go over your comfort level. Since it’s high time for testing the waters with cryptocurrency, developers are building dApps that solve these problems. The list of various investment dApps is getting longer, offering multiple ways to keep risk levels low.
Timestamping Risk Levels
A classic and safe way for beginners to start is with the low-risk Bitcoin. Decentralized dApps on the Ethereum built with Solidity development tools, for example, are more creative investment options for anyone who has mastered the basics of smart contracts.
Riskier projects take a bit more time. For many investors, the logical step is to go for the top three coins – Bitcoin, Ether and Litecoin first, and then downplay the rest of the available funds with altcoins and ICOs.
Probably the safest way is to put half of the initial cryptocurrency money into Bitcoin and “hodl”. Although this option is most like saving for the retirement, it doesn’t provide the diversity of trading options. “Hodling” is like owning a backup currency. It doesn’t bode well for short and mid-term investments, and should only be a part of a diversified portfolio. For example, the centralized cryptocurrency exchange Coinbase provides security for long-term investments by requiring double authentication and a 48-hour release period.
Another way users can diversify with medium-level risk is by trading with digital currencies that have a solid history of positive ratings for market cap indices (for example, NEO, IOTA, or Dash belong to this group) or by investing a bit of the budget in ICOs with variable representational values, for example – in utility tokens such as STORJ or in tokenized securities which resemble business shares.
If you like to limit security fallouts and be in full control of your private key, the index tracking method is appropriate for deciding on which of the private decentralized exchanges holds the most potential.
Downplay Risks with ICO Variations
Although ICO tokens pose the greatest risk levels, they potentially offer maximum ROI in just a few months or as soon as a project shows some level of success. Dedicating around 10% of the budget to high-risk projects can be smartened up by carefully investigating several criteria and gathering community feedback. For example, developers’ open code repositories, such as Github, include curated lists of valuable ICO projects and dApps built by Solidity development teams that contain useful information for investors.
One way to think of risky ICO investments is to consider them as worthwhile as you are ready to lose. Even then – no investment should be made without inspecting who is on the team of founders and developers, if they have followed through with the legal obligations and how they plan to cash out their investors.
To bring down the risk of investing in ICO startups, you can follow the example of Starta, a European-based accelerator that launched an ICO for creating a diversified portfolio of 21 promising tech startups. This is an alternative way to invest in startups if you are not a venture capitalist or simply don’t own large sums, but still want to check your venture capital skills. Mutual crypto funds offer a similar technology. Just like classic mutual investments, you can join a hedge fund that uses a diversified algorithm to work out optimal returns.
There are many inventive options for creating diversified portfolios. Interested investors get more than enough tools for tracking and comparing digital assets. There are more than fifty bullet points in an open-source community list made by blockchain professionals that can be used to understand the various ways in which Solidity development platforms and other blockchain technologies are used for dApps and smart contracts. Despite exploring multiple resources, it’s better to start safe and increase the risks as varied dApps become more stable.