A Simple Crypto Investment Strategy for Altcoin Season
The altcoin market is going ballistic right now. Since the good times won’t last forever, it is important to 1) make hay while the sun shines and 2) have a ruthless plan to take profits along the way. With this in mind, here is a simple crypto investment strategy that I am using in the current market conditions.
What is happening in crypto right now?
Before we get to the strategy, I will first give my quick thesis of what I believe is happening in the crypto market right now. I could go on about the fundamentals of bitcoin, lockdowns and money printing, corporate treasuries buying bitcoin, and so on. But I will not do this. This is because, to me, the current state of the crypto market can be summarised in three simple charts.
The first chart is the bitcoin daily chart. Looking at the chart below, we can see that bitcoin is consolidating in a range right now. Of course, this a massive price range! Regardless, bitcoin has been somewhere between $45,000 and $65,000 for about two months. My guess is that it will stay in a range for a while longer and this will frustrate many people. But when it breaks the range (up or down), we are likely to see a massive move.
If bitcoin breaks down rather than up, my feeling is that the longer-term bitcoin cycle will still remain bullish—however, the correction could hurt in the shorter term! And if bitcoin breaks up, then I expect a major rally.
Regardless of what happens in the short term, I am optimistic about bitcoin in the long term.
The second chart is the bitcoin dominance weekly chart. Bitcoin dominance is simply the percentage of the entire crypto market that is made up of bitcoin. If we look at the chart below, we can see that bitcoin dominance is in a downtrend. As I write this, it is hovering just below 50%.
If bitcoin dominance closes the week below 50% and goes lower, there is not much stopping it from breaking down towards the 40% level. If that happens, Ethereum and other altcoins could rack up strong gains versus bitcoin. Of course, bitcoin could easily bounce versus altcoins in the short term. But based on this chart, the overall trend looks more in favour of altcoins right now.
The third chart is the Ethereum vs. bitcoin weekly chart. And this is where I get more enthusiastic from a technical analysis perspective. We can see below that Ethereum has broken a multi-year trendline vs. bitcoin. It then tested that trendline, bounced back up, and is now above the previous high. This is bullish for Ethereum vs. bitcoin. It could also be good for the broader altcoin market.
Overall, these three charts lead me to this conclusion:
Ethereum and other altcoins have the potential to outperform bitcoin over the coming months—at least from the perspective of technical analysis. The major risk here is that bitcoin breaks down. If that happens, all bets are off for the next few months!
Based on the above thesis, I have devised a simple crypto investment strategy to try and extract further value from this incredible bull market. And by “extract”, I mean take profits along the way!
Crypto investment strategy
As the title of this blog post suggests, the strategy is simple. In more bearish market conditions, we have to work much harder to earn returns by trading bitcoin long and short. But for now, we are in an altcoin bull market until proven otherwise. In these market conditions, it is much easier (and usually more effective) to let the market do the work for you. So long as we are in a structural bull market, I will not be shorting bitcoin or any other digital assets.
Here is the strategy:
- I have 30 different crypto investments. I chose each of these based on a combination of technical and fundamental analysis.
- The investments are split between different sectors and market sizes for diversification.
- Each of these investments comprises 2.5% of my crypto portfolio, except for bitcoin (10%) and Ethereum (20%).
- Every Monday morning, I rebalance the portfolio back to these percentages. I may rebalance more frequently if certain coins go up too much versus others.
- If one particular altcoin has gone up spectacularly, I may rotate it out for another altcoin that has a better-looking chart versus bitcoin.
- I aim to accumulate more bitcoin through this strategy, but also take some profits in USD (using USDT).
Note: I have kept more in bitcoin and Ethereum because I view these as safer long-term investments. They are also likely to hold up better if the market turns around. While I would normally hold more bitcoin than Ethereum, right now the Ethereum chart looks considerably better.
I have equal allocations to the other 28 investments (2.5% each) because I have no idea which of these will perform best. With that said, I believe that if the altcoin market goes higher, most of these coins should perform relatively well. I also believe that different altcoins won’t all ‘moon’ at the same time.
This being the case, the effect of weekly rebalancing should help to manage risk and potentially increase returns by forcing me to buy low and sell high each week to get each investment back to the original percentage allocation.
I had considered rebalancing once per day. But I have not done this for three reasons:
- Rebalancing involves trading costs.
- Rebalancing takes a while because I have 30 different crypto investments and I do this manually.
- I am not sure if more frequent rebalancing would lead to higher returns (especially after trading costs).
Scaling out of altcoins
In the run-up of 2017, I tested a value averaging crypto investment strategy with a small amount of capital to accumulate and then scale out of 10 different digital assets. This worked out well as it forced me to take profits as the market got out of control.
So, why am I not doing this now?
In 2017, I got in the market much later in the altcoin cycle, so value averaging was the right strategy for me at that time.
But as I have discussed in both my crypto books, value averaging requires you to accumulate more crypto when prices go down, and then sell some when prices get too high. Since I have been accumulating altcoins for some time now, I will not be buying any more altcoin dips.
Instead, I will be selling 10% to 20% of each altcoin each week (including Ethereum). I will split this equally between bitcoin and USDT. The higher altcoin prices go, the more aggressively I will scale out each week.
Note: I am taking half profits in bitcoin and half in USDT because bitcoin is an asset that I want to hold forever, regardless of its short-term volatility.
Also, I do think the macro bull run for crypto could extend for a longer period of time. However, I would personally be more comfortable booking some profits in USDT for risk management purposes. This way, if there is a large drop in the shorter-term, I have the option to buy back into the market at a later date.
Spreadsheet for the strategy
I am using a simple rebalancing spreadsheet for this particular crypto investment strategy:
- The spreadsheet has a cell where I enter my bitcoin balance.
- It then has a column for each investment, along with the relevant cells that need to be filled out.
- I also use the same exchange (Binance) for this strategy to make rebalancing easier and faster.
- Each week, I adjust the % allocation to bitcoin and USDT upwards and the altcoins downwards so that the total is 100%.
If you want a template copy of the spreadsheet to use yourself, you can download one below for free. Of course, this won’t have any specific altcoin suggestions or target percentage allocations. That is all for you to decide!
The spreadsheet instructions (along with the usual disclaimers) are on the spreadsheet.