How to Invest in Crypto in 2022 - My Personal Strategy

Cryptocurrency is one of those investments that just never allows me to rest easy. The crypto market is so volatile that choosing to invest in it, is like choosing to bet on the direction of the wind tomorrow.

Despite the volatility and risk associated with crypto, I think an intelligent investor would be foolish to miss out on the wealth building opportunities that this exciting new landscape presents.

Many renowned investors, like Warren Buffet, probably wouldn’t agree with my statement above. They’d probably say that only a foolish investor would invest their money into something so intangible, speculative and volatile as cryptocurrencies. We obviously don’t agree on that stance, but what we can agree on, is that crypto probably has a better chance of crippling your fortune than tripling it.

That’s why I see crypto only as a high risk investment to add to an already diversified portfolio. I do think it would be foolish for cryptocurrencies to comprise most or all of your portfolio. After all, one of the most important rules of acquiring and maintaining wealth is to “protect thy capital”. It would be foolish to think that you could preserve all of your capital in the Wild West landscape of the crypto market.

I personally think that up to 5% of your portfolio should be in high risk investments, whether that’s cryptocurrency, derivatives, etc. If you’re younger, you could probably get away with up to 10%, although I wouldn’t go much higher.

I have around 10% of my overall portfolio currently invested into cryptocurrencies (at the time of writing this). Considering my age and the strategy I’ve decided to use, I feel confident investing that high of a percentage of my portfolio. The money that I use to invest in crypto is often funds I have leftover after investing into other assets in my portfolio.

The Strategy

With that said, the strategy that I’ve taken up when it comes to crypto can be boiled down to one word: SCARCITY. Since investing in any single token is like betting on the direction of the wind tomorrow, my strategy relies not on the utility or popularity of the coin, but simply on how many coins are in existence.

In large part, Bitcoin is valued at the price that it is (currently ~$22,500 or 67% less than its ATH of $69,000) because of how scarce the coin is. Since there will only ever be 20 million Bitcoins in existence, owning a singular coin or part of a coin now almost ensures you can name your price in the future (when every last Bitcoin is mined) assuming there is still demand for the coin.

While Bitcoin is an inspiration for my strategy, I only own about $5 worth. The return on investment (ROI) I anticipate from Bitcoin is not as much as the ROI I anticipate from these other alt coins.

Strategy Criteria

My strategy involves searching for alt coins that have these four criteria:

  1. SCARCITY.
    1. The cryptocurrency must be extremely scarce.
    2. Max supply of 10 million coins or less.
  2. DEMAND. 
    1. There has to be demand for the coin.
    2. If the demand doesn’t currently exist then there must be historical proof that demand existed during previous bull markets. I know (in investing) the past can’t be relied upon for the future performance, but it does provide some comfort knowing that the future could possibly repeat previous performance.
  3. LISTED ON COINBASE. 
    1. The alt coin must be available for purchase on Coinbase.
    2. Why Coinbase? Because it is the most popular platform in the US for Americans to buy and sell crypto. I think it is important that the coins I choose are readily available to the largest population of crypto users in the US, ensuring the average American crypto investor can access the market to FOMO their money into any crazy upswings that may occur.
  4. DISCOUNTED
    1. Lastly, the coin must be significantly discounted from its bull run average or ATH price.

The Perfect Coins to Test My Strategy

With these four criteria in mind, the alt coins I chose to invest in are yearn.finance (YFI) and BarnBridge (BOND). While there are others alt coins that meet the criteria I listed above, these are the only two that I chose to invest in right now. If this strategy of scarcity works, maybe in the future I will add other similar alt coins to my crypto portfolio.

So what makes YFI and BOND so attractive for my strategy?

Well, YFI only has 37,000 coins in existence and all 37,000 are in circulation. It’s previous ATH during the last crypto bull run was $96,000, while it consistently floated around the $40,000 range. The price I bought it at was around $5,500, which I believe is near the bottom of this current bear market. 

BarnBridge is attractive because its max supply of coins is 10 million, 7.1 million of which are currently in circulation. Its last bull run ATH was $52.70, while its average price was around the $20-25 range. I’ve been buying BOND since it was around the $26 range and slowly averaging down with each drop in price. The last price I picked it up for was around $2.90-3 range, significantly dropping my cost average. Over the last week, BOND has jumped from the $3 range up to $25. I expect it to drop back down, but it just goes to show you how volatile the market is and how a scarce cryptocurrency can benefit from a violent upswing in market sentiment and demand.

Of these two coins, I think that YFI will perform the best and yield me the most gains in the next bull market run. But I am excited to see if BOND proves me wrong.

Closing Remarks for You

It is important that I state that this strategy and its possibility of success is only my theory and definitely unproven. The crypto market is expected to stay in a bear market for the foreseeable future so I’m not expecting this strategy to yield significant returns in the near term. The “crypto winter” as it has been dubbed does seem to present a great opportunity to continue to acquire these alt coins at reasonable prices before the next bull run. Like my post about my M1 Finance Portfolio I will frequently return to update you of any changes (buying or selling). If there is no update to this post, you can assume that my portfolio hasn’t changed. I will also return to this post to update you on whether my strategy was a success of failure once the crypto market shifts gears in the opposite direction.

Thanks for reading! If you enjoyed this article you should check out my personal stock market strategy in my post titled, “My Long-Term Growth Portfolio.” Happy investing!

Update: Aug 2nd, 2022

I sold my YFI for a decent gain. I know…that was fast! The coin jumped up to around $12,000 and now is back on the decline. I still maintain my BOND position. I will probably wait to reenter YFI when I feel the market has is at the bottom, which probably won’t be awhile considering the crypto and stock market seem to move in the same direction and the stock market has had quite a run in the few weeks (which I think will end up being a large bull-trap). Look forward to updating everyone in the future.

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