The 5 Coin Portfolio for Best Risk Adjusted Returns: The Ultimate Beginner’s Guide to Building a Conservative Crypto Portfolio:

Oct 6

6 min read

If you’re just getting into crypto, welcome to one of the most exciting (and sometimes nerve-wracking) investment worlds out there.

Crypto can feel overwhelming, but don’t worry. You don’t need to dive into obscure coins or risky trades right away. In fact, starting with a conservative portfolio of well-established coins is a smart way to learn the ropes and protect yourself from wild volatility.

Building a Beginner-Friendly Crypto Portfolio

In this guide, we’ll walk you through how to build a beginner-friendly, conservative crypto portfolio using Bitcoin (BTC), Ethereum (ETH), Solana (SOL), and Near Protocol (NEAR) and (AVAX). These coins give you a good balance between stability, growth, and exposure to innovative new blockchain technologies without going too deep into the riskier side of the market.

Why Focus on a Conservative Crypto Portfolio?

Even though crypto is known for its crazy price swings, not all coins are created equal. Some, like Bitcoin and Ethereum, have been around long enough to gain a reputation for being relatively stable. A conservative portfolio doesn’t mean you’re immune to risk, but it does mean you’re focusing on more established, trusted projects that are less likely to collapse overnight.

KEY TO SUCCESS

Allocating Your Portfolio

Here’s a suggested allocation strategy to keep your portfolio conservative while allowing exposure to different parts of the crypto market:

Solana (SOL)
- Narrative: High-speed blockchain designed for scalability, supporting DeFi, NFTs, and dApps with low fees and fast transactions.
- Tokenomics: Inflationary with an initial supply of around 500 million SOL, but token burns reduce inflation.
- Market Cap: Usually valued over $8 billion.
- Investment Thesis: Solana’s promise of high transaction throughput (up to 65,000 transactions per second) with low fees positions it as a potential competitor to Ethereum for decentralized applications and DeFi. Its focus on scalability and speed attracts both developers and investors.

Bitcoin (BTC)

Narrative: Digital gold, store of value, and hedge against inflation.
Tokenomics: Limited supply of 21 million BTC, with over 19 million already mined. Rewards for miners halve every four years (halving), reducing supply.
Market Cap: The largest cryptocurrency with over $500 billion in market capitalization.
Investment Thesis: Bitcoin’s limited supply creates scarcity, making it a deflationary asset that appeals to investors looking for a store of value in uncertain financial markets. Its growing adoption by institutions supports the view that it will hold long-term value.

Ethereum (ETH)

Narrative: Smart contract platform, the foundation for decentralized finance (DeFi), NFTs, and decentralized applications (dApps).
Tokenomics: Ether supply is inflationary but limited by Ethereum’s shift to Proof of Stake (PoS). With EIP-1559, a portion of ETH fees is burned, making it deflationary under high network activity.
Market Cap: Second largest cryptocurrency with a market cap exceeding $200 billion.
Investment Thesis: Ethereum’s dominance in DeFi, NFTs, and its role as the world’s leading smart contract platform makes it a long-term value asset. The recent shift to PoS (Ethereum 2.0) has improved energy efficiency and will enhance scalability, attracting more adoption.
Solana (SOL)
- Narrative: High-speed blockchain designed for scalability, supporting DeFi, NFTs, and dApps with low fees and fast transactions.
- Tokenomics: Inflationary with an initial supply of around 500 million SOL, but token burns reduce inflation.
- Market Cap: Usually valued over $8 billion.
- Investment Thesis: Solana’s promise of high transaction throughput (up to 65,000 transactions per second) with low fees positions it as a potential competitor to Ethereum for decentralized applications and DeFi. Its focus on scalability and speed attracts both developers and investors. This made this chain the meme coin casino last year.
Avalanche (AVAX)
- Narrative: A smart contract platform focused on high-speed, low-cost transactions, designed for DeFi and enterprise use.
- Tokenomics: Max supply of 720 million AVAX, with token burns that reduce the supply over time.
- Market Cap: Over $5 billion.
- Investment Thesis: Avalanche’s focus on speed, scalability, and decentralized finance, coupled with its innovative consensus mechanism, makes it a powerful player in the DeFi space, and will be a major play in the gaming movement. They have a partnership with Loco Esports Partnership: One of the most significant partnerships is with Loco, India’s largest esports streaming platform. This collaboration aims to bring 50 million users to Avalanche by integrating Web3 products and NFTs into the gaming experience. Loco is working on Loco Legends, an NFT marketplace targeting esports fans, which could tap into the fast-growing fantasy sports and digital collectibles markets (CryptoGlobe). And Grayscale is about top issue a AVAX trust. Both are excelllent BUll Run catalysts.

NEAR Protocol (NEAR)

Narrative: A scalable, developer-friendly Layer 1 blockchain focused on user experience, DeFi, and NFTs. Known for its sharding technology, which improves scalability. NEAR will be one of the definite AI plays
Tokenomics: Total supply of 1 billion NEAR tokens, with inflationary rewards for validators, though a portion of fees is burned, introducing deflationary pressure.
Market Cap: Over $2 billion.
Investment Thesis: NEAR Protocol’s emphasis on usability, scalability, and low fees make it an attractive platform for developers and users. Its novel sharding technology (Nightshade) sets it apart from competitors, offering significant scalability potential, while its focus on bridging and interoperability strengthens its ecosystem.

The Four-Year Cycle Theory & Allocations

When deciding on allocations between altcoins and Bitcoin, it is important to prioritize the Bitcoin cycle. The four-year cycle theory, commonly referred to as the Bitcoin halving cycle, suggests that Bitcoin's price typically experiences significant growth in a manner that aligns with the halving events happening approximately every four years. These halving events reduce the rewards miners receive for validating transactions, leading to a decrease in the rate of new Bitcoin supply entering the market. As a result, scarcity increases, potentially driving up the price due to increased demand.

When it comes to crypto portfolio allocations, investors may take the four-year cycle theory into account to adjust their investment strategies. Here are some ways this theory can affect crypto portfolio allocations:

Timing of Investments: Investors may consider increasing their exposure to Bitcoin and other cryptocurrencies leading up to a halving event, anticipating a potential price surge during the subsequent bull run.
Portfolio Rebalancing: Some investors may choose to rebalance their portfolios to allocate more funds towards cryptocurrencies during the bullish phases of the four-year cycle, aiming to capitalize on potential price appreciation. Stay BTC heavy during most phases of the 4 Year Cycle Theory
Risk Management: Understanding the four-year cycle theory can help investors manage risk by diversifying their crypto holdings across different assets based on where they are in the cycle, balancing potential returns with risk mitigation strategies.

Managing Volatility

**Dollar Cost Averaging**

Dollar cost averaging is an investment strategy where an investor regularly invests a fixed amount of money into a particular investment over a period of time, regardless of the asset's price. This approach helps reduce the impact of market volatility on the overall purchase price of the investment.

**Example of Dollar Cost Averaging:**

Let's say an investor decides to invest $100 every month in a particular stock regardless of its price.

- Month 1: Stock price is $10, so the investor purchases 10 shares.

- Month 2: Stock price drops to $5, so the investor purchases 20 shares.

- Month 3: Stock price increases to $15, so the investor purchases 6.67 shares.

- Month 4: Stock price remains at $15, so the investor purchases 6.67 shares again.

By consistently investing the same amount each month, the investor ends up buying more shares when the price is low and fewer shares when the price is high. Over time, this strategy can help smooth out the average cost of the investment.

Benefits of Dollar-Cost Averaging:

Reduces the impact of market volatility on your investments
Helps to avoid making emotional investment decisions based on short-term market fluctuations
Allows you to consistently invest over time, regardless of market conditions

Importance of Regular Rebalancing:

Ensures that your portfolio remains aligned with your risk tolerance and investment goals
Helps to maintain a diversified portfolio, which can reduce risk
Allows you to capitalize on buying low and selling high by adjusting your asset allocation

Conclusion

Allocation plays a crucial role in controlling volatility in the crypto market by offering diversification, risk management, stability, and growth potential. By spreading investments across multiple cryptocurrencies, investors can better navigate the unpredictable nature of the market and optimize their chances for long-term success.